Editor’s note: Many personal finance blogs know and publish about many ‘small’ things like saving, frugality, making money, organising personal finances and the like: all very important and we write about them as well. Still, on The Money Principle, we keep coming to one big thing and it is change: we talk to our readers about the ways to change their relationship with money, their thinking about money and their actions related to money (and when we say money, it is really about life). Tonight we give you an article about another ‘big’ thing: the way in which our money is changing.
We’ve all heard about Bitcoin, some may have even invested a bit in this crypto currency. Not many of us are getting ready to use Bitcoin in the supermarket, though. Except my new friend Tom Cat who is getting ready and would like to take us with him. This is why he has started a site entirely dedicated to offering knowledge about the nature and possible use of Bitcoin. Hope you’ll enjoy his article and ask him some hard questions at the end!
More retailers are accepting Bitcoin as payment for services or products, but there are still people who are clueless as to what the new currency is about. Well, Bitcoin is a digital currency that has no coins or notes. You exchange your Euros or dollars into the digital currency with the prevailing Bitcoin exchange rate.
The Bitcoin allows users to make anonymous online transactions. Nobody will know about the payment and other details related to it that include who received the payment and who sent it. It works on a peer-to-peer network that is not controlled by any central authority. It is this promise of anonymity that has led people to embrace the new currency system.
Things to Consider Before Using Bitcoin
Before you learn how to buy Bitcoin, you should first know how to treat your Bitcoin wallet. It is important that you secure your virtual wallet the same way you secure your wallet in real life. Be sure to practice good practices to secure your Bitcoin wallet to enjoy all the great features that come with the digital currency.
The Bitcoin exchange rate is volatile. It can increase or decrease over a short period of time. This is the only disadvantage it has over fiat currency. That’s why it is not advisable to keep your savings in Bitcoin. The volatility is due to its young economy. It will become less volatile in the future.
Bitcoin payments can’t be reversed. They can only be refunded by the individual that received the payments. You should deal with reputable businesses. Never send out payments for people you don’t know or trust.
How to Buy Bitcoins
There are many ways to get Bitcoins. You can get them as payment for services or products, or you can buy them from a friend. There are exchanges that allow you to buy directly with your bank account. It is advisable to check the Bitcoin exchange rate first before purchasing bitcoins.
How to Use Bitcoins
We already talked about how Bitcoins are kept in digital wallets that are stored in the computer. There are websites that manage and secure your virtual wallets for you. You can have as many wallets and addresses as you like.
To spend Bitcoins, you just need to know the Bitcoin address of the person, business, or organisation. There are several major retailers that take the digital currency as payment. These are Amazon.com, TigerDirect.com, and Overstock.com, as well as brick and mortar shops in the US such as CVS, Home Depot, Sears, and Kmart.
Transactions made with Bitcoins are like cash payments. Plus, the customer is not required to provide personal data that eliminates identity theft. Bitcoin has been considered as the new PayPal and users praise its low transaction fees. The US IRS has ruled Bitcoin as property and experts saw the regulation as a move that would turn Bitcoin into a financial asset.
Benefits of Bitcoin over Fiat Currencies
Bitcoin transactions are instant unlike paying a cheque from another bank to your bank that will take several days. International wire transfers can also take a long time. Transactions with Bitcoin are much faster, especially if they are zero-confirmation transactions that don’t require the confirmation of a blockchain. If the merchant requires confirmation, then the transaction will take around 10 minutes to be completed.
Credit card transactions are also instantaneous, but the merchant or the consumer has to pay for the service. Some merchants charge a fee for card transactions because they need to pay a fee for swiping in order to complete them. Fees for Bitcoin transactions are minimal and in some instances, they are free.
No Central Bank regulates Bitcoins and therefore they can’t take it away. Cryptocurrencies are decentralised, and you own what you have. A bank can’t take any of your Bitcoins away from you. People who don’t trust traditional banks can try using Bitcoins.
Another benefit of using Bitcoin is that it prevents identity theft. At present, most people use credit cards for their online transactions but they were not designed for online use. Online forms are insecure, and that’s how unscrupulous people steal the credit card numbers. When you use Bitcoins to pay, you combine a public key and a private key to create a certificate that proves you approve the transaction. The public key is visible, but the private one is kept a secret.
Future of Bitcoin
Bitcoin and other crypto-currencies still have a long way before they overtake fiat currency and credit cards as a tool for international commerce.
As Bitcoin matures in the next couple of years, and the Bitcoin exchange rate stabilises, it can be considered as a realistic option to other online payment processing platforms. It still has a long way to go, but it is on the right path.