Bitcoin has recently hit an exchange rate of US$650 per 1 BTC. This number looks obscenely high, and should motivate enterprising Malaysians to try getting in on the action. It sounds easy enough, but it isn’t all that easy to convert real currency into Bitcoin. Not to mention the extremely high price of the cryptocurrency means that buying it now seems a little foolish; maybe wait a couple of months for the price to reach something reasonable.
Continues after the break.
What is a Bitcoin?
Created by a person known as Satoshi Nakamoto Bitcoin is a completely virtual currency, which means there are no physical notes to be passed around. All your Bitcoins are stored on your own computer in a special encrypted file and can be accessed using a Bitcoin Wallet. However, the name of the creator appears to be a pseudonym; making the his real identity completely unknown.
To prevent fraud, it uses a complex Peer-to-Peer system where each user contributes to ensuring the spent Bitcoin is valid. This is done via a public ledger (called the block chain) that is shared within the network. Every transaction that is done is copied to the block chain, meaning that every user will have a record of every transaction ever made using Bitcoin. It’s all encrypted though, so only the Bitcoin Wallet itself knows what’s going on.
Of course this tends to mean that the size of the block chain is very big and will take up a massive chunk on your hard drive. At last count it was around 6GB in size, and still growing. Most websites recommend that new users simply buy the block chain on a DVD and update from there.
The nature of Bitcoin means that it is extremely traceable. The currency logs every single address that it transfers to and from, meaning that you will know where you money has been before reaching you. It results in a currency that is extremely transparent, but may also result in revealing too much about the user; due to the side effect of certain wallets noting IP addresses. There are ways of concealing your personal information, and the Bitcoin website helps out with some basics.
It is also important to note that while the price of a whole Bitcoin is very high, the currency can be subdivided to eight decimal points. Meaning that the smallest unit is 0.00000001 BTC.
How do you get Bitcoins?
Obtaining Bitcoin can either be done by buying it, or mining. Buying the currency is easy enough. As long as you have a credit card or can arrange some sort of bank transfer. Just head over to one of the many exchanges specialising in selling Bitcoin for real world currency.
Bitcoin mining requires users to solve complex math problems in order to be issued the currency. Each equation results in a payout of about 25 BTC, which is quite a substantial sum considering the current exchange rate. However, this amount halves when a certain amount of Bitcoin has been issued. The difficulty of the math problems also increases as more users begin to use the currency.
In other words, not only will it become more difficult to obtain Bitcoin, there will be less and less entering circulation. The idea behind this situation is to ensure that the world doesn’t end up flooded in the cryptocurrency. There is also a limit of 21 million BTC, meaning that once that many Bitcoins are issued there will be no new coins entering the market.
Because of the difficulty involved with mining Bitcoins, many users join mining pools. These are other miners who pool their computing power to uncover Bitcoins more quickly. The payout is divided among the members of the pool according to how much computing power they contributed, with a slight bias towards the leader of the pool. This reduces the amount of time spent used to mine a single Bitcoin from several months to something more reasonable.
What do you do with Bitcoins?
To be fair, there isn’t much you can do with Bitcoin in the real world. Especially in Malaysia. There are some businesses that have begun to accept it as currency, but these are usually smaller companies that are willing to try something new. In America, it is possible to order pizza or food delivery using Bitcoin. However, there is only one business in Malaysia that accepts Bitcoin as payment.
Nook is a workspace for rent establishment that is apparently trying to accept Bitcoin as the next big thing. They’re located somewhere in Bangsar, but don’t list their prices in BTC. Which is a little disappointing because it doesn’t help figure out just how much things cost in the crypto-currency.
Fortunately, there are ways of gauging just how much 1 BTC will get you. The website pizzaforcoins.com allows citizens in the US, UK and Canada to buy pizza using Bitcoin. A 14-inch pepperoni pizza with extra cheese will cost 0.02830 BTC, which at the time of this writing translates into US$17. Aside from that, there are lists for tracking who accepts Bitcoin as currency.
Should you get into Bitcoin?
Yes? No? Maybe? Like any new market, there is no real answer here. Bitcoin could just be a fad and collapse within the next few days; or it could explode into the next big thing and you could end up filthy rich. If you’re curious, it won’t hurt to try mining a couple of Bitcoins to see if it’s worth it. There are a few guides about how to get into it, but basically it helps if you have a lot of spare computing power lying around.
If you do get into Bitcoin: good luck, and welcome to the future.