Bitcoin: A Definitive Guide
There has been a lot of drama around Bitcoin and cryptocurrency in the last year, with its recent rise and seemingly fatal fall making headlines in the months of late. Is hope truly lost for Bitcoin and its proponents? Maybe not. In order to better understand the specifics—What is Bitcoin? How is it useful? Is it over already?—Vogue spoke with expert Karissa Paddie of Bolt, a crypto payment start-up run by the founder of the Stanford Bitcoin group. Read on for a definitive guide to Bitcoin, and cryptocurrency in general— because no matter how you invest, it’s always better to have more information. An interview with Paddie, below.
What is Bitcoin?
Bitcoin is a digital currency created in 2009 by an anonymous person or group of people who chose the name “Satoshi Nakamoto.” It’s completely decentralized, meaning that no one owns it, and no one controls it— there is no “Bitcoin Inc,” and no Bitcoin CEO. Bitcoin are created when a powerful computer solves a complex set of cryptographic problems in a process called “mining;” the Bitcoin is the reward.
Can I pay with Bitcoin?
You can! Thousands of retailers accept bitcoin currently. Purse.io is one great site that gives you discounts for paying in Bitcoin—right now, for example, you get 15 percent off Amazon purchases. There are also Bitcoin debit cards, like BitPay and Shift (Coinbase). For most people, though, I wouldn’t recommend making everyday purchases with Bitcoin.
Why not?
Using Bitcoin as a day-to-day currency is difficult for several reasons. For one, the price (and so, the value), fluctuates wildly between 24-hour periods. Secondly, transactions are slow and take hours to confirm. And, finally, relatively few merchants currently accept Bitcoin directly. Solutions are in the works for most of these problems.
Elizabeth Stark, the CEO of the Lightning Network, is working on a project that will speed up transactions. Some of the more interesting projects out there are alternatives to Bitcoin. Their creators believe that Bitcoin, while very valuable as a store of value or “digital gold,” has failed as a currency, and are working on their own solutions.
What is the price of Bitcoin?
Right now? $11,250. Ask again in five minutes.
Is Bitcoin regulated?
There is notoriously little regulation around Bitcoin, not that national governments aren’t trying. There was a large dip in price recently after news that China closed down exchanges where Bitcoin was being bought and sold. Bitcoin itself isn’t illegal, but it’s a bit of a Wild West situation right now, and the ecosystem is struggling with some of the problems Wall Street dealt with in the ’80s, particularly with regard to price manipulation and insider trading. On the individual level, people have to be careful to avoid losing their Bitcoin to phishing and other scams.
What are alternatives to Bitcoin? Cryptocurrency sounds a little suspect. Why is it called this?
There are literally hundreds of other cryptocurrencies out there. Bitcoin is just the oldest and most well known. Cryptocurrencies get their name from the cryptography required to keep them secure and to control the creation of more units. One particularly interesting player in the space is Ether, which works by executing smart contracts. You can think of a smart contract as an event where if A happens, B happens automatically. As you can imagine, this technology has a lot of uses outside money transfer.
What is the biggest misconception about Bitcoin?
Where do I even start? The conversation around Bitcoin and cryptos in general is riddled with misconceptions. Some of the biggest are:
Bitcoin is for drug dealers and criminals
While Bitcoin’s anonymity means it was used for illegal transactions in its early days, its use is far from limited to that. The use of Bitcoin remains legal in the U.S. and most developed countries.
Bitcoin doesn’t have value because it isn’t backed by anything.
This is like saying the U.S. Dollar doesn’t have value now that we’ve left the gold standard because it’s only “backed” by green pieces of paper with people’s faces on them. Bitcoin’s value is backed by the activity of its miners, its plan for future scarcity, and a hundred other things.
Bitcoin is a bubble.
If you’re looking only at the recent price increase, sure. But what most people forget is the future value. Bitcoin has a plan in place for a “controlled supply,” where the same amount of work will generate less and less Bitcoin over time, and no new Bitcoin will be mined after 21 million coins. The built-in scarcity is what will cause the value to rise over time. If you think of Bitcoin in that sense as a “digital gold,” or a secure store of value that will only get more valuable over time, then it’s tremendously undervalued right now.
Does everyone still need to know about Bitcoin, or is it on its way out?
I encourage everyone to do their own research, and never make investing decisions based on someone else’s advice. That being said, I think Bitcoin is here to stay. Even if it fails to become the global currency its founder envisioned, it will be incredibly useful as a store of value that is more convenient than gold, and it will likely continue to be the main currency for trading in other cryptos.
People who want to be part of the movement can put 5 percent of their savings into Bitcoin (with some Ether for good measure), and then hold on to it for five years. That’s it. Hold onto it, and resist the urge to trade. Thank me later.