What are bitcoins?
As of this writing, 1 U.S. dollar gives us 1.31 Canadian dollars or 108.91 Japanese yen; these are examples of currencies in the real world. With technology permeating into every nook and cranny of our lives, it was no surprise when seven years ago the digital world gave birth to its own currency called “cryptocurrency.”
Cryptocurrency may sound intimidating and can easily be perceived as more techno jargon, yet you’ve probably heard references to “bitcoin” in popular media; it is the most well-known digital currency. Today 1 bitcoin gives us 537.86 U.S. dollars.
Contrary to a dollar bill that you can hold, bitcoins can’t be held or stuffed into your purse/wallet as they solely exist in the digital world. You keep your bitcoins in a digital wallet, akin to keeping your emails in your inbox, but with stronger security measures employed in most cases. Security strength varies depending on where and who supplies the digital wallet.
Making you a bitcoin expert is not what this article is about because extensive understanding of the underlying technologies such as cryptography and financial world wizardry of decentralized financial/banking system theories are required.
Rather, the goal is just to demystify cryptocurrency so you know what it is. Bitcoin, for example, continues to be adopted by retailers and financial institutions as an alternative payment method. Local news outlets recently lit up with reports of the first bitcoin ATM’s arrival in Akron!
As with many emerging technology-based products, regulation was behind the curve for cryptocurrencies. Here in the U.S., five years after the arrival of cryptocurrency in 2009, our Internal Revenue Services ruled that they are treating bitcoins as “property” for tax purposes. I’m no financial whiz but I believe the bitcoins in your digital wallet are treated like your stock portfolio and subject to capital gains tax because the value of the cryptocurrency you hold fluctuates.
Even though most digital-based tools provide benefits, there also are nefarious entities taking advantage of the same tools. Privacy and anonymity provided for the individual transacting with cryptocurrency is used by purveyors of “ransomware,” for example, to cover their tracks.
So how do you get started with bitcoins? First, you need a digital wallet on your computer, smartphone, tablet or in the cloud (aka the internet). Then you use a credit card or bank account to purchase bitcoins from online exchanges. Attaching a bank account to your digital wallet will enable you to cash out the bitcoins for dollars and transfer them to your bank account. The other method of obtaining bitcoins is when you provide a verification service for a cryptocurrency transaction in this decentralized recordkeeping system. This second method is a cottage industry in itself and requires a much more detailed explanation than this article can provide.
The bottom line is that this online currency exchange is yet another conduit between the digital world and the real world – how neat is that!
Technology and Business Strategist with over 25 years of experience. Holds Bachelor of Science in Computer Information Science and MBA from Cleveland State University.
As co-founder of geek with a heart with the service mark"Hand-holding You in the Digital World" and co-founder of Center for Aging in the Digital World, a nonprofit empowering seniors through technology, Tak helps people utilize appropriate technology in their personal and professional lives.