What is Bitcoin?
Over the past few weeks, as the Bitcoin price has soared, lots of people have been reaching out to ask me, “What is Bitcoin?” It prompted me to start this blog- and while I am a licensed attorney in Florida – I want to preface that this is not legal or investment advice.
In a nutshell, Bitcoin is digital money- a decentralized, secure, cost effective and awesome way to transfer money around the world. It’s also proved to be a pretty wonderful store of value, reaching a new high of $11,754 USD this morning, December 3, 2017. The main thing that originally attracted me to the space was the amazing community of innovative people who are generally opposed to having a middle-man involved in every transaction. (A lot of the early adopters are passionate libertarians and anarchists.)
With Bitcoin, you can pay people directly and pseudo anonymously without having to involve the bank, PayPal, Western Union or a credit card company who often take a cut from every transaction. Bitcoin is still in its infancy though, and its not widely accepted for goods and services today. (Although it is accepted at Expedia, Microsoft, Overstock.com, Virgin Galactic, and Subway restaurants to name a few). You can think of Bitcoin as Internet Money – and you can think of 2017 as approximately 1992 in terms of where the internet was at that time. There’s still a lot of growth to come!
Bitcoin is classified as property, so it is taxable as capital gains tax if you hold it over a year, or at the income tax rate if held less than a year, or if its earned income from services or mining. (I’ll do a whole post on the dreaded taxes soon.)
Bitcoin is not created by any bank or government organization, instead it’s mined by computers who solve a mathematical algorithm and unlock blocks of Bitcoin onto a public ledger known as the Blockchain. Anyone can join the mining network, but over the past year or so it’s become increasingly difficult to make a profit because as more Bitcoins are mined, the harder they become to unlock. Mining used to be done on individual computers but now requires expensive hardware and lots of electricity. There can only ever be 21 million bitcoins mined, and right now we have 16.7 million. The last ones will be unlocked in 2140. See https://blockchain.info/charts/total-bitcoins.
How Do You Buy Bitcoin?
In America, the easiest way I know of is to sign up for an account at: https://www.coinbase.com. It’s as simple as Venmo, you sign up, either on your phone or laptop, and you can move the money straight from your bank account. While signing up, its a good idea to use a 2FA for added protection, like google authenticator. Coinbase will prompt you to set it up, and you can just follow the instructions. On Coinbase, you can either just hold the Bitcoin and wait for the price to increase, or you can diversify a little with two other cryptocurrencies called Litecoin and Etherium. (I’ll do a separate post on what these are, but for now you can think of them kind of like Bitcoin’s little brother and sister, or as digital silver and copper to Bitcoin, the digital gold.) I suggest everyone should put a little bit of money into Bitcoin just so you can learn more about it, as there’s no interest like self-interest. You can invest any amount from $10 USD on up, you don’t have to buy a full bitcoin.
There are a number of risks involved with Bitcoin, first of all, while I am very bullish on Bitcoin’s future, it is also possible it could fade away to nothing, and any money you invest could be lost forever. There’s also a security risk, most avid bitcoiners will encourage you to hold control of your own money, and not leave it on an exchange. The exchange could be hacked, or the exchange could just shut down and steal your money. As a disclaimer, I keep my Bitcoin on an exchange – in the Coinbase vault, this is because I don’t trust myself not to lose a piece of paper, or a hardware wallet, and I like checking my balance on my phone every few hours. If I had more Bitcoin I might feel differently, and get a hardware wallet and store it in a bank safety deposit box or something. The best hardware wallets that I know of are Trezor and Ledger. You can buy them for around $80 USD: (1) https://trezor.io/; (2) https://www.ledgerwallet.com. You can also get a wallet like https://wallet.mycelium.com/ and just print your Bitcoin QR code on a piece of paper and keep that in a safe deposit box. When I first got Bitcoin, that’s what I did, and just kept it in the bookshelf of my apartment, and I was constantly worried about it, which is why I just prefer having it on Coinbase now.
How do I start Alt Coin Trading?
Warning: Not for the faint of heart! Alt Coin trading is like the stock market’s meth addicted cousin, it’s the wild west. It doesn’t sleep. The prices swing hard. There’s next to no commission. I can’t make sense of what drives the prices up or down, but I still love trading in it, and I’ve made some good profits and also ate some big losses. None of the Alt coins go through any kind of vetting program, they are not regulated by the SEC, a lot of them are scams, but the volumes are high, and you can set limit orders. My favorite exchange is is https://www.binance.com. If you want to try your hand, you can move money from your bank account into Bitcoin (BTC) on Coinbase, and then transfer the BTC over to the Binance exchange and then buy whatever coins your heart desires. I’m all in on IOTA right now, I’ll make a separate post on why I like it so much. If you’ve never done any bitcoin transfers before, here’s a step-by-step guide:
Open and Fund your Coinbase account with a bit of money you don’t care if you lose
Open your Binance Account
Go to Binance and click – Funds > Deposits/Withdrawals and search for BTC (Bitcoin) and then press the square Deposit button.
A 64 digit address will show up that you copy
Go back to your Coinbase account and click – Accounts > My Wallet > Send – and then paste the Binance 64 digit address.
Once you’ve got the money in your Bincance Bitcoin wallet, click – Exchange > Basic and then search a coin, and place your order.
Boom, just like that, you too can test your luck as a Crypto Trader.
Who Invented Bitcoin?
Bitcoin was created in 2009 by an anonymous individual, or group named Satoshi Nakamoto. He/They wrote an incredible white paper that you can read here: https://bitcoin.org/bitcoin.pdf The abstract sums it up better than I ever could: A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
Resources to Learn More:
My all time favorite Bitcoiner is Andreas Antonopoulos. His twitter handle is: @aantonop. When I first met him in 2014, someone called him Bitcoin Jesus, but I don’t think he likes the nickname. If you’re a fan of the Joe Rogan Experience Podcast, Andreas has been a guest on there several times now.
Episode 446 – January 17, 2014 https://www.youtube.com/watch?v=1cexawnOlR8
Episode 581 – December 1, 2014 https://www.youtube.com/watch?v=5wwbzwUXfgc
Episode 844 – September 7, 2016 https://www.youtube.com/watch?v=1sOxtBiBpE4
He also has his own youtube channel: https://www.youtube.com/channel/UCJWCJCWOxBYSi5DhCieLOLQ?sub_confirmation=1 and has written books on Bitcoin, I’ve listened to the Internet of Money on Audible, it was VERY helpful!
My favorite Crypto Tweeters include:
@officialmcafee (stay tuned, if Bitcoin’s not $1Million USD by 2020, he will publicly eat his dick)
Till next time…. Sasha