I recently saw the Netflix documentary Banking on Bitcoin. It is filled with interviews from experts and people involved in the Bitcoin beginnings and growth. It also discusses its future and technology. This blog/podcast is about Bitcoin – the video can be found at: https://youtu.be/2RFPxTuBFTM
What is Bitcoin
Bitcoin is a digital currency with no banks needed to conduct transactions. It can be used across borders with minimum cost and offers a deregulated currently. It was designed as open-source software in 2009 by an individual or group known as Satoshi Nakamoto, whose identity is a mystery and subject of much speculation.
The cost of a bitcoin has exploded in 2017. On January 1, 2017, the price of one bitcoin was $998. Currently, September 10, 2017, the price of bitcoin has more than doubled to slightly more than $4,334. On December 7, 2017, it’s at just under $17,000.
What makes Bitcoins unique, versus other currencies, is that there is no financial system, like the U.S. Federal Reserve, managing their existence and value. Bitcoins are managed by a bunch of users who track them via blockchain technology. It is the fact that no central bank controls Bitcoin production that makes them a unique currency.
How to Purchase Bitcoins
To buy Bitcoins you need to set up an account through a mobile app or online. Coinbase is one of the most popular digital wallets used to purchase bitcoins. As with almost any of these wallets, customers must sign up for a free account online or through a mobile app.
Coinbase accepts Mastercard, Visa and a linked bank account. It´s simple to buy and sell. On the main screen, Coinbase displays the current value of the digital currency in U.S. dollars. When making a withdrawal from a Coinbase account, account holders can choose to have the funds go to either a linked bank or PayPal account.
As I discovered from trying, the fees are significant. To purchase using a credit or debit card, 4% is charged. 1.5% is charged for purchases and disbursements using a linked US bank account.
GDAX is an alternative that is owned by Coinbase with much lower fees of 0.25% and even lower depending on volume. GDAX is only available online, there is no mobile app yet, and it is a little more complicated than Coinbase although the trading platform also has more information.
KuCoin is a Chinese based exchange that allows the purchase of hundreds of cryptocurrencies.
As with any on-line account, security is vitally important.
Bitcoin Depot, in conjunction with the bitcoin wallet Airbitz, allows users to buy bitcoins with cash at dozens of special ATM locations spread across six states: Alabama, Florida, Georgia, Massachusetts, Tennessee, and Texas. After setting up an account, all customers need to do is deposit cash in the ATM and scan a QR code with a special scanner attached to the ATM and, within minutes, the purchased bitcoins will be available in the Airbitz account.
The most convenient way to gain exposure to bitcoins is through the Bitcoin Investment Trust (NASDAQOTH:GBTC). This fund was created so that buying bitcoins could be as easy as buying any stock or ETF share. All people have to do is buy shares through their regular broker using the ticker symbol. Each share represents about one-tenth of a bitcoin. This convenience comes at a steep cost – a share costs about twice as much as the underlying Bitcoin.
Where to Use Bitcoin
I have not seen Bitcoins being broadly accepted for purchases, however there is movement in that direction. Shiftpayments.com offers a Bitcoin debit card connecting Coinbase to be able to spend online and offline at what they claim to be over 38 million merchants.
I see Bitcoin having three primary functions:
• a portfolio diversifier, much like holding foreign currency
• a way to transfer funds inexpensively overseas
• a quick way to get out of ones currency (like in Venezuela and N Korea)
There are obvious risks to investing in Bitcoins. The values have changes dramatically in short periods of time. Please consider your financial situation and consult with a financial professional before investing. Here are a few examples of when Bitcoin values dropped considerably.
We recommend that once you make a transaction at an exchange (such as GDAX, Coinbase, or KuCoin), you move your crypto-currency to a wallet. A separate wallet can be in the form of an app (such as coinomi) or a hard wallet that looks like a USB drive. The disadvantage to keeping your coins on an exchange is that if something happens to that exchange, your investment is at risk.
2014 Bitcoin Theft
Mt. Gox was a Bitcoin exchange based in Shibuya, Tokyo, Japan. They started in 2010, by 2014 it was handling over 70% of all Bitcoin transactions worldwide. In February 2014, Mt. Gox stopped trading, closed its website, and filed for bankruptcy.
Mt. Gox announced that approximately 850,000 bitcoins ($450 million at the time) belonging to customers and the company were missing, and likely stolen.
2015 NY Regulation Hurtle
There is a risk that states and/or countries will require licensing or impose other obstacles to its use.
Since June 2015, New York has required virtual currency firms doing business there to get a “BitLicense” to hold customer funds and exchange virtual coins for dollars and other regular currencies. Benjamin Lawsky headed the Department of Financial Services (DFS) when it developed those rules. Once the regulations came out, Lawsky and other senior staffers left the DFS to consult to make money helping companies through the obstacles that they imposed.
2017 China Shut Down Bitcoin
As of writing this blog, China plans to shut down domestic Bitcoin exchanges although it is unclear when. Bitcoin prices have dropped, in response to the news.
China has large cryptocurrency operations for Bitcoin, Ethereum, and other cryptocoins. Three Chinese exchanges — Bitfinex, OkCoin, and BTCC — made up over 45 percent of the global market share.
Bitcoin’s growing popularity in China may have caused the government to begin to perceive it as a threat to local currency, especially as Chinese investors bought up bitcoin and bet against the yuan last year.
I will be following my $100 Bitcoin investment and may add to it. It will be interesting to see what happens. I´m sure it will be a rocky path but it could be a major currency in the future.