What are we talking about?
Bitcoin is a form of digital currency created in 2009 as a worldwide online payment system.
Isn’t it like real money?
Kind of. While it has value in the same way physical money does, Bitcoin exists as a digital currency. It’s also unregulated, meaning it’s not subject to the rules of any nation (or their tax laws).
Transactions are carried out anonymously with few – if any – fees being levied, and no single person or institution (ie. banks or federal reserves) have any control over how it’s used.
Think of it as a mixture of currency and stocks. A Bitcoin can be used to buy goods and services in the same way a dollar can, however the value of a Bitcoin fluctuates (wildly) depending on demand for it.
The value of a dollar also changes based upon inflation, but it’s regulated by the Federal Reserve and can be more easily influenced by government policy. Its value is also dictated by supply and demand for the things we actually buy with fiat money, rather than the demand for the currency itself.
Why’s it in the news?
Because the value of a single Bitcoin passed the $20,000 mark earlier this year – rising to about $19,000 in the space of two months.
A year ago, a Bitcoin was worth just $731, marking a meteoric rise and a payday for people holding them. It has since dropped back from its peak, but it’s still traded very high above its price earlier in 2017.
Where can you spend Bitcoin?
Bitcoins were created as a currency to buy services over the internet, and an increasing number of retailers have started accepting them as forms of payment.
Many major companies like Overstock, Subway, Expedia, Virgin Atlantic and Microsoft are among the companies that accept the currency.
Does everyone use Bitcoin this way?
No. This week shows that there are plenty of investors hoping to make a fast buck simply by owning Bitcoins, in the hope of selling them at a profit in the future.
But since Bitcoin doesn’t have any fundamental value other than what people are willing to pay for it and isn’t protected by governments, it’s extremely volatile as an investment – with some stock market analysts even referring to it as a “fraud.”
And because it’s anonymous and difficult to trace, it’s also a popular form of currency among money launderers, fraudsters, hackers and scammers.
How do I get them?
You don’t have to buy whole Bitcoins, you can buy fractions of them depending on how much you want to invest.
One way to buy and own Bitcoin is to sign up to a digital wallet service like Coinbase, the biggest service of its kind in the U.S., where you exchange actual money for Bitcoins. Getting a wallet is relatively easy but securing your Bitcoins so that they don’t get stolen requires some technical knowledge.
Another way of profiting from the Bitcoin craze, which is much simpler, is investing in Bitcoin through future contracts, ETF and CFD financial tools – just as many hedge funds are now doing. There are some recommended trading and investment platforms where you can easily trade Bitcoin by simply depositing money via your credit card of PayPal.