Bitcoin is used both as an investment, and as a method of payment for goods and services, and is touted as a means to do so without needing to involve any third parties. Despite their growing popularity, most businesses still do not accept Bitcoin, and their usefulness as an investment is both highly questionable and potentially risky. Transferring money does not require names meaning there is little risk of identity theft. To understand Bitcoin, it is important to understand Bitcoin mining, which is the process by which Bitcoin are created. Bitcoin miners are individuals who own computers that constantly verify the block chain to ensure it is correct and up to date.
They are the individuals that confirm transactions, and in exchange for doing so, they are paid in bitcoin, which increases the supply. Since Bitcoin is not overseen by a central authority, mining ensures that the individual transferring the bitcoin has enough, that the agreed upon amount is transferred, and that the balance for each member of the transaction is correct afterwards. Gain familiarity with the legal issues surrounding Bitcoin. Recently, the federal agency responsible for combating money laundering announced new guidelines for virtual currencies. The updated guidelines will regulate Bitcoin exchanges, but will leave the rest of the Bitcoin economy alone, for now. Federal law enforcement may eventually conclude that Bitcoin is a money-laundering tool and may look for ways to shut it down. Shutting down Bitcoin completely would be a challenge, but intense federal regulation could push the system underground.
This would then diminish the value of Bitcoins as legitimate currency. Bitcoins major advantages include low fees, protection from identity theft, protection from payment fraud, and immediate settlement. Unlike a credit card, where the merchant has full access to your ID and credit line, Bitcoin users operate totally anonymously. Protection against payment fraud: Because Bitcoin are digital, they cannot be counterfeited, which protects against payment fraud. In addition, transactions cannot be reversed, like what occurs with a credit card charge back.
Traditionally when money is transferred, it involves significant delays, holds, or other hassles. The lack of a third party means that money can be transferred directly between people with ease, and it without complexities, delays, and fees associated with making purchases between parties that are using different currencies and providers. Become aware of the downsides of using Bitcoin. With traditional banking, if someone makes a fraudulent transaction on your credit card or your bank goes belly-up, there are laws in place to limit consumer losses. Unlike traditional banks, Bitcoin does not have a safety net in place if your Bitcoins are lost or stolen. There is no intermediary power to reimburse you for any lost or stolen Bitcoins. One study found 18 of 40 businesses offering to exchange bitcoins into other currencies have gone out of business, with only six exchanges reimbursing their customers.
Price volatility is also a major downside. This means that the price of Bitcoin in dollars fluctuates wildly. This means if you are converting to Bitcoin, it is important to stay in it, as moving back to USD could result in a significant loss of funds. Understand the risks of Bitcoin as an investment. One of Bitcoins popular uses is as an investment, and this deserves a special word of caution before proceeding.
The main risk of investing in Bitcoin is it’s extreme volatility. With prices moving rapidly up and down, the risk of loss is substantial. In order to buy Bitcoins, you first need to create a storage site for your Bitcoins, and this is the first step to purchasing Bitcoin. Store your Bitcoins via a third party. You can also create a wallet by using an online wallet via a third party site like Coinbase or blockchain. This is easier to set up, but you will be trusting a third party with your Bitcoins. Create a paper wallet for your Bitcoins.