What is Bitcoin & How it Works?

I had never heard the word ‘bitcoin’ until just last month, when I read a story about a poor guy wh...

I had never heard the word ‘bitcoin’ until just last month, when I read a story about a poor guy who threw out his computer hard drive that housed a virtual wallet filled with $9 million worth of bitcoin (According to Forbes). Unfortunately, the hard drive is nearly impossible to find in the landfill…quite the hard lesson to learn.

How does a computer hard drive become worth $9 million? Let’s take a look at the term bitcoin and what it means.

An Introduction to Bitcoin

Bitcoin is a new form of currency. They are digital coins which are transferred from person to person without the need of a bank or any other centralized service. You can send or receive any amount of payment from anywhere in the world with very minimal fees.

These digital coins are stored in a digital wallet where you can also track all your transactions. This wallet is also where all your transactions originate. Wallets are available as an online service or as a download program you install on your computer (I’m thinking this is the form used by the fellow who tossed his hard drive).

Getting Started

If you’d like to start collecting bitcoins, then your first step is to set up your digital wallet.
Next, you need to look for a currency exchange to purchase your bitcoin. A local currency exchange is necessary if you want to use physical currency to trade for bitcoin. An online currency exchange is an electronic form of payment.

There are a few different companies selling bitcoin so you’ll notice they are called by different names but the concept is the same. These coins are loaded to your digital wallet and ready for you to spend, regardless of the particular name or exchange you use.

Where Can You Spend Your Bitcoin?

You can use bitcoin to purchase gift cards to major retailers through Gyft.com. Gyft is an app that downloads to your smartphone and you upload all your gift cards to your phone. No more losing your plastic gift cards…it’s as simple as buying, uploading and redeeming all from your phone.

A Subway sandwich shop in Allentown, PA accepts bitcoin as payment and they have seen a wide array of travelers to their store, just for the fun of testing out the bitcoin process.

There’s also the world’s first bitcoin ATM machine at Waves Coffee House in Vancouver, British Columbia.
And WordPress.com accepts Bitcoin as payment now!
If you do some more research on accepting bitcoin as payment, this could be a very unique marketing tactic to use for your own business. 

Of course, some people fear this unregulated form of currency could be used for illegal purchases but speculators see a rise in the bitcoin value recently and have confidence that the value will continue to rise.

Top Coins and Top Currency Exchanges Today

As always, do your due diligence and research the Bitcoin trend on your own before investing any money. If you think this is something you want to try, the top coins available for purchase today are:

  1. Bitcoin
  2. Litecoin
  3. Peercoin
  4. Namecoin
  5. Quarkcoin
And the top currency exchanges are:

  1. Coinbase (California)
  2. MtGox (Japan)
  3. Cryptsy (Florida)
  4. Coinsetter (NYC)
If you have any personal experience with Bitcoin, we’d love to hear about it so leave a comment and tell us your thoughts on this new currency.

Today’s Lessons & Action Steps

  • ALWAYS do thorough research before investing any of your hard earned money. This avenue is new and just because it’s popular today doesn’t mean that trend will continue.
  • Consider accepting bitcoin as payments and add that fact to your marketing materials. You most likely will have to educate your market about it but that paints you as the expert in your field and builds your credibility and expertise.
  • Start small. There’s nothing saying you have to jump in and spend thousands of dollars on bitcoin all at once. Give it a try (after doing your research) and judge for yourself if it’s worth it.
  • Research how to avoid being in a situation like the guy who lost his $9 million! What happens to your bitcoin if your hard drive crashes or you forget it’s on your hard drive and throw it out? Is there a way to backup your digital wallet or to access it from another computer?

Personal Bitcoin Story

In December 2013 Don Campbell shared his bitcoin experience with our Expert Members group. He purchased .1 bitcoin (notice that’s a decimal point…at the time of this happens, whole bitcoins sell in the $600 range). Don’s initial investment was $87. However, it took a week for the transaction to clear, at which point the .1 bitcoin was worth $67, or 23% LESS than his initial investment.

Of course, as with any type of financial investment, there’s always the potential for the value of the bitcoin to rise again but do be careful before investing.

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