In our last Simple Tech blog we had a high level look at blockchain technology, the engine of Bitcoin. Blockchain technology is set to be the most disruptive technology since the invention of the internet.
While it has the power to affect nearly all areas of our lives, it’s Bitcoin, blockchain’s first application, that’s the word on everyone’s lips. People have been making – and losing – a lot of money with it.
Bitcoin in the media
The first billionaires of Bitcoin arrived on our newsfeeds last week. The Winkelevoss twins, after winning $65 million in a lawsuit against Facebook in 2011, invested $11 million into Bitcoin when one BTC was only worth US $120. Today it’s worth a whopping US $17,000 and climbing.
On the other end of the spectrum, in 2014, singer/songwriter Lily Allen said that 5 years prior she had been offered 200,000 BTC to do a live stream concert from her home. She turned it down, saying ‘As if’. While some feel Allen was mistaking Bitcoin for other currency, if the story is true and she had invested those coins, they would now be worth US$2.24 billion.
The end of November saw the popular sitcom Big Bang Theory dedicate an entire episode to Bitcoin. The show exemplified not only how mainstream Bitcoin is becoming but also how easy and absolutely permanent the loss of Bitcoin can be.
How can I get some Bitcoin?
So far just over 16.5 million Bitcoins have been produced with a definitive cap of 21 million, expected to be reached by the year 2040. The 2 main ways to get Bitcoin are by buying them or mining for them.
In the early BTC gold rush days, mining Bitcoin was profitable and many of the techno-savvy staked their claim, earning themselves a fortune from the comforts of their homes. As more people came aboard, the difficulty level and energy required intentionally increased to keep the blockchain secure (see our last article). Nowadays, unless you have high powered specialised machinery, the sheer investment and electricity costs will likely outweigh any potential profits from mining BTC.
A far more straightforward way to get your hands on some Bitcoin is simply to buy it. Some are buying to invest, others to trade and some just so they can learn what it’s all about. This is where our disclaimer comes in. We are not offering investment advice, just information to those riding this rising wave of interest in this new area.
BTC are notoriously volatile. A joke making its way around the internet at the moment gives you an idea: A boy asked his bitcoin-investing dad for 1 bitcoin for his birthday. His dad says “What? $15,554??? $14,354 is a lot of money! What do you need $16,782 for anyway?”
The greater the volatility, the greater the risk of loss, and volatility isn’t the only risk to be concerned about. Some banks aren’t keen to have their customers involved in the crypto space. NZ’s crypto-exchange, Cryptopia, even issued a warning on twitter last week that some banks have been reportedly shutting down the accounts of customers purchasing cryptocurrency.
If you’re still keen on buying, the best idea is to get prepared ahead of time. You’ll need a secure place to put your crypto. The easiest way is to simply leave it on the exchange (see below) where you bought it. This makes it quick to trade, if that’s your style. This is also the least secure. While we talked about how immutable and unhackable the blockchain is in our last blog, the exchanges sit outside the blockchain. And they do get hacked. One rule of thumb we have come across is: if you’re wanting to trade, don’t leave more than a week’s wages on any single exchange.
The next tier up that offers much more security while still providing some flexibility are online wallets, like Jaxx and Exodus. These wallets use Shapeshift, which allows you to switch between cryptocurrencies without going onto an exchange.
The Trezor Wallet
When you set up your wallet, you will receive a private key and a public key. A proper wallet will regenerate new public keys with each transaction. The public keys are the address to your wallet so you can tell others where to send the cryptocurrency. This is akin to letting someone know your public bank account details so you can get paid. If you give someone the wrong address, there is no way of retrieving your coins.
The private key is a long stream of letters and numbers but it has an associated 12, 18 or 24 word passphrase to make it easier to remember. The only person who should have this phrase is you. That’s it. Because anyone who has the phrase has complete access to all your cryptocurrencies on that wallet.
Where to buy in NZ?
Several exchanges exist overseas if you have US fiat to trade with. Some popular exchanges are Poloniex, Bitfinex and Binance. Here at home we have Christchurch based Cryptopia. There is also the option of purchasing through a broker like BitPrimeor finding someone to connect with directly through Local Bitcoins.
This article does not constitute investment advice. We encourage readers to obtain personal independent advice from their professional investment advisor and to independently research and investigate any information before acting.
But if you want to talk Bitcoin and all things tech – we’d love to hear from you! Drop us a line firstname.lastname@example.org | 04 970 3600