A Brief Introduction To Bitcoin

Written by Lwm Staff. Posted in Managing your Money.

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A Brief Introduction To Bitcoin

For those interested in financial markets and currency investment, it has become impossible to ignore bitcoin. The vaguely mysterious (to most of us anyway) digital currency has climbed to incredibly high values approaching the end of 2017, which has caused a lot of discussion about how it should be handled and analyzed moving forward. Put simply, bitcoin is more significant now than many of thought it would be a few years ago – to the point that even casual investors might begin to take an interest. So we thought we’d write up a quick overview for those who are still familiarizing themselves with bitcoin.

 

How Is Bitcoin Defined? 

Basic definitions of bitcoin aren’t always particularly helpful. It’s usually described as a decentralized, encrypted digital currency. Breaking it down a little more though, bitcoin is essentially an invented digital currency that has gained real value. Bitcoin is “mined” through a complex mathematical process, at which point it enters the market and can be bought, sold, and in some cases used to pay for goods and services. As a currency, bitcoin’s chief benefits are that it’s convenient in the digital age and that all transactions are permanently, publicly recorded (while leaving the involved parties anonymous), making fraud and misuse very difficult. As an asset, bitcoin is valued simply because many believe it may one day be worth far more than it is now. 

What Are Altcoins? 

This is a simpler one, once you understand the basics of bitcoin. “Altcoin” is the name that’s been given to any cryptocurrency that isn’t bitcoin. Examples include ether (often called ethereum), litecoin, bitcoin cash, and ripple, to name a few. For the most part, these currencies work similarly to bitcoin, though some of them serve slightly different purposes. None are valued anywhere near bitcoin, though ether and bitcoin cash have grown fairly robust late in 2017 as well. 

What About Investment? 

As you may have noticed, conversations about bitcoin now revolve as much or more around the idea of investing as around payment or currency exchange. The question of bitcoin as a commodity has become a popular one in the last two years or so, driven by the simple fact that bitcoin’s intrigue as an asset is outweighing its utility as a currency. There really isn’t a perfect answer to the question, because bitcoin can be used as either a currency or a commodity. Of late however it’s fair to say that more people have begun to look at it as an investment asset rather than as a true currency alternative. 

Is Bitcoin Fully Legal? 

For those who remain relatively unfamiliar with bitcoin, this is a perfectly fair question. It can certainly seem foreign enough that you might wonder if it’s actually allowed! But here’s your answer: in most places around the world, trading and using cryptocurrency is perfectly legal. There are a few countries that have made it illegal, and a few more that have attempted to dissuade the public from getting involved. Broadly speaking however, bitcoin regulation is fairly light, and cryptocurrency activity is legal. 

How Is Bitcoin Stored? 

Truthfully, it never is! To acquire and hold bitcoin, what you actually do is obtain a “public address” to a given amount of bitcoin, and the “private key” with which you can access it and decide what to do with it. As one piece put it, cryptocurrency wallets work like safety deposit boxes; the “boxes” are the public addresses, and the keys are our private codes. That said there are several different forms of cryptocurrency storage. Software wallets are basically apps and online programs that operate digitally; they are appreciated for convenience and efficiency, though some worry about hacking and other security risks. Hardware wallets are small storage devices that are not online and thus save you from those security risks, though they’re slightly less convenient. 

What’s Next For Bitcoin? 

If you could answer this question, you might well be rich! As stated, bitcoin’s price has soared approaching the New Year, but financial experts remain starkly divided about its future. Many are calling the current status a bubble, suggesting it’s about to tank as investors pull out and take their earnings with them. Many others are suggesting there are many more gains to come. All we can say for sure is that cryptocurrency in general is somewhat unpredictable.

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