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12 questions you're too embarrassed to ask about Bitcoin

12 questions you're too embarrassed to ask about Bitcoin
© Dmitry Volochek | Dreamstime

By now I'm sure that you've at least heard of Bitcoin. It blew up in the media last year due to its extremely high market prices.

But many people don't have a clue what a Bitcoin is or how it actually works. If you don't know much about them, don't be embarrassed, it's confusing and pretty new to the mainstream.

That's why I have put together a list of 12 questions that will give you a much better understanding of this popular cryptocurrency.

Here's what you need to know.

1. How much is it worth?

Bitcoin peaked in price the week of December 16, 2017, when it was trading at $19,343.04 per coin. See why there is such a frenzy about it?

It started 2017 off at just under $1,000, so people have been making HUGE returns. In fact, back in 2010, you could purchase one Bitcoin for five cents. Think about that for a moment. Click here for the latest price.

2. What is a Bitcoin?

Usually this is the first question someone asks, but lately, it's been all about the price since it went out of this world. So let's jump into it.

A Bitcoin is an electronic currency, AKA cryptocurrency, that lives on the internet. There is no physical "coin" anywhere, just a string of numbers.

It's based on an emerging tech called block-chain, where the transactions are logged in a string of blocks, linked together to make a chain.

According to the Bitcoin website, "Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.

"From a user perspective, Bitcoin is pretty much like cash for the internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence."

3. Why did the price go through the roof?!

Bitcoin prices going through the roof is all about speculation, supply and demand. Have you ever seen the year's hottest Christmas toy going for $1,000 dollars on eBay, when it retails at $15?

It's the same theory here, supply and demand. Tomorrow it could be worth zero, but until people decide it has no value/demand, it will be worth something.

4. How many Bitcoins are out there?

There are currently 16.73 million Bitcoins in circulation. They are hard to create and there is actually a cap, so to speak.

There can never be more than 21 million Bitcoins, ever. We will never see this number in actual circulation, however, because some coins have been lost forever from theft and computer/human error.

The number of new Bitcoins created per year is automatically halved over time until their creation is halted completely with a total of 21 million.

5. Is Bitcoin the only cryptocurrency? 

No. There are over a thousand different electronic-based cryptocurrencies.

At Cryptocurrency Market Capitalizations, there are 1,910 of them listed. Now get this: their value ads up to $240 billion. There is a lot of money in these markets!

6. How can I buy a Bitcoin?

Bitcoins can be bought and traded on exchanges, kind of like the stock market. Coinbase is one of the more widely known exchanges.

Others include itBit and Gemini in the U.S. People are able to buy and sell Bitcoins with multiple currencies.

7. How do you store/save your coins?

The safest way to store your Bitcoins is to use what is called "cold storage." This is where you store your reserve of Bitcoins offline.

It could be on a USB flash drive or paper wallet. Then people can keep them in a safety deposit box or somewhere secure.

The key is it's offline and not connected to the internet, so your coins can't be hacked. Some people do save them on their computers or on exchanges. But again, hacking is a concern.

8. Should I buy Bitcoin?

This piece of advice goes with any investment; don't invest what you can't afford to lose. Bitcoin is highly volatile. It's not backed by any big banks or the government, and last year's rise was considered a bubble.

But yes, people are making tons of money. The Winklevoss Twins reportedly invested $11 million years ago and with the current prices, they could be the first billionaires of Bitcoin investing.

9. What can I buy with Bitcoins?

You can actually buy goods and services with Bitcoin! Overstock.com, Microsoft, Newegg, and even Expedia allow for people to pay with Bitcoins. Or if you fancy a trip out of this world, Virgin Galactic accepts payment for your future space travel with the digital currency.

However, there's also a shady side to using Bitcoin for purchases. Since the currency can be used anonymously, many illegal transactions occur on the Dark Web (that link doesn't lead to the Dark Web, promise!) with Bitcoin. It's actually the currency of choice for most cybercriminals, especially those behind ransomware attacks.

10. What's the downside of Bitcoin?

Uncertainty is a major concern. Bitcoin has been compared to gold in some ways. Gold only has a value if we, as humans, put a price on it. But there is one difference; if you buy a gold bar, you have a physical item.

Gold is less volatile but, just as Bitcoin, it too goes up and down. It's just that Bitcoin, at least recently, can swing a whole lot more.

Security is another issue. A gold bar buried in your backyard would require someone to come dig it up to steal it. But if your Bitcoin wallet is online or you make some error, a kid in a faraway place could theoretically steal your coin from his laptop.

Another downside to Bitcoin is its low degree of acceptance. The list of businesses that accept Bitcoin for payment is pretty small. It is being accepted by more businesses all the time, but the list needs to expand greatly for Bitcoin to be a viable mainstream currency.

11. Benefits to Bitcoin 

There are many opinions about Bitcoin, both good and bad. Good examples, similar to other cryptocurrencies: there's no paperwork and transactions are absolute (no double spending), they work globally, and transfer fees are still relatively cheaper than traditional payment methods (for now, but this can change). Anyone can accept it if they choose.

Another advantage people cite is the ability to move money around, outside of normal banking controls. This would be a "bad" thing if you are a country trying to collect taxes or your accountant decided to go on the lam and had access to your digital wallet.

Also to note, traditional banks are looking at the idea of block-chain for speeding up transactions across the world. Meaning, this isn't such a far-fetched piece of technology and could become more mainstream in the near future.

12. Who created Bitcoin?

If you were curious, the answer is no one really knows. "Satoshi Nakamoto" is often credited with creating the currency back in 2009. But this is an alias. At least one guy has come forward claiming he is Nakamoto, but there are several competing theories.

This is an emerging arena in our financial world. It's not new, but this is far-fetched to many people. Storing and using money outside of what we are currently comfortable with is frightening.

Are you thinking of buying Bitcoins? Read this first

Saying Bitcoin has had a banner year would be a major understatement. It's been impressive, but is it something that you should buy into?

Read this before you jump into Bitcoin.

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