Let’s take a moment to discuss bitcoins so that you understand what you're getting into before you start using or purchasing them for your transactions
Let’s take a moment to discuss bitcoins so that you understand what you're getting into before you start using or purchasing them for your transactions. The concept of bitcoins can be quite complex, so it's vital that you have a clear understanding of everything before proceeding. Here are eight important points to keep in mind:
- Bitcoin Is Programmable Currency – For money to be programmable, it must first exist as traditional currency. Today's currency isn't backed by anything more than the value assigned to it by society. For instance, a $100 bill holds that value simply because it has been designated as such. In contrast, bitcoin’s value is determined collectively by buyers and sellers, and is created when both parties agree on the terms and a miner verifies the transaction.
- Bitcoin Is Generated Through Mining – Miners utilize software to discover keys that unlock wallets, or facilitate transactions. Essentially, they verify the transactions taking place between individuals.
- Bitcoin Holds Genuine Value – Bitcoin is not a form of fictitious currency; it possesses real value. This value is defined by the users—both buyers and sellers—rather than any external authority. There is a set protocol that must be adhered to, which cannot be altered.
- Bitcoin Allows for Local and Global Payments – You may be surprised at how many places accept bitcoin. You can even shop online at retailers like Overstock.com using bitcoins. Additionally, some of your local merchants might accept them—it's just a matter of asking.
- No Single Entity Controls Bitcoin – Bitcoin operates independently of any individual or government body. While there are regulations in place, it's the users who enforce them. Currently, there are over 16 million bitcoins available in circulation.
- Bitcoin Is Finite, Unlike the Dollar – The total supply of bitcoins is capped at 21 million, and no additional bitcoins will ever be issued. Although their value can fluctuate, there will never be more than this total. This stands in contrast to the US dollar, which the government can print in unlimited quantities as needed.
- Tax Implications for Bitcoin – Since bitcoin has value, you are obligated to report its dollar value on your taxes in the United States. As of the 2017 tax year, nearly 1000 individuals had done so.
- Secure Your Wallet – If you're not careful, you risk losing all your bitcoins if you fail to back up your hard drive. You are the sole custodian of your transaction proofs, so it’s essential to protect this information, or you may lose everything.
Using bitcoins wisely can be an excellent way to invest and increase your wealth. However, before diving in, it is crucial to educate yourself thoroughly. A great resource for this is the Bitcoin.org website, where you can read extensively about the currency. Additionally, find a mentor who can help you navigate through the terminology and the complexities of this financial system.