A Brief Introduction to Bitcoin
I read an article recently from 2013. CNN Money reported “… A British man threw a hard drive containing more than $9 million in bitcoin into the trash. The device is now buried under a mountain of garbage at a landfill site in Wales. It will be almost impossible to find.
James Howells got rid of the drive, which holds a digital store of 7,500 bitcoins, between June and August this year. The IT worker mined the virtual currency four years ago when it was the exclusive domain of tech geeks.
Back then bitcoin was worth very little. On Friday, when the article came out the cryptocurrency broke through $1,200, making the missing hard drive worth around $9 million. Today, bitcoin is over $4,000.
I think I have an inkling of how James felt. I worked all day on four blog posts and accidently deleted the four. Briefly, I was sick, but I soon discovered how I could restore the writing. Big sigh of relief. Not so James Howells. His disk drive is buried under 25 tons of trash.
That brings up a question: What is Bitcoin?
The explanation gives me a headache. It is a cryptocurrency. A cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. It is anonymous. Your ownership is not on record, and your bitcoins are stored in an electronic wallet in the cloud or on your computer.
Bitcoin is just limited entries in a database no one can change without fulfilling specific conditions. These steps may seem ordinary, but, believe it or not: this is exactly how you can define a currency.
How can you buy bitcoin?
First, Sign Up for a Bitcoin Wallet.
Investopedia suggests, “Before you buy Bitcoin, you need to download a Bitcoin wallet by going to a site like Blockchain.info, or to a mobile app such as Bitcoin Wallet for Android or Blockchain Bitcoin Wallet for iOS, and filling out an online form with basic details. This shouldn’t take more than two minutes. (Related reading, see: Basics For Buying And Investing In Bitcoin).”
Once you have a Bitcoin wallet, you use a traditional payment method such as credit card, bank transfer (ACH), or debit card to buy Bitcoins on a Bitcoin exchange (example: Coinbase). The Bitcoins are then transferred to your wallet.
There are other ways to buy bitcoin. One is called Bitcoin Investment Trust (GBTC) it trades OTC. I bought GBTC at 125 in March and played it too cute with a stop. I sold at 104. Two months later it traded over $500. It’s hard to get a four-bagger in two months, much less than a year. I’m still looking back at that mistake.
Another way to buy bitcoin and other cryptocurrencies is through your 401(k) or IRA funds. There are Bitcoin IRA companies that provide this service, such as Noble Bitcoin. The benefit of purchasing through your IRA is that you will be using funds that you already have (but don’t have access to) in a tax free manner. It’s best to leave this method up to the pros who deal with this type of transaction.