There’s a good chance that you’ve heard about Bitcoin. It occasionally appears in the mainstream media, particularly when something really big or really bad happens, but there’s a good chance you don’t really understand it or how to do anything with it. I’m not going to go into it too deeply, as there are better guides at sites like WeUseCoins.org but I will do my best to provide some pointers for those of you who don’t know much yet, as well as sharing my favourite sites and apps for those of you who are already interested.
This one’s a bit long, so if you’re interested grab yourself a cuppa and get stuck in!
What is it?
Bitcoin is a digital form of money which is based on trust and agreement, using complex mathematics to prove transactions. Unlike old forms of currency that were based on something like gold, Bitcoin’s intrinsic value is in its process.
Every transaction is compiled and complex mathematical transactions and tests are applied to these until a satisfactory outcome is received.This proves the previous transactions and forms a “block”, the machine (or machines) involved in this processing are rewarded with a Bitcoin which can then be used for further transactions. Gradually the blocks build up and become a chain of proven transactions, a blockchain (a term you might have heard before).
I would definitely recommend the resources on WeUseCoins as they explain the process a lot more simply and clearly than I can.
What do I do with it
The reality is, I don’t do a lot with it at all at the moment, although I’m always very interested in it. I started playing with Bitcoin fairly early on, around 2013, probably somewhere towards the middle of the “early adopters” stage of the technology adoption curve.
I joined in at the time you could still mine bitcoins with GPUs and used an application to mine when the computer was idle, acting as part of a mining pool. I was able to collect 3, worth around £2910 at today’s prices. Unfortunately, I panicked when the price started seriously crashing and sold all of my bitcoins for around £60. When the price quickly recovered I tried to buy some back, but it was too late. The price never crashed that low again. I also haven’t gone to the trading platforms since then, it was quite clear that I just don’t understand that stuff enough!
My remnant sat untouched for quite a while and then I decided it was time to start looking again at what I could do with it.
Wallet
Just like any other form of money, you need a way of carrying, spending and receiving Bitcoins. These are called a wallet and come in a few different forms.
Since I got into this early I use a more complicated wallet than is probably necessary. I use the Android app Bitcoin Wallet which is a pretty basic pure network node. It makes it pretty secure, but also very easy to lose all your Bitcoins if you don’t keep a backup.
If you’re starting out, you might want to go for something simpler. The following all have a good reputation:
Saving
One of the things I was pleased to find was a Bitcoin savings account, with interest. Magnr* gives a 1.28% rate on funds of up to 100. At the current price that makes the upper limit about £97000, although you can still store more Bitcoin there securely, you just don’t earn interest on it.
Most of my Bitcoins have been sat in there for a while, as I still don’t use them much they’ve managed to grow a little over the last couple of years.
Using Bitcoin
So this is the big question, isn’t it?
What can I actually do with bitcoin?
The short answer is “more than you might expect”. The long answer is a bit more complicated. Unfortunately you can’t just walk into most shops and pay with your Bitcoins at the moment, however, there are some local places you can spend or exchange your bitcoins. There are some good resources at:
Depending on where you are in the world, you might have better luck spending your bitcoin online. Airbitz also has a non-exhaustive directory for that.
Then there are the conversion apps: You can use Gyft to exchange Bitcoin for vouchers for a lot of different shops, however, I believe they are US-focused and all gift cards are denominated in dollars and may not work outside the US.
My particular favourites though are the Debit Card apps. With these you get a virtual or plastic debit card and top it up using bitcoin - most of them do this infrequently and you convert a lump at a time, locking in the bitcoin price at the time, I think at least one does this on-the-fly, extracting from your bitcoin balance every time you make a purchase. My particular favourite is Wirex*.
With Wirex you can have a US Dollar, Euro and Pound card in either plastic or virtual. Virtual allows you to spend online, whilst the plastic can be accepted anywhere that prepaid cards normally are. Having the different currencies means that you can spend in dollars or euros without having extra conversion rates applied.
At the moment I have a virtual GBP card, which I haven’t used much. It’s worth noting that the cards are quite pricey, £13 for a plastic and £2.30 for a virtual. You do get money off if you sign up with my link, though. They also charge you £1/$1/€1 per month for holding the card, but they don’t seem to charge any other fees, which other services do. You’d want to have a reasonable amount of Bitcoin before buying the card, I think. On the plus side, however, you can use the app as a very basic wallet.
Getting more Bitcoin
The fastest way to get Bitcoin is to buy some, go to one of the exchanges and hand over your cash. Some good places to trade are:
You can also buy bitcoins locally using a Bitcoin ATM provided you have one near you that offers buy services (check Coin ATM Radar).
The next way is to look at a Bitcoin faucet. These are places that dribble out small amounts of Bitcoin to help engage beginners and to get Bitcoin more widely used. The more people using it the more value in the currency, plus the more transactions that take place, the more Bitcoins can be mined from the process.
There used to be a lot of faucets in the early days, but most of the good ones have dried up. For the most part, they now make it quite hard to get any reasonable value out of them, but I recently found BitMiner [edit: this is a ponzi scam] which allows you to get Bitcoins for nothing or earn more for a fee.
I’m a little dubious, money for nothing seems like too good an offer, but as I say this practice has been part of Bitcoin from the beginning. As professional miners, it helps them if the Bitcoin price stays up. If they dump a load of bitcoin on an exchange one day it will send the price down, whereas if they redistribute some of that Bitcoin they can keep the price up, as more people are using it. Also, as I said above, more transactions means more opportunities to mine. I reckon the greater rewards for investment is because they are treating you a little like an investor (although unlike an investor they can cut you off at any time). They can invest that money into more mining equipment and then generate even more income.
So I’m going to give it a go and I recommend you do too, even if you only go for the free plan.
My plan is to withdraw once a month, put the earnings into my Magnr savings account and keep upgrading the account until I get to the top level. At that point, I’ll be earning 1 per day or about £970 per day at today’s prices. There’s no risk, so why not, eh? By my calculations that should take about 6 months.
My recommendations
- Get a wallet, if you haven’t already
- Get a Magnr* savings account
Sign up for BitMiner, even if you only take the free dribble of coins- Get a Wirex* account, so you can spend your earnings in the real world
Notes about links
Some of the links in this post are suffixed with an asterisk, those links are affiliate links and will earn me a small percentage if you sign up using them. For some sites, they also offer you a better deal than going directly. Wirex, for instance, will give you 25% off your first plastic card. If you don’t want to click the affiliate link you’re welcome to just google the services and find them directly.
Photo credit: jurvetson via VisualHunt.com / CC BY