Thinking about buying, selling or exchanging bitcoin? After trading at an all-time high in 2017, it’s a good time to learn more.
Can I make money with bitcoin?
You may have heard success stories, like the one about a guy who bought $27 in bitcoin in 2009 and found his investment worth almost $900,000 a few years later.
But just imagine if you bought a thousand bitcoin in late 2013, when the cryptocurrency was worth more than $1,000 a pop — only to watch its value plummet below $200 in just over a year.
Bitcoin’s history is one of fits and starts. On January 12, 2009, bitcoin was introduced by way of a transaction from creator Satoshi Nakamoto to developer Hal Finney. Since then, its value has fluctuated wildly from a low of $0.30 in 2010 to an all-time high of $1,327 in 2017.
The boldface asterisk on this adventure is that bitcoin is a volatile cryptocurrency. Experts speculate that bitcoin could reach $3,000 or more by the end of 2017. Others believe its perceived value could do it in. Increasing demand and acceptance of bitcoin could certainly drive it higher than the $1,200 it’s at today. But again, it’s anybody’s guess.
Compare bitcoin marketplaces
How can I use bitcoin?
Bitcoin is a simple way to securely exchange money at low costs. This includes buying and selling items at a growing list of online and brick-and-mortar stores, as well as exchanging money between fiat currencies.
When you buy or receive bitcoin, you’re given a digital key to the address of that currency. You’ll need a secure place to keep your key safe, which is where a bitcoin wallet comes in. Your wallet can be on your desktop, online, on your phone or on a USB device created specifically to store your bitcoin and keys.
Buying and receiving bitcoin
You can receive bitcoin as payment, buy it directly from a friend or somebody near you (called peer-to-peer) or buy it directly from an exchange with your bank account. To spend it, there’s a growing number of businesses and services accepting bitcoin worldwide.
To exchange money with bitcoin, you’ll need the services of a bitcoin exchange. A bitcoin exchange is a marketplace that allows people to buy and sell bitcoin using fiat currencies — or government-issued currency like dollars, euros and yen. These exchanges match buyers and traders that meet the buying and selling conditions each party specifies.
In all cases, you’ll connect your bank account, credit card or debit card to the bitcoin wallet of your choosing. Some services will allow you to do this through an app.
Next, you’ll either buy your bitcoin from an exchange or, if using a peer-to-peer exchange, you’ll find a seller looking for a buyer. Finally, you agree to the terms of your transaction and receive the bitcoin to your wallet.
Transferring money with bitcoin
While not the most practical way to transfer money, you can use a bitcoin exchange to send money to loved ones and businesses, typically with stronger exchange rates than you’ll find elsewhere. However, the process involves a few more steps than a traditional money transfer. What’s more, you have to complete them yourself.
What to watch out for
Foremost, bitcoin is a volatile currency. It can unpredictably increase or decrease in value seemingly overnight. Rather than sink your savings into bitcoin, see it as a high-risk asset that you can afford to lose.
Unlike fiat currency — like dollars, euro and yen — bitcoin is a decentralised currency that isn’t regulated or controlled by any government or agency. But bitcoin is still affected by government regulation. For example, when the Chinese government barred financial entities from processing bitcoin transactions in late 2013, the price of bitcoin dropped hundreds of dollars within a few days.
Other factors that affect the value of bitcoin:
- The headlines. The price of bitcoin tends to move with major news and important bitcoin-related events (like security breaches). While bad news could affect bitcoin’s price, it also increases attention on this cryptocurrency — potentially increasing its trading volume.
- Investors at small funds. Investment firms and speculators significantly affect the price of bitcoin. Some experts estimate that of bitcoin’s US$6.4 billion market, a majority is owned by individual investors at institutions like hedge funds.
- Fluctuating perceived value. Beyond its actual price, bitcoin’s value is derived from consumer perception. Some are inspired by bitcoin’s innovation and usefulness to pay a lot for it; others, not so much. As bitcoin’s perceived value fluctuates, so does its actual value.
A short history of bitcoin prices
Frequently asked questions
What is a blockchain?
A blockchain is a public digital ledger used to record every transaction for a cryptocurrency. For example, the bitcoin blockchain displays every bitcoin transaction ever made for public inspection.
If it’s not regulated by a government, what decides bitcoin’s value?
Supply and demand: As demand increases, so does the value of bitcoin. There is a finite amount of bitcoin in distribution, so the value fluctuates sometimes wildly based on demand or lack of demand.
Can I make money mining cryptocurrency?
Yes, but the rising costs of mining effectively and competing against large mining pools have made it harder for the hobbyist to profit on mining bitcoin.
You may be able to make money by joining a mining pool. Due to the cost of mining for some of the most popular cryptocurrency, like bitcoin, many miners join mining pools that combine resources and split the block reward.
Is cryptocurrency legal in Australia?
Yes, owning and spending cryptocurrency is legal in most of the world outside of India and China.
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