Today just about everybody has heard of bitcoin and recognise it as a kind of electronic currency. But how do you actually use it?
For many that remains a mystery; after all you can’t spend it as you can spend ordinary money. Then on the other hand, perhaps you can?
Here we cut through the Bitcoin fog and show how easy it is to acquire and use this digital currency.
What puts many people off the whole idea of bitcoin is all the talk of blockchain and how complicated it all can seem. However, even though the technology behind blockchain is highly sophisticated, all you need to know is that blockchain guarantees all your bitcoin transactions are completely secured and that records of your bitcoin purchases and transfers cannot be modified by anybody no matter how sophisticated they might be or whatever technology they might have to hand.
Essentially, blockchain is a distributed ledger where multiple records of each bitcoin transaction are kept on a myriad of linked computers. It is far more secure than bank records. Bank records can be hacked; money can be stolen from bank accounts; records can be modified or even deleted. None of this is possible with blockchain. Blockchain is un-hackable; that’s all you need to know.
The first thing you need to do is obtain a Bitcoin wallet in which to hold your bitcoins. Given that a single bitcoin is worth several thousand pounds, you will almost certainly hold only a fraction of a bitcoin in your wallet, at least initially until you get used to how it all works.
There are two kinds of bitcoin wallets: a software wallet that you install on your computer or mobile device and a hosted wallet which is held by an online Bitcoin service provider. For most people a hosted wallet is the best and probably the most secure solution. There is a whole raft of Bitcoin wallets available, but you do need to use some care when selecting one. We suggest you go for one of the more popular such as Coinbase.
Once you have your wallet you will need to acquire some bitcoin. The easiest way is to purchase Bitcoin from a broker. There are many online brokers where you can buy bitcoin with a credit or debit card or even PayPal. Different brokers have different fee structures, so you may need to shop around to find the best deal. Some wallets such as Blockchain.info have integrated brokers making it really easy to buy Bitcoin.
Your bitcoin wallet will provide you with a unique bitcoin address. This is a long alphanumeric string that you provide to the broker when you buy bitcoin. It is completely safe to provide them with your address; the only thing they can do with it is transfer bitcoin to your account. Once your payment has been processed, bitcoin will appear in your wallet usually within seconds.
Now you are the proud owner of bitcoin what can you do with it? Many people buy bitcoin with the sole intention of holding on to it in the hope that it will increase in value.
The value of bitcoin is highly volatile. By this we mean that its value against ordinary (fiat) currencies fluctuates significantly. Like any commodity, the way to make money is buy when it is cheap and sell when it is expensive.
This isn’t the only way, there are derivative markets where you can essentially bet that its value increases or bet that its value decreases, and we will talk about this in another article, but all speculative traders know that it is always possible to make money out of volatile assets whether the value goes up or goes down.
Do bear in mind that if you had bought £500 of bitcoin in 2013 today they would be worth around £50,000. However, bitcoin has also seen some big corrections losing as much as 40% of its value.
You can also spend bitcoin much as you can spend ordinary money. There are now many website that accept bitcoin payments for goods and services.
You can buy anything from a computer to theatre tickets with bitcoins; some high street food stores accept bitcoin payments; you can invest bitcoin in start-ups through peer-to-peer lending sites; many online casinos now accept bitcoin payments; you can purchase bitcoin gift cards; in fact you can do just about anything you can do with ordinary money.
Unlike credit and debit card payments, bitcoin payments are discrete and your bitcoin payments cannot be traced back to you personally.
Fees are much lower than those charged to credit card payments; your bitcoin account cannot be frozen by the authorities; you will never have to pay sales tax; you can make international payments for a small fraction of what banks charge; payments are almost instantaneous; there are many other advantages too.
Bitcoin and alternative cryptocurrencies are here to stay. It’s no wonder that some governments are wary of them, but even the major banks have no alternative but to embrace them. The arguments for using bitcoin are compelling and we hope that we have shown you how easy it is to do so.