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I haven’t heard this many people talk about the same thing since Pokemon GO. It’s no secret that Bitcoin has emerged from an underground currency to a mainstream topic. A lot of people were just minding their own business, focused on making US dollars, euros, etc. Then one day they wake up and people are talking about Bitcoins. So why is everyone talking about this Bitcoin? What is Bitcoin? Is it even a coin? Why was it invented? How do you buy it? Can you really get rich off it? Should I buy or invest in one? Can I make one? All good questions. Really.
It can be a confusing topic. I heard about Bitcoin a few years back. I even attempted to mine some bitcoin a year ago (more on that later). But to be honest, I knew very little about Bitcoin until recently, when I decided to research it a bit more. How do I know this? Because when I tried explaining it to others, I was doing a terrible job. Hopefully being able to write it all out helps to get the information out in a more understandable and organized manner. I’m going to try and stay away from being too technical and paint a high-level picture of Bitcoin.
As much as I wish this was a manual to help you make it BIG off of Bitcoin…it’s not. I’m not an expert investor. I didn’t buy 10,000 bitcoins 5 years ago. I also can’t predict the future (at least, not accurately). And I also can’t reverse time to when Bitcoin was cheaper so that we can buy a bunch and become billionaires today. But hey! Maybe you’ll learn something from reading. I definitely learned a lot just from writing this!
1. What is Bitcoin?
Guess it makes sense to talk about what a bitcoin is in the first place. At its very core, bitcoin was designed to be a “peer-to-peer electronic cash system” by creator Satoshi Nakamoto in 2009. Simply put, a digital currency. One with no bills or coins. It’s all digital. All virtual. Welcome to the 21st century. In fact, Bitcoin is a cryptocurrency.
What’s a cryptocurrency? Here’s a hint. Crypto is short for cryptography, a means of securing communication and information. So, cryptocurrency is this encrypted digital currency. The individuals that use Bitcoin are anonymous. No names or social security numbers are used. In fact, each individual is given a unique key for identification (here’s a great article explaining how public key cryptography works, if you’re interested. I didn’t get it at first either, but this one helped a lot). Bitcoin is also a decentralized currency. There’s no one who ultimately controls it. No government or bank determines the transactions. No one higher up is printing out more Bitcoins.
So what determines the transactions? Well, we have to get familiar with something called the blockchain. Another new term! But an important one. The blockchain is a huge, public ledger that helps to validate Bitcoin transactions. Every time a transaction is made with a Bitcoin, the network records it. These “blocks” of transactions are then collectively known as the blockchain. This happens by solving cryptographic “puzzles” with special programs and powerful computers. These are known as “miners“.
2. What is a Miner?
We’re not talking about the traditional coal-covered, pickaxe-wielding dude. Bitcoin miners help process transactions and get paid out with new bitcoin. Without getting too technical (yes, it always gets technical once someone says this), miners convert blocks (from the blockchain described above) into code. This is known as a hash. It requires a lot of computer power to process. Thousands of miners across the board compete to solve it and the winner gets paid in Bitcoin. Once this occurs, the transaction will be updated and pushed through.
So why is this important? Well, first and foremost – bitcoin is a currency that is confirmed by everyone. As mentioned, all transactions are stored in a public ledger. Like your credit card statements. Imagine everyone knowing everything you ever bought and everything that you ever received. Except you know the same about everyone else. Your identity is “anonymous” because all people see is the public key that you are given. Because everything is confirmed by everyone, this provides a natural audit. It’s hard to lie about how many bitcoins you have, or try to trick the system, because in order to do so, you’ll have to be able to trick everyone out there.
Secondly, miners bring more bitcoins into the market. Unlike diamonds, bitcoins are not forever. They are programmed to be limited at 21 million. Once that amount is in circulation, the bitcoin issuance stops.
3. Can I Be a Miner?
Not if you’re over 18! Ha. But seriously, yes anyone can “technically” be a miner. You just need to install some mining software and have a decent computer. You do a bit a set up and literally run the program. Your computer will join others in solving those complex transactions in no time. And you’ll get paid out in bitcoin. Very, small amounts of bitcoin.
I built a pretty solid computer a little over a year ago. I forget what compelled me to mine for bitcoin, but I did it for about a month. When I mentioned that it was competitive to mine, I meant it. I think my total payout for the month at that time was around 0.0017 bitcoins, something in the range of $1.80. Basically, it wasn’t enough to cover the increased electric bill.
The bad news is that there are more miners now than back then. And with that comes increased competition. The payout is probably lower now. Also, there are computers completely built with the sole purpose of mining. You can check them out here…I almost bought one at the time just for fun.
The “good news” for me is that I checked recently and my $1.80 from last year is now worth around $20. I’m rich(er)! But why?
4. Can I Make Money From Bitcoin?
I’ll start this by saying. Money can’t buy happiness. Keep that in mind now. With that being said, bitcoin prices have exploded. And that’s why everyone is talking about it. Early miners and investors are now very wealthy. A year ago, bitcoin just breached the $1000. This month, bitcoin went over $19000. But that’s just a year ago. Each bitcoin was just a few cents in the beginning. Imagine putting in $100 into Bitcoin at $0.10 each. That would now be worth over $15,000,000 (this will change as bitcoin prices fluctuate wildly).
As previously mentioned, mining is no longer an efficient way of making money from bitcoin. Even if you have an awesome PC. But even people today can make money “trading and investing” in bitcoin. Bitcoin prices have been volatile this month, changing thousands of dollars within minutes at some points.
5. Should I Invest in Bitcoin?
Let’s all remember that bitcoin is a currency. It’s not your typical stock. But you should treat it as a very risky investment. With the way people talk these days, it seems like you’ll easily earn money just by throwing any amount into bitcoin or any other cryptocurrency. The fact of the matter is – we don’t know. That’s why there are wild swings in prices. Bitcoin prices are driven wildly by speculation and news. You have to understand that bitcoin prices are moved by the market. Economics 101. Why is bitcoin even worth money? Supply and demand. Right now, it’s at the center of attention, even in mainstream media.
The volatility provides good opportunity for people who understand the market and knows what they’re doing. But its very hard for average people like us to time the market. You think you’ll know when to buy the dips and sell at the peaks. But that’s usually wishful thinking. My advice is to invest in it if you believe it’s the future. Invest and hold. If you’re just trying to make a quick buck here or there by day trading, it’s going to be difficult.
As with any investment in general, don’t risk everything. There are plenty of stories and scams out there. Just because a few people doubled or tripled their life savings by throwing everything into Bitcoin and making bank doesn’t mean you can or should. It’s important to be smart and invest only what you’re able to lose. Bitcoin could easily triple in price next year. Or it could fall to $0. We can only guess.
6. How Do I Trade Bitcoin?
So you read everything that I wrote above and still want to trade? You’re crazy! Just kidding – if you really want to invest in bitcoin (and other coins!) there are lots of ways out there. By far, the easiest way (in my opinion) is to use an exchange service such as Coinbase. It’s also insured (to a certain extent) and has a convenient app for you to check your current coin prices/investments. Yes, this is the one that I use. If you want other options, check out this comprehensive article.
And really, it functions like any exchange. You can transfer funds from your bank or debit/credit card. Then you can purchase cryptocurrency. It’s that easy. Now, there are sometimes delays with purchases and/or outages with the app. This is primarily due to the volume of trading that goes on at certain times, but this is something to be aware of.
Also, it takes a good 5-7 business days for funds to show up in your wallet if you transfer from a bank. And, it takes a few minutes for orders to process once you decide to purchase a bitcoin. But don’t be scared – whatever price you purchase at is locked in on the spot – even if you don’t receive your coin until much later.
So if you want to check out Coinbase and dip your toes into cryptocurrency, you can use my referral link HERE. If you buy/sell $100 digital currency or more, we’ll each get $10 of free bitcoin each. So generous right? Hey, but free is free!
7. Tell Me More!
Remember, this article only focused mainly on bitcoins. But there are other “alternative” coins out there. Of course, this would just make things more confusing, but we may talk about them in the future. Some of the more popular ones include Ethereum, Litecoin, Bitcoin Cash (yes, it’s different), and Ripple. But there are hundreds more.
If this article didn’t help at all, or you just want to learn more, there are plenty of resources out there. I recommend the below videos to get an audio/visual explanation that may help put all the pieces together.
To just push the point on how volatile this currency is, as I have been wrapping up writing this article, bitcoin has fallen from over $16,000 to just under $12,000! These swings are what make it such a risky investment. It’s easy to fall for get-rich-quick opportunities. Always be smart with your investment choices!
So, are you in on cryptocurrency? Is it the biggest scam of the 21st century, or is this the future of how money will work? A decentralized, digital currency that will change the way we pay for things?
I’m interested in knowing if you’ve already started investing in cryptocurrency or if you’ve tried to stay as far away from it as possible! This topic always stirs up a lot of conversation, so I’m excited to hear from you all. Feel free to comment your thoughts below!