What Is All This Bitcoin Stuff?
Unless you’ve been living under a rock (which may not be that hard to do under lockdown), I’m sure you’ve heard of Bitcoin in 2021 as the price of it has skyrocketed since the beginning of the year. But, just like many people who are worrying about the economy now, do you trust it? I do. And here I am to explain what it is and why you can trust it.
What is it?
Bitcoin is the most popular of many what are called crypto-currencies. Now, I can totally understand something with “crypto” or “cyber” in the name as something digital and possibly fake or a fad. Let me assure you, it is not. It’s been around since 2009. These cryptocurrencies have value based on the limits on computer power. Just like a bank that has a ledger of transactions, that’s what these have too. This ledger is called the “blockchain.” Powerful computers have to process the changes on the ledger, and they get a small fraction of the coin as a reward for using that computer power to process those changes. Therefore Bitcoin has a limited supply just like a rare metal like gold and this is why any computer processing it is called a “miner.” So, there will never be inflation/deflation of Bitcoin. The value simply changes based on how many people are trading it, which is similar to stocks, but is not based on any single company’s revenue. This is all called “Decentralized Finance” or “DeFi” for short. There is no technical way that it can be hacked as it’s running on thousands of “miner” computers who process ledger changes, all who process the change to the entire ledger — and there has never been an error. This is way more technically reliable and safer than banks. There are certain technical reasons why one my want to use some other cryptocurrency besides Bitcoin in the way their website or app processes financial transactions, but for the sake of this article I will stick to mostly talking about Bitcoin.
Can I trust it?
Yes. Many financial institutions and merchants are adopting it as a form of payment just like they would take your credit card or your dollars. This has been increasing significantly in the beginning of 2021 with PayPal allowing Bitcoin and and Tesla accepting it to buy their cars, etc. While the price may seem extremely volatile when you look at a graph, but don’t let that alarm you. What’s happening now is a transition away from people who held on to a lot of it from this “mining” etc. to a more normal mass-adoption like people who trade stocks and use dollars.
How to buy it and sell it.
First of all, unlike stocks, you don’t have to buy an entire Bitcoin, as it’s a currency but can can be bought in a very very small fraction. You can can usually buy Bitcoin on “exchanges” like Coinbase.com, or use something more familiar like PayPal, but I would recommend to find one with the lowest fees like “Coinbase Pro” (free to use) which has a flat rate of 0.5%, so a $100 is only going to set you back 50 cents vs. the others who charge $3 or more. These more “pro” exchanges treat it similar to a stock purchase, so you would just chose to place a “Market” order which will buy a certain fraction of the coin for the dollar amount you want to spend at the value of the coin at the second you click the button to buy it.
Keep in mind that when you send dollars into any of these exchanges, while they do let you buy coin instantly, you can’t “withdraw” until your money clears in 5 business days. Don’t worry about your coin being “locked” or anything though because you can always trade it for what is called a “stable-coin” like USDC “United States Dollar Coin” that will not change in price and it designed to just be a digital dollar.
What are “Wallets” and how to get paid in Bitcoin.
Just like how you may have a PayPal account or a Venmo account, your Bitcoin is held in it’s own wallet. Some things to note though, is that this “wallet” can only hold one type of coin, such as Bitcoin.
The way to get somebody to “pay you in Bitcoin” is to know what is called your “wallet address.” This is similar to how one may have a user ID on Venmo or be ID’d by their email address on PayPal, but it’s a very specific address like this: 3LLW935qQ5zNLHYi7ZCJhzECQEAe3tdcuN which is my Bitcoin wallet address in my account on Coinbase.com.
The way to find your wallet’s address is to navigate to the section on your coin-exchanging website or app that has your “Portfolio,” tap the coin type that you want to get funds for (i.e. Bitcoin), and when you see your “Wallet” there is usually a button for “Receive” or “Deposit” and and your address will be revealed there.
There are some set of the original Bitcoin users that didn’t keep their coin online, but actually as data offline in what is called a “hardware wallet,” but I won’t go into detail here. It is a nice way to keep coin, but just like cash, you could loose the hard drive or forget the password.
All-in-all, Bitcoin and other cryptocurrencies are going places in this new age and are a great way to protect your money from inflation as it’s not connected to any governments and cannot be price-manipulated due to technical limitations that cannot be hacked. The price fluctuates mostly by how much trading happens or if your local government currency’s value goes down. The utility of it is that because there is not technical way to centrally control it, it’s attractive for international trade without paying high bank fees.