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Bitcoin explained: why should we care about an SEC decision?

What is bitcoin?

It is a digital currency or cryptocurrency. This means you cannot find it in physical notes or coins. Many companies have tried to create physical bitcoins, without success.

Bitcoins exist in the digital world of thousands of computers, organised in “blocks,” that process the transactions. The database technology underlying bitcoin is called blockchain – a type of software that works as an account ledger on computers all over the world.

An increasing number of entrepreneurs believe blockchain, which can circumvent the need for big financial intermediaries, will challenge traditional payment systems. Various banks are investing large sums to explore how blockchain could revolutionise payment systems and cut costs.

The currency also exists in the electronic wallets of people that possess bitcoins.

Payments are sent directly, securely and potentially anonymously between two people’s digital wallets, whereas all mainstream transactions, including those using intermediaries like Paypal and credit card lenders, run through banks and usually require named accounts and verification.


How can you get it?

Bitcoins are sold just like any other goods, via brokerages or trading exchanges, such as the Bitfinex from Hong Kong. You create your own “wallet” and then store, send, receive and exchange bitcoins.

In some cities you can find Bitcoin ATMs that load the ‘money’ onto your electronic wallet.

The easiest way to buy bitcoins is with hard cash, or your bank account. It is possible, but more difficult, to use credit cards or electronic platforms like PayPal.

Be careful: while changing fiat currency into bitcoins might be easy and cheap, the other way around is more challenging: you can face long delays and high transaction fees.

You can still “mine” it (i.e. use your computer to solve “blocks of information” and be rewarded in bitcoins). But you have to hurry because the reserves are running dry. Plus you might find out that the bitcoins you minted are worth less than you spend on electricity getting them.


How much does it cost?

Just like in any other market, prices vary. Headlines appeared worldwide when the price of bitcoin overtook the price of gold: bitcoin currently trades at around $1,210, compared with $1,210 for an ounce of gold.


Where can I use it?

As with a traditional currency, you can use it to buy goods and services, provided the stores and merchants accept bitcoin. It has become increasingly popular and large corporates like Dell, Microsoft and Bloomberg accept it.
There are online lists of stores that accept bitcoins.

Bitcoin purchases lack basic consumer protection mediums, though. So you won’t be given a receipt for your payment. But bitcoin is not famous for this traditional use. Its key to success is anonymity and the benefits that go with it.

In China, its major market, bitcoins are used to avoid capital controls and send money abroad.

In the past, bitcoins have been used for illegal transactions, such as drugs and arms trafficking in the online black market — and the first modern darknet market — Silk Road.


Is it a safe investment?

There is no such thing as a safe investment. Bitcoins bare the extra risk — or advantage, depending on your prespective — of not being regulated by any official state or governmental institution.

The price has fluctuated heavily in the past and might do so in the future. It is true though that it started from a price of a handful of dollars and now it has reached the price of gold.

Most analysts would say that is reasonable to take risks, as long as you understand the possible consequences.

With big risks comes the opportunities for big profits. See the example of Kristopher Koch-.

In Florida, 2010, programmer Laszlo Hanyecz exchanged the 10,000 Bitcoins he had mined for two piping-hot pizzas. If he had held onto them, his coins would have been easily worth over $4 million today.


Is it legal?

Bitcoins are in most countries NOT illegal. It flies under the radar, like so many parts of the new era digital economy (Uber, Airbnb, etc). And like those, authorities try to regulate its market, but cannot embed it into the traditional economy.


Why is the SEC decision important?

From a peculiarity of the “geek” or the “cryptoanarchy” community to the portfolio of the mainstream investor!

If the Securities and Exchanges Commission (SEC) gives the green light to the bitcoin exchange-traded fund (ETF) of the Winklevoss brothers, this will be the first bitcoin investment vehicle to be approved by the federal regulatory body.

This means that everybody can take a chance with bitcoin, even if they do not even own a PC.

Your parents in the countryside, the pensioners in a village, small traders and institutions will be able to invest money in the hope that bitcoin will continue its record-breaking course.

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