Everyone wants to invest in different things and assets. The traditional methods of investments were seen as buying a property of land or gold. One big advantage that is seen with these two respective things is that the price of land and gold never decreases, it has always been on increase. Although, we can omit gold because, in the case of gold, prices fluctuate, but in the case of land, prices are always hiking. A land once purchased is sold at the price above the cost it was brought at, hence it is seen as an excellent and lucrative investment option. But recently we have seen the rise in Bitcoin investment and everyone on the internet is talking about how it is one of the best ways to invest. So, what exactly are bitcoins?
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What Is Bitcoin?
Bitcoins are a cryptocurrency launched in 2009 by a man named Satoshi Nakamoto, who made the existence of bitcoins only online. It does not have a physical existence like currency notes and coins but has the same value. It is completely a computer-based means of exchange and flows from one online wallet to another. Secondly, this cryptocurrency is not administered by any central bank of any country, meaning that any kind of bank does not control the bitcoins, and is stored in your digital wallets and their security is ensured through public and private keys. Having a public key means that you can trade and transact with each other.
Thirdly, the verification and recording of all your transactional data is saved in a public ledger names and ‘Blockchain’, thereby reducing the chances of fraud and making all the activity transparent to both the holder and the manager. The bitcoin is decentralized and the anonymity that it comes with allows the investors to use this efficiently and allows users to set up multiple addresses and setting up an address does not require any personal information.
What Is The Motive Behind Bitcoin?
Back in 2007, a man named Satoshi Nakamoto proposed the idea of bitcoin white paper which was basically a payment based solely on mathematics. His principle motive was to create bitcoins was to create a currency system which would evade all the banking system and would operate on a decentralized ledger.
Will You Pay Taxes If You Have Bitcoin?
According to the IRS, bitcoin is a cryptocurrency as a property and charges taxes according to its value. So, if you buy or sell bitcoins and earn bitcoins, you would need to report just like you report when you earn money through buying or selling of any physical asset, as it is considered as a capital gain in both cases. Secondly, if you render a service and you are paid in bitcoins then you have to report your income equivalent to the value of that bitcoins each and every time you receive it.
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The Working Of A Bitcoin
Now as we know that bitcoin is a cryptocurrency and its payment and transfer is done only online, let us learn how bitcoin works. Turns out that there are only 21 million bitcoins in the world, but they are divisible hence as a medium of exchange is unlimited. Now, let us see things the easier way. As we already talked about the existence of bitcoin, we know that it is a computer file with monetary value and is stored in online wallets. People receive payment or give payments through bitcoins like we do with general currency. So we can send or receive bitcoin or just a part of bitcoin from or to other people.
Now, your every transaction is recorded in a publicly accessible ledger called ‘Blockchain’. Blockchain can be seen as an online equivalent to the public, the only difference being that it is not publicly visible and is a physical handbook. With the help of Blockchain that stores your transaction history and ownership details of bitcoin, you can only spend bitcoin that belongs to you and prohibits spending those coins that you don’t own or making copies or undoing transactions.
How Can You Get Bitcoin?
Now that you have known the basic functioning of bitcoins, you must be wondering about how to get bitcoin. Let us get you there, too. There are basically three ways to get bitcoin:
- You can buy bitcoins using the physical/real money i.e. cash.
- You can render services or sell assets and demand payment in bitcoins.
- You can also create one using a computer.
Now, you must be wondering about how to generate bitcoin using a computer. It is a little complicated process and a very exhausting one if you start acting on it to get one bitcoin. As we all know that our computers process many mathematical problems on a daily basis. Hence, you need to make your computer able to solve transactions for everybody. As the computers solve extremely difficult sums, each of the computers is rewarded with a bitcoin for its owner. People set up their computers in this way to earn bitcoins through processing transactions of others. This method is known as mining. But, as you proceed, the sums keep getting difficult in order to stop the generation of too many bitcoins. Hence, it would take you years to generate single bitcoin.
How To Invest In Bitcoin?
Before you get into the investment procedures, you should be aware of all the legalities you are going to be involved in and to protect yourself from any fraudulent activities. To purchase a bitcoin you must look several factors and two of them are :
- The good rates.
- The nature of the KYC procedure you are offered for the exchange.
Those who are first-time buyers must to be thorough research and must start with an investment of as low as 100 rupees. It is very important to evaluate the security, the terms and conditions and the usage of the platform. You can go to one of the exchanges and buy bitcoin easily. You need to transfer the decided sum of money in the exchange’s bank account and buy a bitcoin. Another method to invest in bitcoin is via in-person trading but it is not recommended for beginners as it is considered risky because with monetary gains come monetary frauds and risks, too.
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