The Rise of Bitcoin | Everything You Need to Know

By Peter Brooks in General
| April 5, 2017 12:00 am PDT
Bitcoin on Top of Binary Background

Virtual currency? Money you can’t hold in your hand ever?

A few years ago, you would probably be laughed at if you mentioned these questions with any degree of seriousness. But recently, these thoughts have become a reality with the invention and introduction of virtual cryptocurrencies.

The most popular of these new cryptocurrencies is known as Bitcoin. What was once just a crazy idea is now a reality that is quickly gaining popularity and backing by companies and organizations worldwide. As Bitcoin continues to strengthen its position as a real and recognized currency, its value is skyrocketing.

Bitcoin looks like it’s here to stay and could very well be the beginning of a new era in global currencies.

What is Bitcoin?

Before we can dive too deeply into showing you everywhere Bitcoin is growing in usage, we need to make sure you fully understand what Bitcoin is and what exactly we’re dealing with here. Bitcoin is the most popular and fastest growing cryptocurrency.

What is a Cryptocurrency?

  • A digital form of currency
  • Uses encryption techniques to regulate the generation of units and verify funds transfers
  • Independently operated without a centralized bank

In other words, Bitcoin is a newly formed currency that exists solely online. Bitcoins are digital “coins” that are created by a process called mining. Mining is the process in which tons of computers are used to create a Bitcoin that can then be used to buy services online. Without getting into too much technical jargon, Bitcoins are data pieces that are only created through complex mathematical calculations by computers. Each Bitcoin that is created is linked with all other Bitcoins and makes the next one to be created even more time consuming and difficult to make. Eventually, it will be impossible to make any more Bitcoins leaving us with a finite supply.

Sesame Street Style Analogy

It’s kind of like the pattern game we used to play as kids in a circle. The first kid would do an action like raising both of their arms. Then the next kid would have to do that action first and then add their own, like touching their nose. The third kid would then have to raise their arms like the first kid, touch their nose like the second kid, and then add their own action. Each successful turn gets more and more challenging, and eventually, it will become impossible for the kids to create any more successful turns. Each turn is like a Bitcoin. Sesame Street would probably be proud of this analogy.

Now that you hopefully understand a little bit about how Bitcoins are made let’s make sure you understand why they have value. Bitcoins have NO inherent value. This means that you can’t take your Bitcoins out and melt them down and build a house out of them. They’re effectively worthless without a few other conditions. So what conditions make Bitcoins valuable?

  • There is a limited supply.
  • There is a demand for it.

If you’ve ever studied economics, you know that the lower the supply and the higher the demand, the more something is worth. Bitcoins have a limited supply due to their technical nature. This satisfies the first criteria. The second criteria require us to look a bit deeper. Bitcoins are in demand because society is choosing to accept it as a form of currency. They are choosing to accept it in trade for goods and services. The more companies and governments that choose to accept Bitcoin in exchange for goods and services, the more in demand the currency will become.

The correct term for this type of currency is fiat. Fiat money is money that has no inherent value but gets its value from the belief of the people that use it. United States currency is fiat money. It is no longer backed by gold (as of 1971) and is now just backed by “the full faith and credit of the government.” If you’d like to read more about this and how money has value, here’s a great article on the topic.

Prison Style Analogy

Nothing like shifting from a Sesame Street analogy to a prison analogy. In a lot of prison systems, cigarettes are used as a form of currency. You can buy cool things like shanks, protection, or order hits on people. Anyone knows that a shank if worth a lot more than a couple of cigarettes, so how does this transaction go down? The reason that cigarettes have a currency-like value much higher than their inherent value is because of the criteria we mentioned above.

There is a limited supply of cigarettes as there are limitations on how many the prisoners can get. The demand is also there because the prisoners have decided and agreed that this will be their form of currency. This is not backed by the “full faith and credit of the government” but it is backed by the agreed upon belief system that this will be their form of currency. As long as all of the prisoners continue to support this system and offer goods and services in exchange for cigarettes, the system will continue. Feel free to take a shower if you feel dirty after reading this analogy.

Benefits of Bitcoin

To understand why anyone would ever want to use Bitcoin, you need to understand the benefits of using Bitcoin over traditional forms of currency.

Elimination of Global Boundaries

A lot of currencies are limited by what country or region they are used in. If you want to buy something in the United States with Euros, you’ll have to have your Euros converted first. This is fairly easy but gets more challenging if you want to do a transaction with someone in say, South Africa or another more obscure country. Bitcoin erases these global boundaries and allows you to do transactions with anyone anywhere at any time. You don’t have to worry about converting your funds or going through a third party bank. The country lines are erased when it comes to using Bitcoin.

Lower or Non-Existent Fees

Due to the virtual nature of Bitcoin and no need for a third party bank, transactions can be completed for minimal or no fees at all. This can be extremely important when you are doing trading or online gaming or any other sort of transaction that you’re moving money around frequently. We will definitely talk about this more when we get into the different ways Bitcoin is being utilized in the world.

Anonymity and Transparency

Bitcoin transactions are done completely anonymously. The only people that will know who sent and who received a transaction are the sender and receiver themselves. There isn’t even a middleman bank that will have any idea who is sending and receiving the money. This has a lot of benefits when it comes to security. Transactions are only identified by unique transaction IDs which are only available to the sender and receiver. While the details of the transactions are all anonymous, all of the transaction sizes and values are recorded publicly for all to see. This allows you to confirm a transaction instantly in real-time as opposed to waiting for it to process, or for your bank statement to update. These public transactions are only identifiable by their unique transaction ID.

Bitcoin for Online Gambling

One of the industries that are really seeing the benefits of Bitcoin is the online gambling industry. Historically, payment processing in the gambling industry has been slower than it should be and also has been somewhat expensive regarding fees. Bitcoin has reshaped all of this. Deposit and withdrawal transactions are now lightning fast and significantly cheaper on withdrawals. Deposits are typically always free as the gambling site elects to pay that fee for you. Withdrawals, though, are usually limited or have fees attached. Some sites will allow you one free withdrawal a week or month and then charge you the banking fees on any additional transactions. This can be a percentage up to a certain amount or more commonly a fixed fee that can be as high as $50+.

Attacking Fees and Limits

Bitcoin, on the other hand, is usually completely free to withdraw with or has extremely negligible fees. They also don’t usually limit you, or the limits are really high on the amount that you are able to withdraw per transaction. For example, a check withdrawal from an online gambling site might limit you to $3500 maximum per withdrawal. This means that you would have to request several checks and probably pay a fee on each separate withdrawal. Bitcoin might allow you up to $20,000 maximum per withdrawal or have no cap at all. This means that even if there is a small fee, it’s going to be tiny and only need to be paid once. This means that players are able to keep more of their winnings, the way it should be.

Curing Skepticism

One of the biggest questions new users to online gambling websites has deals with the security of their banking and credit card information. While their information is usually just as safe as with any other site, they still have more pronounced fears with this industry. This is probably due to the media and Hollywood’s depiction of all aspects of the gambling industry as shady and “backroom-esque.” While this is inaccurate, it still puts some fear into new players that might deter them from getting involved.

Bitcoin helps to cure this skepticism by making depositing and withdrawing possible without ever supply your banking or credit card details to the online gambling site. Players and bettors are able to purchase Bitcoins or fractions of Bitcoins through a Bitcoin wallet (like PayPal but for Bitcoin) and then use those to interact and fund their online gambling account. When they’re ready to withdraw, the withdrawal comes directly back to their Bitcoin wallet and can then be transferred to their personal bank account or used to buy goods and services online.

Some online gambling sites are using Bitcoin as an additional banking option for their players. You can still use traditional methods to fund or withdraw if you prefer them. Some sites, on the other hand, are Bitcoin exclusive and operate solely with the new cryptocurrency. The actual sites themselves operate the exact same, and the gameplay is identical. The only difference is the method in which you fund your account or withdraw your winnings.

Here’s a great link to a list of online gambling sites that are utilizing this new Bitcoin technology for deposits and withdrawals. The list includes Bitcoin exclusive sites as well as more traditional sites that have added Bitcoin as a new banking option. There is also significant information on getting started on these sites as well as any other pertinent information you should be aware of.

Bitcoin for Investing

Another industry seeing an influx of Bitcoin is the investment industry on several fronts. The most obvious are Bitcoin being traded as a form of currency by investors. Just like you are able to invest in the Euro or the USD or any other form of currency, you can now invest in Bitcoin. This is done a lot like purchasing gold or silver as you actually are buying the commodity and have possession of it, even if it is virtual. As recent as a couple years ago, one Bitcoin was worth a couple hundred dollars. Today, it has climbed well north of $1000 per coin and is potentially poised to climb even higher.

Investment houses online are now also allowing investors to fund their investment accounts with Bitcoin. After your account is funded with Bitcoin, the actual investments available are exactly the same as if you funded your account with a traditional means. Some of these investment houses are only using Bitcoin while some of them are adding Bitcoin as an additional means of funding your account and withdrawing gains.

Here’s a great link for the current price of Bitcoin as well as some other historical data that would be helpful if you’re interested in making an investment.

One of the biggest advantages to using this method to fund your investment accounts is that your fees and brokerage fees are going to be significantly lower. Due to the virtual nature of the currency and the fact that banks and clearing houses aren’t needed, fees are going to be significantly lower. Many online brokerage sites are also giving new customers deposit match bonuses to entice them to get started. This means that if you deposit $500, the site will give you an additional $500. The only catch usually is that you must do a certain amount of transactions to release the bonus funds, but that is fairly standard with bonus offers in any industry. There are also usually limits on the amount of the bonus matching.

They’re not going to match a million dollar deposit.

Bitcoin for Purchases

The most obvious use for Bitcoin that is growing on a day to day basis is the use of Bitcoin for purchasing goods and services on the internet. It originally started with just a few small trendy companies accepting Bitcoin, but some major retailers have stepped into the ring lately to accept Bitcoin.

A Few Examples of Major Companies Accepting Bitcoin:

  • Overstock.com
  • Newegg
  • Expedia
  • Stores on Shopify
  • Dish Network
  • Subway
  • Microsoft
  • OkCupid
  • 1-800-Flowers
  • Tesla
  • Steam
  • Kmart
  • Sears
  • Stripe

As you can see, there are a ton of places online that are starting to accept payment via Bitcoin. This is only a fraction of the companies with many major companies working their way into the mix every day. The more companies that start offering Bitcoin payment options, the more reputable Bitcoin will become as a currency.

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