I am sure you’ve heard of bitcoins. The question is whether you know what you can do with a bitcoin! Bitcoin’s are one example of the new form of currency being created on the Web. Think of them as dollars, or pounds, or Euros, or Norwegian Kroner or Thai Bhat. You can use them to buy and sell goods online, at stores that accept them. For most of us, the way we would get bitcoins would be to buy them, which you can do very easily using “normal” currency (mainly your credit card). But do you know what you can do with a Bitcoin? Four things really.
1. Use it like real money (because it is)
Bitcoins are really just a new form of money, so you can use them to buy and receive payment for any goods or services.
Right now, a lot of bitcoins are used for transactions of questionable ethics, mainly because the parties to a bitcoin transaction are kept anonymous (this is one of the paradoxes of the blockchain, that all transactions are public, but the parties to those transactions are hidden, so it makes it a perfect vehicle for dodgy dealings). Of course, bitcoins can – and are – used all the time for totally legitimate transactions, and more and more online stores are accepting them as payment. The Canadian government is even investing in creating its own cryptocurrency to compete with Bitcoin, and maybe one day offer as an official currency for the country (it’s called MintChip
One significant advantage of using bitcoins for the international traveller is that there is no foreign exchange involved, and no transaction fees. A bitcoin is a bitcoin, no matter where you are in the world, and local suppliers adjust their prices accordingly. Your bitcoins are valid anywhere and everywhere that will take them.
If your company does a lot of online business (or wants to do so) then you need to seriously investigate providing multiple payment options to your customers. The obvious initial ones after credit cards are PayPal, Apple Pay and Google wallet. But you should also look at bitcoin and other cryptocurrencies that become popular. This will not only set you apart from other online competitors, but open the door for easier and more secure transactions. Bitcoins are based on block chain technology, which makes the transaction much more secure. For more information on block chain, see our video introduction here.
2. Trade it like shares
Some people have invested in bitcoins. Because bitcoins are a separate currency which people have to either mine (see below) or buy with “real” money, they do have a value. And, depending on demand, that value does go up and down. Some people have seen bitcoins as an asset similar to shares in a stock market, buying bitcoins and hoping they’ll increase in value faster than inflation or other investment options. We don’t recommend this, as bitcoins do not represent an asset with underlying intrinsic value. The original founding idea of bitcoin is that it is a currency, not a tradable asset. But our advice is not investment advice, so make your own decision on this one.
3. Invest in bitcoin mining
Bitcoins are created by running software on a computer aimed at processing complex mathematical equations. If your computer solves one of these equations, you get a payout in bitcoins (a very small fraction of a bitcoin for each solution). This is called bitcoin mining. Your computer, however, would be up against large groups of computers that will likely solve the problem before you, and you won’t earn anything. The best way to earn bitcoins is to join a bitcoin mining group, and earn just a fraction of a bitcoin at a time.
4. Tell all your hipster friends about it
Yes. If you own bitcoins and use bitcoins, you get both bitcoin and future-geek credibility points. Use them wisely: they may actually be worth more than bitcoins themselves (depending, I suppose, on who your friends are).
Just to be clear, bitcoin is only one type of digital currency. There are, in fact, hundreds of different cryptocurrency options online (including Ripple, MintChip, Freicoin and Namecoin), and many more will come and go quickly in the next few years. The concept of new forms of money is definitely here to stay though, and hopefully now you know what to do with a bitcoin.