Bitcoins: All You Need To Know About The Cryptocurrency

A
cryptocurrency defies a consensus definition. Since its first and most
valuable version, Bitcoin was invented in 2009, the financial world has
struggled to define it. It has been dismissed, called the currency of
the dark web, a bubble, variously questioned. While it has endured all
these, cryptocurrencies cannot be ignored.

In May, we wrote about the value of Bitcoin skyrocketing, one
Bitcoin was worth $1,400. At the time of writing this, Bitcoins have
smashed the $14,000 threshold and knocking towards $15,000, making the
$1,400 worth of just seven months ago seem ancient. The word
“skyrocketing” might no longer be sufficient.
What is a
cryptocurrency? It is a digital asset that is stored independently of a
central bank and exchanged peer-to-peer in an encrypted system that is
nearly impossible to breach. It doesn’t make sense. But that is
cryptocurrency for you. Think of cryptocurrency as paper currency. The
cryptocurrency like paper money has value and can rise and fall in
valuation.
Like paper money, cryptocurrency can be printed, that
is new currencies brought into existence, just that
for cryptocurrencies, this process is called mining. But unlike paper
money, Bitcoin cannot be touched or felt or physically carried about;
additionally, cryptocurrencies are not generally accepted as a medium of
exchange…yet.
Or think of cryptocurrencies as a cheque. A cheque
in itself is not money but a confirmation that you carry some form of
value. Like a cheque, the cryptocurrency can be transferred from one
person to another, and can only be cashed out by the person who fits the
identity of the receiver. But the cryptocurrency is not like the cheque
because it is all done online and unlike the cheque, you do not have to
share give out everything at the same time. Perhaps it is the
chequebook, just that a chequebook represents value stored elsewhere.
A cryptocurrency has its value in its wallet.

Then
we can think of the cryptocurrency as a store of value–like gold. That
is why the Bitcoin keeps rising and rising in value, every day, every
second. Because it has value. But unlike gold, the cryptocurrency
represents nothing. If you have gold stored, you can see your gold and
can carry it, touch it and mold it into any ornament you desire, but you
cannot see cryptocurrencies. It does not represent any tangible good
you can touch. Sounds like pulling value out of a thin air? Perhaps, but
not exactly.

Think of the cryptocurrency as an investment, like a share of a company. Think of one Bitcoin as one share of Dangote
Sugar. You cannot see a share but you know you own stock because you
have proof on your computer that is recognised by the system. You can
sell your shares and get money in return.
A share can increase in
value and fall in value depending on many forces. Just like
a cryptocurrency. But the cryptocurrency is not an actual share because
it doesn’t represent a physical asset that is serving an economic
purpose. The value of a company can be overrated but the cryptocurrency
has no asset that can be measured, so it cannot be said to be overrated,
perhaps it shouldn’t be rated in the first place.
Think of the
cryptocurrency as money in your bank app. Sometimes, you go a long time
without touching naira notes but you spend money. You buy things online,
you can pay for your cable TV subscription online, you can recharge
your phone, you transfer money home, pay a debt and all online. You
never touched paper money in all this. But you know you have money
because you can check your account balance using your bank app; your
bank knows you have so and so amount because it is in their database.
Once
you log into your bank app, just like someone logs into her Bitcoin
wallet, you will see your balance just as she sees her Bitcoin balance;
you can transfer money, just as she can transfer her cryptocurrency. You
can receive money, just as she can receive crypto coins. the difference
is that there is no one with the access to your money in the crypto
world. No account officer, no local bank, no central bank. No one can
shut it down in the name of EFCC or court. Unlike your bank, you don’t need a passport, an ID card, an address or guarantors to open the account.
For
the normal bank, ten thousand naira you have in your account last year
will not have made any serious change except for hidden charges from
your bank when you check it this morning; not so with Bitcoin,
Litecoins, Ripples, and all other coins; they increase (or decrease) in
value mostly in breathtaking versions. So, the cryptocurrency is not
exactly your electronic money.
What then is a cryptocurrency? It
is a little of all of the above comparisons. You should take any of the
examples that suit you most and draw a line where cryptocurrency cannot
go. These seven facts on Bitcoin biggest example can further help you
understand the world of cryptocurrencies.

Bitcoins: Seven Quick Facts About The Cryptocurrency

1. Bitcoin is not the only Cryptocurrency
As
of the time of writing, there are more than 1300 cryptocurrencies on
earth. We have Ethereum, Ripples, Litecoins, Swiftcooins, Namecoins,
Emercoin, Omni, Gridcoin, etc. The Bitcoin founded by Satoshi Nakamoto (he
is a person, some say he is a group of people) is, however, the most
popular one and the most valuable. Up to fifty percent of the money
invested in cryptocurrency is invested in Bitcoins. One Bitcoin as of
December 2017 is $14,500. The nearest competitor of Bitcoin is Ethereum
valued at 430 dollars currently; the Litecoin is valued at 96 dollars.
Countless others are worth less than one dollar.
2. Bitcoin operates off a wallet
A
wallet is to the blockchain what a bank account is to a bank customer.
The wallet is the store where you see your coins, the value and where
you can make transactions. There are two broad types of wallet, the cold
wallet (online) and the hot wallet (offline). The offline wallet is a
USB-enabled device which has in store your Bitcoin information and
private key. To access your information or carry out transactions, you
would have to slot on your device on the computer.

3. Central Banks have mixed perceptions of Bitcoins
To
get an online wallet, the easiest one, recommended for beginners, you
need to register with one of the Bitcoin exchanges such as
blockchain.info, coinbase.com, BTC.com etc. For a Nigerian willing to
pay Bitcoin directly using naira, paxful.com and luno.com
are sites you should consider. After creating this wallet, you will
have login details just like a username and password. This is important
but not the whole package. To buy Bitcoin, you have to click on request,
copy the wallet address and sent this to the sender. For the sake of
security, your wallet address changes after you get money with it. For
another transaction, you will copy a new wallet.
4. Bitcoin is generated through a process called mining
Bitcoins
come into being via a process called mining. Mining is to Bitcoin what
printing of money is to banks. It is a process that involves the
collection, verification, and confirmation of transactions in the
blockchain. When you send money from your wallet to another, it passes
through this process in which the first person to confirm the deal gets
the transaction fee.
People who employ their computer and solve
difficult mathematics in the fastest-fingers-first fashion do not do
this for just the transaction fee. They do it for the coins. Every ten
minutes someone solves the puzzle and get rewarded with a Bitcoin. The
process continues.
Wow, you feel like mining already? Wait a
moment, relax, the power that is used to mine Bitcoin is insanely
outrageous. According to Extreme Tech,
the total power used to mine Bitcoin exceeds those in use in 159
countries put together. You are in Nigeria, you cannot afford to think
about this. Just dream.
5. Bitcoin has a finite end
Unlike
money, Bitcoin is not infinite. There are a total of 21 million
Bitcoins to be mined. At the rate in which they are mined, it is
believed that by the year 2140, the 21st million coin will be mined.
What happens after that is a subject of debate. Many believe that
Bitcoin miners with no more reward except transaction fees will leave
the blockchain. Some believe that this will steady the value of Bitcoin.
No one is sure. It is 120 years away, the world might have ended before
then. One thing is sure, you won’t be around then.

Bitcoins: More Facts About The Cryptocurrency

6. Bitcoin is highly volatile
This
is one reason must financial people do not see it as a prudent
investment. It is $14,500 today, there is no guarantee that it would
remain so and grow tomorrow. It might dip deeply. In mid-November, for
instance, a Bitcoin fell from close to $8,000 to the borders of $5,000.
In late November, after going past the psychological barrier of $10,000,
it tumbled over the next three days, kissing $9,000 in the process. In
cryptocurrency lingo, they call this “correction”. Its present value is
not assured, it is expected to correct before steadying. For all it’s
worth, it might even crash down to as low as $2000. Or rise to as much
as $50,000
Read Also: CBN Warns Against Investing in Bitcoins
In
January, the Central Bank of Nigeria released a directive warning banks
and customers about the “risk” of “virtual currency exchangers”. The US
Federal Reserve investigations are still in its early days but are
concerned about privacy issues.
The Chinese authorities have
banned and cracked down on Bitcoin traders in their country. They
believe that cryptocurrency is the future of effective payment but want
to have full control of it. China is expected to create their own
cryptocurrency.
For the United Kingdom, the Bank of England views
cryptocurrency as a form of payment that can cause a revolution in the
financial system.
The Russian Central Bank says: “We are totally opposed to private money, no matter if it is in physical or virtual form”.
The German Central Bank views virtual currencies as “a speculative plaything”.
The
Turkish Central Bank said cryptocurrency might contribute to financial
stability if better designed. For the Australian apex bank, they are on
the stage of studying it but believe Bitcoins have the potential for
“widespread use in the financial sector”.
The South Korean
government are working to prevent cryptocurrencies from being utilized
by criminals. The Canadian Banks’ bank states that: “This is really an
asset or a security, and so it should be treated that way.”
For the United Arab Emirates, their intent is to make Dubai the first cryptocurrency-run city on earth.
7. Only 0.95% people on earth use cryptocurrency
This
is a plus and a curse. Since less than one percent of the populace use
cryptocurrency, it is a plus as the value is expected to increase with
increasingly new users. But if less than one percent of the world use
it, the number might not be enough to really move the market. One major
quality of money is general acceptability.

Bonus fact:
Bitcoin security is not as foolproof as it was designed to be. Hackers
have stolen million dollars worth of Bitcoin since its inception, this
was so bad that in 2014, the then largest Bitcoin exchange, MT.Gox
closed shop after criminals stole a majority of the funds in its
wallets. Customers lost what could be billions of dollars worth of
coins. No one was reimbursed. There is no regulator or insurance safety
net.
The existing Bitcoin exchanges have donated considerable resources to securing their coins.
Bitcoins, to buy or not to buy?
Remember
that thing in cryptocurrency circle called “FOMO–the fear of missing
out”. Imagine for a second you bought five Bitcoins in 2010 for the
price of moi-moi, at the rate of 5.5 million naira per coin today, how
rich will you be? Imagine that. For a second. It is still morning in the
life of cryptocurrency. This moment, N50,000 would get you around 0.009
Bitcoin. In a few months’ time, that could be worth hundreds of
thousands.
Are you worried about the security of Bitcoin? It is
doubtful anyone would crack your wallet just to steal your peanuts.
Hackers from North Korea and elsewhere go for the big kill.
Ultimately,
follow your heart. It might turn out well, it might not but if you buy
it as the German “plaything” you would have taken care of your fear of
missing out while standing a chance of making a profit.
Update: By the end of this article a Bitcoin goes for $15,332.