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Top things you must know about Bitcoin One thing for sure, no one is able to grasp everything there is to know about Bitcoin. In fact, even the most sound investors or the most tech-savvy ones would need time before they get the hang of it. The basic idea is that it is a digital currency and is among the 800+ out there. Bitcoin is the oldest cryptocurrency in the market which has been around for slightly less than a decade. Here are the top things you should know about Bitcoin before considering jumping into this market. How it started – Bitcoin started in 2008 by Satoshi Nakamoto. The date of its birth was actually 3rd January. Nakamoto published a proof of concept that was published but he just vanished in 2010 which was then picked up by other developers. It must be stated that the true creator of Bitcoin is still unknown as Nakamoto has denied it all this while. Some names have surfaced but nothing is confirmed You can use Bitcoins for spending – the first bitcoin transaction took place in May 2010 which was to buy pizza. Since then, it has been used for all types of transactions that include paying for air tickets and hotel stays. The first pizza was purchased for 10,000 bitcoins which were at a very low value then. In November 2017, 10,000 bitcoins is equivalent to almost USD100 million. Illegal trading using Bitcoin – the US FBI shut down a darknet site Silk Road in 2014 where bitcoins were used to buy and trade drugs. Then, the US government took over all the wallets that contained about 150,000 bitcoins. That was a moment when the US government became the largest bitcoin holder before selling them off to bidders. Risks from hackers – Bitcoin is not entirely safe from hackers. Like any financial engine and the fact that it operates fully online, it is open to threats. The biggest setback came in 2014 when about USD$460 million of bitcoin currency was hacked and stolen from Mt Gox. What the billionaire investors think? – so far, Bitcoins have a bit of both. Warren Buffet has warned against investing into Bitcoin. Others have supported it. The main challenge is spending your money in something virtual (online). But that was what happened when E-Commerce first came in. Bitcoin Billionaires – There has been some really remarkable successful investors which include the Winklevoss twins (Cameron and Tyler). In 2013, they bought USD11 million worth of Bitcoin. They have later declared the first Bitcoin billionaires when the value hit USD11,000. This has even attracted celebrities like Gwyneth Paltrow and Ashton Kutcher, to name a few Financial institutions taking notice – although Bitcoin is not regulated by any agency, it has attracted a lot of interest from large financial institutions. Among them is Fidelity Investments while many others have become more receptive although rejected it initially. What is going on now? – as at the end of 2017, the value of Bitcoin is USD18,000 per unit. About 16.7 million Bitcoins are circulated around which is about a market capitalization of around USD300,600 billion. To put that into context, it is higher than top firms like IBM and Disney. The price slump to $10k and hovering around 8k and waiting for next moment to surge again. Digital Currency Basically, Bitcoin is a type of digital currency which uses electronic means. What makes Bitcoins so interesting is that it is not like any other physical currency which are neither printed nor produced. Created and maintained electronically, it has become one of the major revolutions in recent years. First type of cryptocurrency A distinctive feature of Bitcoins is that it is not controlled by anyone. It is in some way, user-generated and maintained. Software applications are used to calculate and ensure security when it is used or traded. What is Bitcoins used for? Typically, Bitcoins are like any other currency that exists in the world, except that it does not have a physical form. With Bitcoins, you can: Trade Make purchases What makes Bitcoins so special? One word distinguishes Bitcoins from every other form of currency in the world. it is decentralized. This means that no bank controls or regulate it. Developed by Satoshi Nakamoto, the idea behind Bitcoins was to have an independent currency and this has been a hugely successful project. How is it produced? The term coin is used which means there would be some form of ‘mining’ involved. Computers are used to process the transactions of this virtual currency and in return ensuring that its payment network becomes effective. Would this then mean that there can be an unlimited number of Bitcoins being mined? According to the protocol specified, miners can only produce up to a maximum of 21 million bitcoins. That is the maximum number of bitcoins which can exist at any time. However, these coins can be further divided into what is known as ‘Satoshi’s. that would be a one hundred millionth of a bitcoin. So, what is the basis of Bitcoin? While conventional currency are developed based on the amount and price of gold or silver, bitcoin used mathematical algorithms. These software programs are being used globally for bitcoins to be produced. Highlights of Bitcoins The following are what sets Bitcoins apart from conventional currencies: It is not centralized – the entire network governing Bitcoins does not come under anyone’s control. It is collectively created and maintained by the machines that are designed to mine for bitcoins as well as in processing the transactions. In other words, Bitcoins are not subjected to any form of policy in monetary issues. Easy to manage – One of the biggest problems for merchants when it comes to trading is opening a bank account. If the red-tapes do not turn you off, the time and process will. With Bitcoins, setting up can be done within minutes after registration and the best thing is that there are no fees involved. Anonymity – As a user, you can have several Bitcoin addresses. One of the good things about Bitcoins is that your addresses need not be linked to your personal information or that which could be detrimental to you. It can be a purely merchant-based account. Transparency – A blockchain is used in Bitcoins. This is some form of a huge general ledger that logs all the transactions. This does not mean that people will know everything about you. If you store your bitcoin in a public address, it can be seen but without the information of who owns it. Fees – Transferring funds have never been cheaper. There might be some charges involved but it would never be as high as those imposed by conventional banks Speed – with Bitcoins, transferring funds is fast and efficient. After all, you are using a computer to carry out this transaction and the network is a collection of computers Current issues behind Bitcoins A lot of talks has been going around on Bitcoins. After all, this has been a revolutionary product that has taken the world by storm which potentially changed financial markets. As such, it has garnered a lot of media attention. One of the issues that came out was around 2011 when criminal traders used it for money laundering. The value of bitcoins went through the roof then when they bought batches of Bitcoins in millions to move their money around. So what did that teach us? With Bitcoins, the power of producing money has been removed from the federal banks of the country. In fact, the general public has been given some form of power to produce money. Unlike standard bank accounts, Bitcoin accounts do not come under the jurisdiction of any legal system. This means that no one can freeze your bitcoin account. Without control or power of the police or legal system on these monetary practices, the sky becomes the limit for criminals and those who are looking to manipulate the system. Bitcoin to replace Ringgit? Online retailers are the most common type of parties who are ready to accept digital currencies. Meanwhile, brick and mortar retailers are beginning to see Bitcoin as a good way of accepting transactions. However, in a recent report, the F & B industry too is taking notice. Among them are foot stalls who have since advertised that bitcoin is accepted. In major cities like the Klang Valley, there are now food stalls stating they accept Bitcoin and Ethereum, collectively 2 of the largest cryptocurrencies globally. Some food stalls in smaller cities are accepting them as well although they are more prone to accepting only bitcoin. Still in infancy stages Although merchants have started accepting cryptocurrencies, this is still a very new market. A lot of merchants are gearing up for what will happen once cryptocurrencies become mainstream and those who have started the ball rolling will surely benefit from it. Besides that, there has been a few training centre that has sprung up in recent months that offer people who like to know more about how cryptocurrency works, the trading mechanism and other related issues. One of the exchanges operating has recorded a million wallets ever since. To put that into context, around 1000 bitcoins were traded in a single day which amounts to about RM50 million while the value between RM2 and RM3 billion is being traded in Bursa Malaysia daily. How big is Cryptocurrency? One thing for sure, those who are for cryptocurrencies believe that it is the future of investment and that it is definitely here to stay. After all, since Bitcoin enters the scene, it has made inroad across the world. There will not be so much talk, particularly from the finance fraternity if it has not created any waves. Some has strongly claimed that Bitcoin and digital currency is a bubble and would be ready to burst anytime. What it means to have Bitcoin? Owning any form of Bitcoin means you become part of the worldwide community to have some form of accountability in this currency. Never before has there been any currency in the history of the world to be this huge. To put that into context: Bitcoin will be the single biggest currency if it ever gets there The value of a single Bitcoin could breach the USD20,000 mark if it is dominant What about price volatility? The risks and liabilities have all been mentioned numerous times. Whatever the situation, there are many other concerns especially amongst Malaysia’s investors. Among them: Price – Perhaps the biggest concern with cryptocurrency is the fact that its prices have been surging and fluctuating uncontrollably. Options – there are literally thousands of different cryptocurrencies in the world today and they are all readily available online. While Bitcoin and Ethereum is currently the top 2 currencies, users can buy from any which means the risk of losing is obviously higher ICOs – known as initial coin offerings, they are mushrooming because it is easy and there are now even local ones too Knowledge – Malaysians need to be well educated about how this works. It is not about bitcoin or Dash but it is the blockchain technology which should take center stage. The Bitcoin Architecture Having said all the good and bad things about bitcoin and cryptocurrency, it becomes all the more important to know what underlying architecture is. In fact, you need to know the technology behind it so that you know where your money is going. The internet in nature is a very large network and blockchains can be simply understood as many networks on top of the internet (made up of many networks too). So it can sound really complex. The blockchain is actually many layers of networks operating on top of each other, all of which have their own distinct characteristics. In general, blockchain platforms have 3 main features which are: Shared memory – The network is extremely secure especially against threats like fraud and possible loss of data. This is because all the transactions carried out on the blockchain are recorded. They are stored in all the computers in the network so that they are transparent Cryptography – Encryption is enabled in all the transactions happening in the blockchain. This is actually a set of algorithms which is highly complex Decentralization – Like the internet (from where blockchain was born), nothing controls it. There is no entity that governs blockchains. In fact, blockchains are kept active because of the constant participation of everyone in the network. This means when security breaches happen, not everyone will be affected How do they add up? In general, the 3 features are found in all the blockchains where some are used interchangeably. However, in the case of Bitcoin, these features are used for 2 main reasons: As an enabler of financial transactions between the users directly As a storage space for the value of the currency Enabler of Financial Transactions In the conventional currency, there is a very high level of trust involved. For instance, a $5 note means it carries the value which is stipulated and defined by the government where you will get your $5 worth of product or service no matter when. We trust that the bank accepts the value as it is. This is where the government works with the bank to create that trust by sanctioning them. In a Bitcoin network, you get the same service and value. The main difference here is that while you still have that $5 value in your account, you will not be needing any bank or intermediary to place your trust on. You can carry out the transactions as you like and still enjoy the same security. As a storage space As compared to the conventional currency, the $5 value is guaranteed by the government with some form of collateral as it owns a lot of assets. However, the government has the prerogative to print money which could devalue the currency if it overdoes it. Blockchain allows you to store your own value and that is not influenced by any party who might not be aware of how to manage them. Bitcoin, like gold, must be created (in this case, mined). There is a maximum number of Bitcoin that can be mined which is 21 million. To date, it has reached more than 17 million. The whole idea behind this is to ensure that the amount of value that you have now would not be less some years down the road. Who controls them then? Having all the security and transparency issues taken care of is one thing, knowing who runs all these is another. It is natural to have questions like: Who is involved in the encryption? Where do Bitcoins come from? Who ensures that the network is not centralized (thereby controlled)? Who is the record keeper? The answer is simple, Bitcoin was built on the philosophy that no one controls it, more so when it involved governments. This was done in light of the 2009 world financial crisis which saw a lot of people across the world losing their money. The banks had then lost their control and failed to serve its customers as they were not ready for the crisis. This money system was although robust, still volatile. The thing about Bitcoin is that it comes from computing power. It is made up of people that form the network which means that it would not exist if there are no participants. There are people across the world who build dedicated machines for Bitcoin to run. They are known as miners who over-time, keeps the network from shutting down. At the moment, they will run out of Bitcoin somewhere around 2140 and when that time comes, the miners will be paid transaction fees for keeping the network active. As a network run by the participants for the community, coupled with the fact that it is stored publicly means that it is safe as it serves everyone’s interests. The more people getting involved in maintaining the blockchain will help everyone to profit which means that they will do all they can to ensure that it doesn’t go down anytime soon. Is Bitcoin as lucrative as many claimed or is it more like a smokescreen that might vanish after a while and would it be an online scam? There is no doubt that Bitcoin is one of the fastest-growing asset in the world today. In many economies, it has been used as legal tender with some retailers openly announcing that they do accept Bitcoins for transactions so much so that people were reportedly buying beer using Bitcoins. Should we invest in Cryptocurrency? Whatever the outcome may be, Bitcoin is a form of investment. Whether it is a bad or good one, this remains as anybody’s judgement. After all, Bitcoin is supposedly more volatile since it is traded in a more open platform as compared to any other forms of investments. The question of whether Bitcoin is a good investment continues to linger around the analysts and investors alike and we try to address this issue. How do we judge? To understand how good an investment Bitcoin is, the price would be the most important factor. To say that it has surged up to 900% at one time would put it in a very positive light for any investor, both seasoned and novice. Customers – There has been a lot of enquiries about Bitcoin. Customers are concerned about how it works and if they are at risk of being cheated. This is quite a plain theory really since Bitcoin functions the same way as any other currency. You have it, you keep it and you use it. If the value goes up, you can sell it make a profit. Value – Like any other currency, the value of Bitcoin fluctuates. But unlike the conventional paper money, Bitcoin is not physical. The value might surge and drop drastically. This means that the $100 Bitcoin you have today might be worth thousands tomorrow or otherwise!! Longevity – Bitcoin can be kept for a longer time. This is because there is no central control of Bitcoin from any authority. As long as there are active traders, Bitcoin exists. Acceptance – Bitcoin is now accepted mostly online. In some countries across Europe and America, they are beginning to experience a higher uptake from merchants in accepting Bitcoin as a legal currency. However, this is very slow in Asia with other new payment methods gaining ground. One such platform is Samsung Pay and AliPay, both of which have their ready customer base before even launching (South Korea and China respectively). Such competition will surely deter the implementation of Bitcoin in these markets Volatility of price No matter what any one tells you, Bitcoin prices are very volatile. It could drop about 40% and then experience a spike increase of double or triple, all within a week. The best way to keep the price in check is to keep a Ledger hardware. This is something that requires certain technical knowledge which would be more suitable for the tech-savvy. Timing is everything You need to enter the market at the right time. This is not an easy task as there is never THE right time for investing. You can however, do some research on the price and behaviour before entering the market. This means that it would be good if you look for Altcoins which is less speculative as compared to Bitcoin. When you invest into Bitcoin, chances are you will have to wait for a longer time which is about a year at least. Always do your homework There is no shortcut to success. This simply means that you will have to do some homework before investing. The idea here is to understand the market and the behaviour or Bitcoin before you even consider injecting your funds. While Bitcoin can be a good option for investment, you must learn its mechanics. To do this, you should learn more about the technology that Bitcoin operates on. The 2008 Satoshi white paper is a good point to start and it is short, concise and easy-to-understand. Once you learn about the technology, you get to know its behaviour better. Be cautious and not be too greedy It is easy to over-invest and you run the risk of getting burnt. Any sound investor will know that risk is inherent to any form of investment. Because digital currency is still very new in the financial markets, you can never fully expect what could happen in the near or long-term future. After all, the bond and stock markets have decades of history which in a way is more stable. Pricing of Bitcoin Experts will tell you that you should not be chasing Bitcoin prices. You should do your homework, decide on an entry point and then get in. Try not to buy Bitcoin all at once. The idea here is to invest a little, wait for a while and then invest a bit more. Look for alternatives Bitcoin is not the only currency you can invest into. There are several others that you might want to consider so as to diversity your investments. This includes the likes of: Litecoin Ethereum Ripple Neo EOS Monero Dashcoin Tron Stellar(branch from Sipple) Bitcoin Cash and hundreds more So, is Bitcoin a good investment? It is if you are not in a rush to use the money. For long-term investment, it surely is. Be wary of Cryptocurrency or ICO Ponzi Schemes You know for a fact that you must beware of scams in cryptocurrencies. The lack of regulation and law enforcement in this money market makes it a hunting ground among scammers. High Profile Cryptocurrency or ICO Scams Over the past few years, the rise of cryptocurrencies has prompted a lot of attention. From the largest cryptocurrency hacks to scamming, reports after reports have surfaced. While hacking requires a lot of technical skills, scammers has taken to Ponzi schemes to trick gullible investors. Cases of Ponzi schemes There has been several reports of Ponzi schemes, which over the course of history has amassed more money than many other types of investments. Gnosis managed to sell USD12.5 million worth of their internal currency. And they did it in slightly more than 10 minutes. And then, there was OneCoin which said it was the next Bitcoin had 18 of their representatives jailed for using a Ponzi scheme. But by the time they were caught, some USD350 million was already scammed. These 2 cases are stark contrasts from each other. But they are similar in their schemes. More than 25 such companies have since surfaced. They claimed to be using blockchain technology to offer their ICOs or Initial Coin Offerings as a mean to attract investors. Are ICOs the next big thing? ICOs are not IPOs for sure. While the latter is a flower bed for investors, ICOs are ideal for scammers. This is because ICOs are not regulated. In fact, no financial authority has any jurisdiction over them. Its market are lacking in validation and verification. In the OneCoin case, the problems were already there long before they were caught. But gullible investors chose not to see them. Gnosis on the other hand used their so-called experts. The interesting fact here is that OneCoin were a lot more attractive than Gnosis. The gaping problem here is that investors seemed to know a lot about blockchains but only as far as they are being mentioned. In most cases, they do not know how the entire business model works. If you understand how it really works, as in the technology, you will know it is never this simple. In fact, it means the owner and operator has the ability to channel funds to places you can never imagine. This is why people lose their money within seconds and that is why Ponzi scammers can sell coins in such a short time. Bitcoin Exchange Trading Ground Rules First things first, if you are trading Bitcoins (or any other forms of trading), you need to: Put 100% focus into this Don’t get distracted and put in enough hours to learn about Bitcoin Understand that trading might not be everyone’s cup of tea and hence know when to exit. Then, consider the following tips. Have an objective You need to have a reason when you trade. Before starting, know why you are starting the trade so that you can formulate the right strategy. Your strategy should have room for times when you are not earning. The concept here is to know that there are times when you might not be earning. You cannot win every time but not losing might just be a good strategy. Exit Strategy in Trading Bitcoin Set a target and make sure it is clear. If you are taking profit, then you need to have an exit strategy. Read this! You must know when to stop when you are making money. You cannot earn them all. Then there is the other side of the spectrum. If you are losing, you need to know when to cut the loss. The high and low levels must be clearly identified before starting your trade. This will give you space to calculate how much you are ready to lose and how much you could potentially earn. Once you reached those points, stick to it! Find pockets to earn The best strategy is to go for small profits. You can never find the peak of the movement so what you want is to build your profit based on accumulation. By managing your risk wisely, you get to earn more in the short to middle term. Bear in mind that Bitcoins are very volatile. Look for other markets that have a direct or indirect effect on Bitcoins and then work your way up. Be practical This should be the same theory you would have heard in most investment engines. Think before acting and more important, be practical about your investments as well as the processes that you intend to go into. Charges You do realize that there are some form of charges involved when you trade. This means that the more you trade the more you have to pay. So, think about reducing your costs before its too late. Decision making Ultimately, you should be the one making the decision whether to trade, to cut off or to stay silent. You do not want to be pressured into making decisions that might benefit you in any way. Setting your goals A lot of traders lose sight of what they set out to do in the first place. If you know you have to stop after earning a certain amount, factor that in from the start and stick to it. There will always be other opportunities. You cannot let this one spoil what’s coming in the future. Get market scoops If there are news reported by major news sites, then there is a high chance they are true. Maybe its time for you to pull out of that trade and re-strategize for your next move Market Capitalization and Market Price There is always a lot of confusion when it comes to market capitalization and market price. If that doesn’t confuse anyone in the money market, nothing will. For an industry as new as cryptocurrencies, this is all the more confusing than ever. What is the difference? These terms are never easy to understand especially in these contexts. To put in simply, Market Capitalization or MarketCap in short is basically the amount of money that is being invested into any form of cryptocurrency. This is where it makes a lot of sense because it is how much USD or how much GBP you put into the cryptocurrency. On the other hand, the price of the cryptocurrency refers to the amount that you need to fork out to buy a single token. So, why the confusion and how crucial is it? Have you ever asked the question: if Bitcoin can reach USD1,000 then it is possible that this coin is USD1 at least? This is a very wrong statement. This is because it is not possible to compare 2 currencies in their potential to grow. This is because in cryptocurrency, the price is determined by the supply and demand. So, what does it mean? This means that when Bitcoin’s current price is USD1,000, it must be considered with the circulating supply which could be 15 million. So, if the supply increase to say, 150 million, that means the price would drop to USD100. That’s how the law of supply and demand works. This is in light of the fact that the same amount of money was invested. In another context, it means that if Coin A has 200 times more the supply of Coin B, it would need 200 times the amount of money invested in Coin B for both the coins to be similar. How does MarketCap works? For instance, if the supply of a coin is 10 billion, the market cap will come from USD10 billion being invested in it if the price is USD1. This means that the market cap would be USD10 billion. This is a clear indication that the prices of coins cannot be compared. This is because the supply will change the price too drastically. So, what can be compared then? The price of 2 coins cannot be compared. That is given. Hence, the best indicator would be market cap. Since it is the amount of fiat money, it gives a real indication of the currency’s size. For example, if Litecoin is expected to become the same as Bitcoin (in terms of size). In other words, it means that the market cap of Litecoin would be the same as Bitcoin’s market cap. This is what the ‘Flippening’ phenomenon is. It is where there is a same amount of money being invested in both cryptocurerncies. This will be the best way to compared 2 currencies. The price might be easy to compare but it will not make sense. The market cap would. Bitcoin as investment option Bitcoin is a market not for the faint-hearted. Like any other volatile markets, investing in Bitcoin has its risks which means you can easily profit or lose. Hence, you need to take precautionary steps before jumping in. Better still, you should know what strategy before entering the market and stick to it! Why you should invest in Bitcoin? There are almost 900 different ones, which one should you take and when would be a good time? We will try to give you the answers to these bugging questions. How do you actually invest into Bitcoin? The numbers never lie, the value of Bitcoin has increased by more than 25,000% since it came into the market back in 2011. Meanwhile, its alternative (and another major currency), Ethereum has increased by nearly 3,000% since 2016. As a whole, the market capitalization has already breached 10,000% in the last few years. With such an amazing performance, it is no wonder analysts are fast concluding that it is a bubbling and is heading to destruction. Have you missed the ship? The usual question is that since Bitcoin has already peaked, wouldn’t you have missed the chance to invest? The answer is No! because it is like investing in any other financial market. If you had known this 5 years ago, you wouldn’t have been reading this now. Before going further, know this, investing in cryptocurrencies is very high-risk. Rule No:1 – Don’t overinvest This is the best advice any analyst will tell you. NEVER overinvest. You need to be able to invest and go about your normal life. This means that you must be ready to lose all your investment (should it come to that!) in Bitcoin and still have enough to live by. This is one of the most important rules of investment whether it is in stocks, Forex, or any other platforms. Bitcoin Investment & Trading plan This can be quite easy because you need a starting point. Build your portfolio: Note that Bitcoin is not the only currency around. In the past, (before 2017), Bitcoin was the only one. Today, we have what is known as Altcoins and there you have more choices. Take them as penny stocks but you need to build a portfolio around it. Bitcoin is still the standard but it NOT the only one. Filter the good and the bad ones – Do your homework. There is no way you can make any money without any research. Look for those with very transparent vision and where the development team is constantly heard. Determining which Altcoin to invest in means you must be sure that you have access to these information as and when you need to. Transparency is key! Find reliable Exchanges – You can very much find the exchanges everywhere. Buying Bitcoin is quite easy but finding a reliable one might be challenging because you’d never know when they disappear after a while. It’s best not to keep your crypto in exchanges. Good time to buy? – This is the golden question most people will ask. Generally, there is no best time. What we have observed is to buy when the price is stable and mostly after an extreme surge follows by a nose dive and stabilised for a few months, Definitely not when it’s at its peak or when its crashing. The crashing can be prolonged to 3 to 6 months. US and Australia taxation year end month which is May to June will have a big impact and not a good time to buy for short term investment, as most buyers will sell off earlier to avoid tax. Not like other markets – one thing for sure, if this is a bubble, it is not the same as the other previous ones. So don’t make such comparison to decide. Take time to invest, don’t act hastily. If it jumps 500%, chances are it might happen again. Founders and origin of bitcoin The origins of the bitcoin remains a mystery to present day. The person accredited for the creation of bitcoin is Satoshi Makamoto. However, that remains as a pseudonym because there is no actual person with this name. In fact, it has been reported that Satoshi Nakamoto could be one or a group of unidentified programmers. Introduction of Bitcoin The year was 2008 when the Bitcoin was introduced. It was then released to a cryptography mailing list before becoming an open-source software a year later. There is no central repository as to where the Bitcoin is stored. As such, it uses a concept of Blockchain as its mean of recording through ledger distributed publicly. Impressions of the Bitcoin The Bitcoin has gained a lot of traction since it was released. It is considered as the largest currency based on its market value and in some cases referred to as the first digital currency which is decentralized. How Bitcoin works? To understand how Bitcoin works, there is a difference between Bitcoin and bitcoin. The former refers to the software that it runs on and the latter is the actual money value of this cryptocurrency. Because it is a form of money (digital), it can be used as a medium for trade exchanged. The main difference between Bitcoin and other currencies is that it is not backed by any agency or government. The Bitcoin can be regarded as a type of currency like US Dollars or Japanese Yen. It is derived from an exercise called Bitcoin mining. This occurs when the Bitcoin software is activated and run. This will then create new entries into the public records of Bitcoins otherwise known as Blockchains. Blockhains are used to ensure that the Bitcoin is accurate and minimizes fraud Current situation of Bitcoins To date, it has been recorded that there slightly more than 12 million bitcoins existing in the world. Blockchains will create new bitcoins but there is a limit to how many it can be. Bitcoin exchange rates and risks The bitcoin exchange rate is very flexible and volatile, much like other currencies in the world. At one point, 1 bitcoin is about 700 US dollars and this changes overtime. This means that investing into bitcoins can be very risky as its value is known to change very quickly and drastically. Bitcoins can be used to buy anything from sellers who accept them. It must be noted however that this can be quite risky as many are using it for money laundering. Basically, it moves from one virtual account to another.

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