[:en]Morgan Stanley is now clearing Bitcoin futures for their clients, meaning that Goldman Sachs is no longer the sole Wall Street firm doing so. Morgan Stanley joins Goldman Sachs, TD Ameritrade, E*Trade and others in clearing CME and Cboe Bitcoin futures.
The reaction of the Bitcoin community has been divided over the creation of regulated Bitcoin futures, with some suggesting manipulation of the underlying Bitcoin market. However, it’s clear that the more Wall Street firms that get involved in anything related to Bitcoin, the more legitimacy it gives to digital currency.
Institutional investors
Morgan Stanley Chief Financial Officer Jonathan Pruzan said the brokerage was mostly concerned with servicing its institutional clients::
“I wouldn’t say it’s been a lot of activity, but it’s for core institutional clients who want to participate in a derivatives transaction.”
Given indications that institutional investors may be starting to play a much greater role in the Bitcoin markets, this is significant. If such institutions become interested in acquiring Bitcoin, the price will certainly soar. Indeed, Coinbase is targeting just such clients with their Coinbase Custody product. Coinbase CEO Brian Armstrong believes institutional investors may be ready to invest as much as $10 bln.
Bitcoin (BTC) is a digital currency, which is used and distributed electronically.
Bitcoin is a decentralised peer-to-peer network. No single institution or person controls it.
Bitcoins can’t be printed and their amount is very limited – only 21 mln Bitcoins can ever be created.
Who created Bitcoin?
Bitcoin was first introduced as an open-source software by an anonymous programmer, or a group of programmers, under the alias Satoshi Nakamoto in 2009. There has been a lot of rumours about the real identity of BTC’s creator, however all of the people mentioned in those rumours have publicly denied being Nakamoto.
Nakamoto himself once claimed to be a 37-year-old male living in Japan. However, because of his perfect English and his software not being labeled in Japanese, there are reasonable doubts about this. Around mid-2010, Nakamoto moved on to other things, leaving Bitcoin in the hands of a few prominent members of the BTC community. Also Satoshi named Gavin Andresen a lead developer.
It has been estimated that Nakamoto owns around one mln Bitcoins, which amounts to approximately $3.6 bln as of September 2017.
Who controls Bitcoin?
According to Gavin Andresen, the very first thing he focused on after Nakamoto moved on from the project was further decentralisation. Andersen wanted Bitcoin to continue its existence autonomously, even if he would ‘get hit by a bus’.
For a lot of people, the main advantage of Bitcoin is its independence from world governments, banks and corporations. Not one authority can interfere into BTC transactions, impose transaction fees or take people’s money away. Moreover, the Bitcoin movement is extremely transparent – every single transaction is being stored in a massive distributed public ledger called the Blockchain.
Essentially, while Bitcoin is not being controlled as a network, it gives its users total control over their finances.
How does Bitcoin work?
A user sees only amount of Bitcoins on his or her wallet and and transaction results.
Behind the scenes, the Bitcoin network is sharing a public ledger called the “block chain”. This ledger contains every transaction ever processed. Digital records of transactions are combined into “blocks”.
If someone try to change just one letter or number in a block of transactions, it will also affect all of the following blocks. Due to it being a public ledger, the mistake or fraud attempt can be easily spotted and corrected by anyone.
User’s wallet can verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses.
Because of the verification process and depending on the trading platform, it may take a few minutes for a BTC transaction to be completed. The Bitcoin protocol is designed so that each block takes about 10 minutes to mine.
Characteristics of Bitcoin
Decentralised
One of Satoshi Nakamoto’s main objectives when creating Bitcoin was the network’s independence from any governing authorities. It is designed so that every person, business, as well as every machine involved in mining and transaction verification, becomes part of a vast network. Moreover, even if some part of the network goes down, the money will keep moving.
Anonymous
These days banks know virtually everything about their clients: credit history, addresses, phone numbers, spending habits and so on. It is all very different with Bitcoin, as the wallet doesn’t have to be linked to any personally identifying information. And while some people just simply don’t want their finances to be governed and tracked by any kind of an authority, others might argue that drug trade, terrorism and other illegal and dangerous activities will thrive in this relative anonymity.
Transparent
The anonymity of Bitcoin is only relative, as every single BTC transaction that ever happened is stored in the Blockchain. In theory, If your wallet address was publicly used, anyone can tell how much money is in it by carefully studying the blockchain ledger. However, tracing a particular Bitcoin address to a person is still nearly impossible.
Those who wish to stay anonymous with their transactions can take measures to stay under the radar. There are certain types of wallets that prioritise opaqueness and security, but the simplest measure would be to use multiple addresses and not transfer massive amounts of money to a single wallet.
Fast
The Bitcoin network processes payments almost instantaneously, it normally takes just a few minutes for someone on the other side of the world to receive the money, while normal bank transfers can take several days.
Non-repudiable
Once you send your Bitcoins to someone, there is no way of getting them back, unless the recipient would want to send them back to you. This ensures the reception of a payment, meaning that whoever you’re trading with can’t scam you by claiming that they never got the money.
What can I buy with Bitcoin?
Back in 2009, when Bitcoin was first introduced, it wasn’t very clear how and where you could spend it. Now, you can buy virtually everything. For example, giant companies like Microsoft and Dell accept payments in BTC for a variety of their products and digital content. You can fly with airlines such as AirBaltic and Air Lithuania, buy theatre tickets through UK’s Theatre Tickets Direct, get a few bottles of craft beer from Honest Brew, and so on.
Other options include paying for hotels and buying property, picking up bills in various bars and restaurants, joining a dating site, buying a gift card, placing a bet in an online-casino and donating for a good cause. There is also a flurry of diverse online marketplaces, trading in everything from illegal substances to high-end luxury items.
Bitcoin is a relatively new and quite complex form of payment, so it is only natural that the spending options are still limited, but every day more and more businesses – from small local coffee shops to industry giants – are accepting payments in BTC.
Moreover, due to its constantly fluctuating exchange rate, Bitcoin became a prime opportunity for investment. Despite still being an unstable and to some extent unrecognised currency, it became seven times more valuable over the last year, almost reaching a rate of $5000 for one BTC.
How to get Bitcoin?
The simplest way of getting Bitcoins is to buy them. Bitcoins are available from various exchanges, but you can also buy them directly from other people via marketplaces. They can be paid for with cash, credit and debit card transfers or even with other cryptocurrencies. But first, you’ll need a Bitcoin wallet.
There is a variety of options, but the main ones can be reduced to an online wallet and a software wallet on the hard drive of your computer. Neither option is completely safe, as a hard drive can become corrupted, while an online wallet might be prone to a hacker attack. There are also mobile wallets, which are very simplified due to an enormous storage capacity required to carry the entire Blockchain; dedicated devices called hardware wallets and paper wallets with two QR-codes that are not stored digitally anywhere, making them immune to standard cyber-attacks and hardware failures.
And, of course, there’s mining. Just a few years ago, anyone with a powerful enough computer could mine Bitcoins, but this is not the case anymore. The BTC’s ever-increasing popularity as well as its exchange rate caused big companies to step into the game armed to the teeth with mining-specific devices, hence why the difficulty and energy required to mine worthwhile amounts of Bitcoins has skyrocketed. What’s more, the amount of Bitcoins still to be mined decreases constantly and drastically.
Pros
Freedom
BTC was designed with freedom in mind. Most importantly, freedom from governing authorities controlling the transactions, imposing fees and being in charge of people’s money. When it comes to buying things, cryptocurrency became just as legitimate as flat currency in recent years, and considering the existence of numerous deep-web markets that only accept Bitcoins, you may be able to buy some things easier with BTC than with any other currency.
High portability
One of the distinct characteristics of money is portability, meaning it should be easy to carry and use. Since Bitcoin is completely digital, practically any sum of money can be carried on a flash drive, or even stored online.
Cryptocurrencies give people freedom to send and receive money with just a scan of a QR-code or a click of an online wallet. It takes little to no time, there are no outrageous fees and the money goes from person to person without any unnecessary intermediates; all you need is Internet access.
Choose your own commission
Another indisputable advantage of the Bitcoin network is a possibility of choosing the transaction fee amount, or choosing not to pay it at all. The transaction fee is received by the miner, after a new block is generated with a successful hash. Usually, the sender pays the full fee, while deducting this fee from the recipient could be considered an incomplete payment.
Transaction fees are completely voluntary and they serve as an incentive for the miners to make sure that the particular transaction will be included in the new block being generated. This incentive also works as an income source for the miners, often bringing them more money than the traditional mining would have, especially considering that the mining activity will stop completely in the future, when the limit of Bitcoins will be reached.
Thus, the cryptocurrency market asks users to chose between the cost and the waiting time. Higher transaction fee would mean quicker processing, while users without any time constraints can save money.
No PCI
PCI stands for Payment Card Industry and it denotes the debit, credit, prepaid, e-purse, ATM and POS cards and associated businesses. It consists of all the organisations that store, process and transmit cardholder data, there are strict security regulations in place and most major card brands are part of it.
While unified rules and regulations can be good for big companies, they might not be taking every person’s needs into consideration. When using Bitcoin, there is no need to comply with PCI standards, which can allow users to branch out into new markets, where credit cards are not available or the fraud levels are unacceptably high.
As a result, users get lower commissions, an opportunity to expand their markets and lower their administrative expenses.
Safety and Control
Bitcoin users are able to control their transactions; no one can withdraw money from your account without you knowing and agreeing to it, like sometimes happens with other ways of payment, and no one can steal your pay information from merchants.
BTC users can also protect their money with backup copies and encryption. Moreover, their identities and personal information are always protected, as none of it needs to be disclosed to make a payment.
Transparent and neutral
Every single transaction as well as every single bit of information about it is always available for everyone in the Blockchain, which can be checked and used in real time. The BTC protocol is encrypted, hence why no human being or an organisation can control or manipulate it. The network is decentralised, so no one will ever fully control it. This is why Bitcoin is always going to be neutral, transparent and predictable.
It can’t be counterfeited
One of the most popular ways of counterfeiting in the digital world is using the same money twice, rendering both transactions fraudulent. It is called a ‘double spend’. To counter this, Bitcoin, just like most other cryptocurrencies, uses Blockchain technology as well as the various consensus mechanisms built into all BTC algorithms.
Cons
Legal questions
Bitcoin’s legal status varies drastically from country to country. In some countries the use and trade of BTC is encouraged, while in others it is banned and outlawed.
There has been a lot of concerns regarding Bitcoin’s appeal to criminals, some news outlets have even stated that its popularity rests entirely on the ability to spend it on illegal goods. Indeed, when the infamous web black market Silk Road was shut down, Bitcoin instantly decreased in value (wired.com).
Level of recognition
Bitcoin is recognised and is perfectly legal in a lot of countries, however some of the world’s governments still don’t have any regulations regarding BTC, while others have outright banned it.
The majority of businesses, no matter how big or small, are still completely oblivious to it. It is nearly impossible to abandon all other currencies and start using BTC exclusively.
Lost keys
A key is a unique alphanumeric password necessary to access a Bitcoin wallet. Losing that key essentially means losing your wallet. However, most current wallets have backup and restore mechanisms, but obviously the user needs to set them up before being able to use them.
Volatility
The price of Bitcoins has had its ups and downs, going through various cycles of skyrocketing and plummeting, referred to by some as bubbles and busts. Throughout its history BTC has been conquering new heights, only to sustain a massive drop straight after. Its value is unpredictable, it changes rapidly and drastically, which can cause significant financial damage to an imprudent investor.
Continuous development
The future of Bitcoin is rather unclear. Currently, governments and banks are not able to control BTC, it’s almost unregulated. However, the bigger and more popular it gets, the more world governments will try to take it under control. A regulated and governed Bitcoin would be an entirely different sort of currency.
Is Bitcoin a pyramid scheme?
A billionaire investor Howard Marks has recently stated that digital currencies are nothing but a pyramid scheme. He elaborated saying that the current success of digital currencies is based on nothing but willingness to ascribe value to something that actually has no value beyond what people will pay for it (cointelegraph).
Those investing in a pyramid scheme get their returns from their own money or from subsequent investors’ money, instead of from profit made by the individuals running the business. When it comes to Bitcoin, however, the gains and its value come from limited supply of coins. As more people acquire the coins, the supply gets rarer, thus making each coin more and more valuable. Bitcoin simply has nothing in common with a standard pyramid scheme.
Is Bitcoin a bubble?
Robert Shiller, a Nobel Prize winning economist, proposed a checklist which helps determine if something is a bubble. Said checklist includes sharp increases in the price of an asset, great public excitement, media frenzy, stories of people getting rich and growing interest in the asset among the general public. Bitcoin checks all of those boxes.
So, in a way, Bitcoin is a bubble and it has burst before. After the infamous closure of Mt.Gox, a Chinese exchange that was handling more than 70% of all the Bitcoin transactions worldwide, BTC’s prices were falling for about a year and a half. It took the prices exactly 3 years to recover. Of course, it is hard to predict what will happen in the future and there is a possibility of Bitcoin’s prices plummeting again. However, Bitcoin has recovered before and it is currently stronger than it ever was.
Difference of Bitcoin from traditional currencies
Decentralisation
Every currency in the world, apart from cryptocurrencies, is governed by some kind of authority. Every transaction goes through a bank, where people are charged enormous fees, and it normally takes a long time for money to reach the recipient.
Bitcoin, on the other hand, is not controlled by anyone. It’s a decentralised network and it’s built on the cooperation and communication of all the people taking part in it. Because of that, even if some part of the network goes offline, transactions will still be coming through.
It can’t be counterfeited
Bitcoin was designed as a currency that can withstand counterfeiting attempts. The legitimacy of BTC is ensured by the Blockchain technology, as well as by various different defence mechanisms built into every algorithm.
Most other traditional currencies are extremely prone to counterfeiting and those who control them seem to be doing close to nothing to fix it.
Durability
Bitcoins don’t exist in physical form, which means they cannot be damaged. Every single Bitcoin is essentially eternal, unlike paper money or coins.
Once sent, cryptocurrencies can’t be recalled
If someone makes a mistake and sends money to the wrong wallet and wishes to get it back, they can’t. Like many other Bitcoin features, this was done in order to prevent fraud. Unfortunately, when it comes to traditional currencies, most transactions can be recalled, all it takes is one phone call.
Fungibility
While there are some traditional currencies like the dollar and euro that are accepted in multiple countries, most of the world’s currencies can only operate within the geographical borders of their country of origin. In contrast to that, BTC is an online currency, meaning that its authorised operating environment is worldwide.
How is Bitcoin taxed?
Bitcoin is yet to obtain a legal tender status in most jurisdictions, but some tax authorities have acknowledged its significance and proposed specific regulations. Those regulations vary significantly from country to country.
For example, the U.S. Internal Revenue Service treats Bitcoin and all other prominent digital currencies as a property rather than a currency. Every taxpayer selling goods and services for Bitcoins has to include the value of the received Bitcoins in their annual tax returns. Miners are also subject to U.S. taxation, but only if the mining proves to be successful.
According to the European Court of Justice, Bitcoin is a currency, not a property. Although it is exempt from VAT, Bitcoin can still be subject to other taxes. The UK tax authorities treat Bitcoin as a foreign currency, with every BTC-related case considered on the basis of its own individual facts and circumstances. As of July 2017, the sale of Bitcoins is exempt from consumption tax in Japan, where it’s officially recognized as a payment method.
So, as Bitcoin is a relatively new currency, the regulations frameworks governing its taxation significantly differ depending on a country. Moreover, in many jurisdictions there are no specific laws or regulations regarding the cryptocurrency.
@aantonop. Andreas. M. Antonopoulos is an author of Mastering Bitcoin and The Internet of Money books.
@adam3us. Adam Back is a Co-Founder and CEO at Blockstream, that provides funding for the development of Bitcoin Core, reference client of bitcoin.
@alextapscott. Alex Tapscott is a co-author of ‘Blockchain Revolution’ book. CEO of Northwest Passage Ventures, an advisory firm building blockchain businesses.
@barrysilbert. Barry Silbert is a founder and CEO of DigitalCurrencyGroup, a venture capital company focusing on the digital currency market.
@BrettKing. Brett King leads Breaking Banks, global fintech podcast
@brian_armstrong. Brian Armstrong is a co-founder & CEO at @Coinbase.
@CharlieShrem. Charlie Shrem is a founder of Bitcoin Foundation and Business Developer at Jaxx, mobile cryptocurrency wallet.
@dtapscott. Don Tapscott is the father of Alex Tapscott and a co-author of ‘Blockchain Revolution’ book.
@ErikVoorhees. Erik Voorhees is a writer, entrepreneur and armchair economist. СEO of Coinapult, a service that enables bitcoin users to send the currency to any cell phone number in the US or Canada, or to any email address.
@gavinandresen. Gavin Andresen is lead developer for bitcoin and chief scientist of the Bitcoin Foundation.
@jonmatonis. Jon Matonis is a Founding Director at Bitcoin Foundation. CEO of Hushmail, a secure email service that lets users to send and receive private, encrypted emails.
@NickSzabo4. Nick Szabo is a computer scientist who designed a mechanism for a decentralized digital currency called “bit gold” in 1998.
@OverstockCEO. Patrick Byrne is a founder and CEO of Overstock, first major retailer which accept bitcoin as payment.
@pwuille. Peter Wuille is a Bitcoin Core developer and the co-founder of Blockstream. He is responsible for important improvements to Bitcoin.
@rogerkver. Roger Ver is an angel investor in Bitcoin startups including Bitcoin.com, Blockchain.com, Zcash, BitPay, Kraken and Purse.io.
@SatoshiLite. Charlie Lee is a creator of Litecoin. Ex-Director of Engineering at Coinbase.
@tylerwinklevoss. Tyler Winklevoss Co-Founder and CEO at Gemini, bitcoin exhange. One-half of the Winklevoss twins, who sued Mark Zuckerberg over the Facebook concept.
@VitalikButerin. Vitalik Buterin is a co-founder of Ethereum and a co-founder of Bitcoin Magazine.
Bitcoin, unlike most traditional currencies, is a digital currency. Thus, the approach to this kind of currency is completely different, particularly when it comes to acquiring and storing it. As Bitcoins don’t exist in any physical shape or form, they can’t technically be stored anywhere. Instead, it’s the private keys used to access your public Bitcoin address and sign for transactions that need to be securely stored. A combination of the recipient’s public key and your private key is what makes a Bitcoin transaction possible.
There are several different forms of Bitcoin wallet, catering for different requirements and varying in terms of safety and security, convenience, accessibility and so on.
Types of wallets
Paper
A paper wallet is essentially a document which contains a public address that can be used to receive Bitcoins and a private key, which allows you to spend or transfer Bitcoins stored at that address. Those are often printed in a form of QR-codes so that you can quickly scan them and add the keys to a software wallet to make a transaction. A paper wallet can be generated using services like BitAddress or Bitcoinpaperwallet that allow users to create a completely random Bitcoin address and a private key to it. The generated document can then be printed, with some services offering a tamper-resistant design or even an option of ordering holographic labels, and it is ready for use.
The main advantage of a paper wallet is that the keys are not stored digitally anywhere, which makes it completely immune to hacker attacks, malware that can log the user’s keystrokes and basically any form of digital theft. However, some precautions when creating a wallet still need to be taken. Obviously, before generating a paper wallet you need to make sure that no one is watching you do it. To rule out the risk of any spyware monitoring your activities, it is recommended to use a clean operating system, such as Ubuntu, running from a USB flash drive or DVD. Furthermore, once the paper wallet is set up, the website code should be able to run offline, which allows you to disconnect from the Internet before actually generating the keys. Finally, use a printer that is not connected to a network.
Moreover, it’s important to understand that you are printing valuable private information on a piece of paper. So, you need to take certain measures to protect that piece of paper. For instance, it is recommended to keep it in a sealed plastic bag to protect it from water, damp and general wear and tear. Some people prefer laminating it and storing it in a safe, a deposit box or entrusting it with a solicitor.
Physical Bitcoin
Physical Bitcoin is usually pre-loaded with a fixed amount of BTC, and the intention is that its value cannot be spent as long as the private key remains hidden. This is normally achieved through implementation of a tamper-evident seal.
The first of its kind, Bitbill was shaped like a credit card, but most alternatives that followed were shaped as a round medal. Mike Cadwell, a cryptocurrency enthusiast nicknamed ‘Casascius’ created the first of the popular Casascius physical Bitcoins in 2011. Private keys were hidden under a peelable hologram, when removed it left a tamper-evident pattern. When redeemed, the coin lost its digital worth. Since then, there have been several new coin manufacturers.
Physical Bitcoins are a very convenient way of storing your funds more safely and can be extremely useful when trading offline. On top of that, they’ve recently become a prized collector’s item. The main disadvantage, however, is a serious one. In November of 2013, Mike Cadwell was asked to cease operations by the Financial Crimes Enforcement Network, as his work was considered a money transmitter. The regulations for this activity were unbearable, so he was forced to stop the sales of items containing digital Bitcoins. As BTC is still a legal grey area in a lot of countries, such items might even be considered counterfeit money by authorities.
Mobile
For those actively using Bitcoins on a daily basis, paying for goods in shops or trading them face-to-face, a mobile BTC wallet is an essential tool. It runs as an app on your smartphone, storing your private keys and allowing you to pay for things directly from your phone. Moreover, some apps enable users to use their smartphones’ near-field communication feature, which means they can simply tap their phone against the reader, without having to provide any information at all.
Any full Bitcoin client requires access to the entire Blockchain ledger, which is constantly growing and requires several gigabytes of storage. Hence why, mobile wallets take advantage of simplified payment verification (SPV) technology. They only work with very small subsets of the Blockchain, relying on trusted nodes in the Bitcoin network to ensure that they have the correct information.
Despite being a convenient on-the-go solution for Bitcoin storage, mobile wallets are very prone to hacker attacks. Moreover, you can lose control of your wallet if someone simply gains access to your mobile device. There’s a big variety of Bitcoin wallet apps for devices running on Android. Apple banned Bitcoin wallets from the AppStore in February 2014, but reversed its decision several months later.
Сold storage, hierarchical deterministic, open source software
Web
Web wallets store your private keys on a server of a company providing such services. The server is constantly online and is controlled by someone else. Different services offer different features, with some of them linking to mobile and desktop wallets, replicating your addresses across the devices you own.
Much like mobile wallets, e-wallets enable their users to access their funds on-the-go from any device connected to the Internet. But unless implemented correctly, the organizations running the website might gain access to your private keys, thus getting total control of your funds. Moreover, some e-wallets are operating on the base of exchanges, and there have been instances of exchanges shutting down and running away with their users’ funds.
A simple Bitcoin wallet, with the added security of a cold-storage vault.
Desktop
Desktop wallets are downloaded and installed on your computer, storing your private keys on your hard drive. By definition, they are more secure than online and mobile wallets, as they don’t rely on third parties for their data and are harder to steal. They are still connected to the Internet, which makes them inherently insecure. However, desktop wallets are a great solution for those trading small amount of Bitcoin from their computers.
There is a variety of different options of desktop wallets that cater for different needs. Some focus on security, some on anonymity and so on.
Name
Operating system
Features
Electrum
Mac OS, Windows, Linux
One of the most popular, robust, effective and secure desktop wallets; open source; allows you to replace a transaction fee on an already broadcasted transaction, which speeds up the confirmation process; address tagging; encryption
Exodus
Mac OS, Windows, Linux
Very user-friendly and easy to understand, reliable wallet.
Bitcoin Core
Mac OS, Windows, Linux
Full node wallet, you need to download the entire blockchain to use it. It allows you to independently verify transactions and not rely on anyone else in the system.
Copay
Mac OS, Windows, Linux
Multisignature wallet; mobile and desktop; open source.
Armory
Mac OS, Windows, Linux, Ubuntu, RaspberriPi
Prioritizes safety and security; features a variety of encryption and cold-storage options.
Hardware
A hardware wallet is a rather unique type of Bitcoin wallet that stores the user’s private keys in a secure hardware device. It is the most secure way of storing any amount of Bitcoins, there have been no verifiable incidents of money being stolen from a hardware wallet. Unlike paper wallets, which must be imported to software at some point, hardware wallets can be used securely and interactively. Moreover, they are immune to computer viruses, the funds stored cannot be transferred out of the device in plaintext and in most instances their software is open source.
Some hardware wallets even have screens, which add another layer of security, as they can be used to verify and display important wallet details. For instance, a screen can be used to generate a recovery phrase and to confirm the amount and address of the payment you wish to make. So, as long as you invest in an authentic device made by a trustworthy and competent manufacturer with a good reputation, your funds will be safe and secure.
Name
Price
Features
Ledger Nano S
58 €
Screen; two buttons that you need to press simultaneously to confirm a transaction, which prevents hackers from hacking into it and confirming payments; PIN code; box ships with an anti-tampering seal.
TREZOR
$99
Screen; two buttons; wallet can be backed up with up to 24 words + passphrase; PIN code.
KeepKey
$99
Screen; digital screen and metal body; PIN code; number randomization; can be backed with up to 24 words; recovery can be done with Chrome extension.
Ledger HW.1
$17
No screen, so must be setup on bootable USB or offline computer; backed up with a 24-word seed; PIN code; security card that provides extra two factor authentication.
Bank
Rainer Michael Preiss, an executive director at Taurus Wealth Advisors, has recently stated that all large US banks are most probably afraid of Blockchain, Bitcoin and other cryptocurrencies. He also mentioned, that given the uncertainty from banking’s lack of transparency, cryptocurrencies can present investors with a viable alternative (CNBC). Indeed, the vast majority of banks do not accept Bitcoin as a currency, some of them even refuse to manage funds obtained through operations with cryptocurrency.
In the light of banks’ reluctance to accept Bitcoin as a viable currency, a Bitcoin Crypto Bank was recently established. First of its kind, it is a privately owned company operating on the Bitcoin trade market. They accept and manage Bitcoin deposits, stating that they know the market through and through. On their website they claim to be a no-risk, secure and certified platform for investment, with high chances of making huge profits.
Bitcoin wallets and security
Possible problems
Catching malware. Malicious software can scan your disk and find your private keys. Seconds later, all your Bitcoins can be gone.
A trojan can encrypt all the files on your hard drive. Afterwards, it might find all links to your wallets, realize how much money you own and demand that exact amount of Bitcoins to decrypt your hard drive.
A virtual exchange can run away with your money.
You can lose your laptop or your phone with your wallets installed on them.
Pieces of advice
Avoid using any kinds of wallets that require Internet connection; use cold storage options instead.
Always be cautious and double-check everything. For instance, you could receive an email made to look like it’s from BlockWallet, but it is actually from BlokcWallet. If you authorize it, your Bitcoins will disappear immediately.
A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled.
History
There have been many attempts at creating a digital currency during the 90s tech boom, with systems like Flooz, Beenz and DigiCash emerging on the market but inevitably failing. There were many different reasons for their failures, such as fraud, financial problems and even frictions between companies’ employees and their bosses.
Notably, all of those systems utilized a Trusted Third Party approach, meaning that the companies behind them verified and facilitated the transactions. Due to the failures of these companies, the creation of a digital cash system was seen as a lost cause for a long while.
Then, in early 2009, an anonymous programmer or a group of programmers under an alias Satoshi Nakamoto introduced Bitcoin. Satoshi described it as a ‘peer-to-peer electronic cash system.’ It is completely decentralized, meaning there are no servers involved and no central controlling authority. The concept closely resembles peer-to-peer networks for file sharing.
One of the most important problems that any payment network has to solve is double-spending. It is a fraudulent technique of spending the same amount twice. The traditional solution was a trusted third party – a central server – that kept records of the balances and transactions. However, this method always entailed an authority basically in control of your funds and with all your personal details on hand.
In a decentralized network like Bitcoin, every single participant needs to do this job. This is done via the Blockchain – a public ledger of all transaction that ever happened within the network, available to everyone. Therefore, everyone in the network can see every account’s balance.
Every transaction is a file that consists of the sender’s and recipient’s public keys (wallet addresses) and the amount of coins transferred. The transaction also needs to be signed off by the sender with their private key. All of this is just basic cryptography. Eventually, the transaction is broadcasted in the network, but it needs to be confirmed first.
Within a cryptocurrency network, only miners can confirm transactions by solving a cryptographic puzzle. They take transactions, mark them as legitimate and spread them across the network. Afterwards, every node of the network adds it to its database. Once the transaction is confirmed it becomes unforgeable and irreversible and a miner receives a reward, plus the transaction fees.
Essentially, any cryptocurrency network is based on the absolute consensus of all the participants regarding the legitimacy of balances and transactions. If nodes of the network disagree on a single balance, the system would basically break. However, there are a lot of rules pre-built and programmed into the network that prevents this from happening.
Cryptocurrencies are so called because the consensus-keeping process is ensured with strong cryptography. This, along with aforementioned factors, makes third parties and blind trust as a concept completely redundant.
What can you do with cryptocurrency
Buy goods
In the past, trying to find a merchant that accepts cryptocurrency was extremely difficult, if not impossible. These days, however, the situation is completely different.
There are a lot of merchants – both online and offline – that accept Bitcoin as the form of payment. They range from massive online retailers like Overstock and Newegg to small local shops, bars and restaurants. Bitcoins can be used to pay for hotels, flights, jewelery, apps, computer parts and even a college degree.
Other digital currencies like Litecoin, Ripple, Ethereum and so on aren’t accepted as widely just yet. Things are changing for the better though, with Apple having authorized at least 10 different cryptocurrencies as a viable form of payment on App Store.
Of course, users of cryptocurrencies other than Bitcoin can always exchange their coins for BTCs. Moreover, there are Gift Card selling websites like Gift Off, which accepts around 20 different cryptocurrencies. Through gift cards, you can essentially buy anything with a cryptocurrency.
Finally, there are marketplaces like Bitify and OpenBazaar that only accept cryptocurrencies.
Invest
Many people believe that cryptocurrencies are the hottest investment opportunity currently available. Indeed, there are many stories of people becoming millionaires through their Bitcoin investments. Bitcoin is the most recognizable digital currency to date, and just last year one BTC was valued at $800. In November 2017, the price of one Bitcoin exceeded $7,000.
Ethereum, perhaps the second most valued cryptocurrency, has recorded the fastest rise a digital currency ever demonstrated. Since May 2016, its value increased by at least 2,700 percent. When it comes to all cryptocurrencies combined, their market cap soared by more than 10,000 percent since mid-2013.
However, it is worth noting that cryptocurrencies are high-risk investments. Their market value fluctuates like no other asset’s. Moreover, it is partly unregulated, there is always a risk of them getting outlawed in certain jurisdictions and any cryptocurrency exchange can potentially get hacked.
If you decide to invest in cryptocurrencies, Bitcoin is obviously still the dominant one. However, in 2017 its share in the crypto-market has quite dramatically fallen from 90 percent to just 40 percent. There are many options currently available, with some coins being privacy-focused, others being less open and decentralized than Bitcoin and some just outright copying it.
While it’s very easy to buy Bitcoins – there are numerous exchanges in existence that trade in BTC – other cryptocurrencies aren’t as easy to acquire. Although, this situation is slowly improving with major exchanges like Kraken, BitFinex, BitStamp and many others starting to sell Litecoin, Ethereum, Monero, Ripple and so on. There are also a few other different ways of being coin, for instance, you can trade face-to-face with a seller or use a Bitcoin ATM.
Once you bought your cryptocurrency, you need a way to store it. All major exchanges offer wallet services. But, while it might seem convenient, it’s best if you store your assets in an offline wallet on your hard drive, or even invest in a hardware wallet. This is the most secure way of storing your coins and it gives you full control over your assets.
As with any other investment, you need to pay close attention to the cryptocurrencies’ market value and to any news related to them. Coinmarketcap is a one-stop solution for tracking the price, volume, circulation supply and market cap of most existing cryptocurrencies.
Depending on a jurisdiction you live in, once you’ve made a profit or a loss investing in cryptocurrencies, you might need to include it in your tax report. In terms of taxation, cryptocurrencies are treated very differently from country to country. In the US, the Internal Revenue Service ruled that Bitcoins and other digital currencies are to be taxed as property, not currency. For investors, this means that accrued long-term gains and losses from cryptocurrency trading are taxed at each investor’s applicable capital gains rate, which stands at a maximum of 15 percent.
Mine
Miners are the single most important part of any cryptocurrency network, and much like trading, mining is an investment. Essentially, miners are providing a bookkeeping service for their respective communities. They contribute their computing power to solving complicated cryptographic puzzles, which is necessary to confirm a transaction and record it in a distributed public ledger called the Blockchain.
One of the interesting things about mining is that the difficulty of the puzzles is constantly increasing, correlating with the number of people trying to solve it. So, the more popular a certain cryptocurrency becomes, the more people try to mine it, the more difficult the process becomes.
A lot of people have made fortunes by mining Bitcoins. Back in the days, you could make substantial profits from mining using just your computer, or even a powerful enough laptop. These days, Bitcoin mining can only become profitable if you’re willing to invest in an industrial-grade mining hardware. This, of course, incurs huge electricity bills on top of the price of all the necessary equipment.
Currently, Litecoins, Dogecoins and Feathercoins are said to be the best cryptocurrencies in terms of being cost-effective for beginners. For instance, at the current value of Litecoins, you might earn anything from 50 cents to 10 dollars a day using only consumer-grade hardware.
But how do miners make profits? The more computing power they manage to accumulate, the more chances they have of solving the cryptographic puzzles. Once a miner manages to solve the puzzle, they receive a reward as well as a transaction fee.
As a cryptocurrency attracts more interest, mining becomes harder and the amount of coins received as a reward decreases. For example, when Bitcoin was first created, the reward for successful mining was 50 BTC. Now, the reward stands at 12.5 Bitcoins. This happened because the Bitcoin network is designed so that there can only be a total of 21 mln coins in circulation.
As of November 2017, almost 17 mln Bitcoins have been mined and distributed. However, as rewards are going to become smaller and smaller, every single Bitcoin mined will become exponentially more and more valuable.
All of those factors make mining cryptocurrencies an extremely competitive arms race that rewards early adopters. However, depending on where you live, profits made from mining can be subject to taxation and Money Transmitting regulations. In the US, the FinCEN has issued a guidance, according to which mining of cryptocurrencies and exchanging them for flat currencies may be considered money transmitting. This means that miners might need to comply with special laws and regulations dealing with this type of activities.
Accept as payment (for business)
If you happen to own a business and if you’re looking for potential new customers, accepting cryptocurrencies as a form of payment may be a solution for you. The interest in cryptocurrencies has never been higher and it’s only going to increase. Along with the growing interest, also grows the number of crypto-ATMs located around the world. Coin ATM Radar currently lists almost 1,800 ATMs in 58 countries.
First of all, you need to let your customers know that your business accepts crypto coins. Simply putting a sign by your cash register should do the trick. The payments can then be accepted using hardware terminals, touch screen apps or simple wallet addresses through QR codes.
There are many different services that you can use to be able to accept payments in cryptocurrencies. For example, CoinPayments currently accepts over 75 different digital currencies, charging just 0.5 percent commission per transaction. Other popular services include Cryptonator, CoinGate and BitPay, with the latter only accepting Bitcoins.
In the US, Bitcoin and other cryptocurrencies have been recognized as a convertible virtual currency, which means accepting them as a form of payment is exactly the same as accepting cash, gold or gift cards.
For tax purposes, US-based businesses accepting cryptocurrencies need to record a reference of sales, amount received in a particular currency and the date of transaction. If sales taxes are payable, the amount due is calculated based on the average exchange rate at the time of sale.
Legality of cryptocurrencies
As cryptocurrencies are becoming more and more mainstream, law enforcement agencies, tax authorities and legal regulators worldwide are trying to understand the very concept of crypto coins and where exactly do they fit in existing regulations and legal frameworks.
With the introduction of Bitcoin, the first ever cryptocurrency, a completely new paradigm was created. Decentralized, self-sustained digital currencies that don’t exist in any physical shape or form and are not controlled by any singular entity were always set to cause an uproar among the regulators.
A lot of concerns have been raised regarding cryptocurrencies’ decentralized nature and their ability to be used almost completely anonymously. The authorities all over the world are worried about the cryptocurrencies’ appeal to the traders of illegal goods and services. Moreover, they are worried about their use in money laundering and tax evasion schemes.
As of November 2017, Bitcoin and other digital currencies are outlawed only in Bangladesh, Bolivia, Ecuador, Kyrgyzstan and Vietnam, with China and Russia being on the verge of banning them as well. Other jurisdictions, however, do not make the usage of cryptocurrencies illegal as of yet, but the laws and regulations can vary drastically depending on the country.
Most common cryptocurrencies
Bitcoin — The first ever cryptocurrency that started it all.
Ethereum — A Turing-complete programmable currency that lets developers build different distributed apps and technologies that wouldn’t work with Bitcoin.
Ripple — Unlike most cryptocurrencies, it doesn’t use a Blockchain in order to reach a network-wide consensus for transactions. Instead, an iterative consensus process is implemented, which makes it faster than Bitcoin but also makes it vulnerable to hacker attacks.
Bitcoin Cash — A fork of Bitcoin that is supported by the biggest Bitcoin mining company and a manufacturer of ASICs Bitcoin mining chips. It has only existed for a couple of months but has already soared to the top five cryptocurrencies in terms of market cap.
NEM — Unlike most other cryptocurrencies that utilize a Proof of Work algorithm, it uses Proof of Importance, which requires users to already possess certain amounts of coins in order to be able to get new ones. It encourages users to spend their funds and tracks the transactions to determine how important a particular user is to the overall NEM network.
Litecoin — A cryptocurrency that was created with an intention to be the ‘digital silver’ compared to Bitcoin’s ‘digital gold.’ It is also a fork of Bitcoin, but unlike its predecessor, it can generate blocks four times faster and have four times the maximum number of coins at 84 mln.
IOTA — This cryptocurrency’s breakthrough ledger technology is called ‘Tangle’ and it requires the sender in a transaction to do a Proof of Work that approves two transactions. Thus, IOTA has removed dedicated miners from the process.
NEO — It’s a smart contract network that allows for all kinds of financial contracts and third-party distributed apps to be developed on top of it. It has many of the same goals as Ethereum, but it’s developed in China, which can potentially give it some advantages due to improved relationship with Chinese regulators and local businesses.
Dash — It’s a two-tier network. The first tier is miners that secure the network and record transactions, while the second one consists of ‘masternodes’ that relay transactions and enable InstantSend and PrivateSend type of transaction. The former is significantly faster than Bitcoin, whereas the latter is completely anonymous.
Qtum — It’s a merger of Bitcoin’s and Ethereum’s technologies targeting business applications. The network boasts Bitcoin’s reliability, while allowing for the use of smart contracts and distributed applications, much how it works within the Ethereum network.
Monero — A cryptocurrency with private transactions capabilities and one of the most active communities, which is due to its open and privacy-focused ideals.
Ethereum Classic — An original version of Ethereum. The split happened after a decentralized autonomous organization built on top of the original Ethereum was hacked.
Cryptocurrency market cap
(stats retrieved on Nov. 10, 2017)
Name
Market Cap
Price
Volume
Circulating Supply
Change (24hrs)
Bitcoin
$112,735,453,936
$6760.98
$5,136,770,000
16,674,425 BTC
-5.43%
Ethereum
$29,227,540,706
$305.58
$894,988,000
95,647,370 ETH
-4.84%
Bitcoin Cash
$15,121,119,942
$901.17
$4,500,640,000
16,779,413 BCH
37.68%
Ripple
$8,088,155,335
$0.209910
$140,243,000
38,531,538,922 XRP
-3.47%
Litecoin
$3,297,343,825
$61.33
$294,950,000
53,767,732 LTC
-5.75%
Dash
$2,601,563,986
$338.71
$115,739,000
7,680,801 DASH
3.18%
NEO
$1,893,495,500
$29.13
$59,589,000
65,000,000 NEO
-8.16%
NEM
$1,804,086,000
$0.200454
$10,806,300
8,999,999,999 XEM
-6.32%
Monero
$1,675,861,201
$109.28
$87,656,500
15,335,901 XMR
-8.11%
Ethereum Classic
$1,457,787,439
$14.98
$299,410,000
97,318,182 ETC
5.69%
IOTA
$1,441,775,712
$0.518712
$48,539,100
2,779,530,283 MIOTA
-5.46%
Qtum
$862,271,130
$11.71
$132,988,000
73,651,804 QTUM
-1.85%
How to store
Unlike most traditional currencies, cryptocurrencies are digital, which entails a completely different approach, particularly when it comes to storing it. Technically, you don’t store your units of cryptocurrency; instead it’s the private key that you use to sign for transactions that need to be securely stored.
There are several different types of cryptocurrency wallets that cater for different needs. If your priority is privacy, you might want to opt for a paper or a hardware wallet. Those are the most secure ways of storing your crypto funds. There are also ‘cold’ (offline) wallets that are stored on your hard drive and online wallets, which can either be affiliated with exchanges or with independent platforms.
How to buy
There are a lot of different options when it comes to buying Bitcoins. For example, there are currently almost 1,800 Bitcoin ATMs in 58 countries. Moreover, you can buy BTC using gift cards, cryptocurrency exchanges, investment trusts and you can even trade face-to-face.
When it comes to other, less popular cryptocurrencies, the buying options aren’t as diverse. However, there are still numerous exchanges where you can acquire various crypto-coins for flat currencies or Bitcoins. Face-to-face trading is also a popular way of acquiring coins. Buying options depend on particular cryptocurrencies, their popularity as well as your location.
Opinion leaders to follow
Don Tapscott — Media theorist, author of several books on Blockchain and cryptocurrencies.
Bill Gates, co-founder of Microsoft, investor and philanthropist:
“Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than currency in that you don’t have to be physically in the same place and, of course, for large transactions, currency can get pretty inconvenient.” [SOURCE]
Richard Branson, founder of Virgin Galactic and more than 400 other businesses:
“Well, I think it is working. There may be other currencies like it that may be even better. But in the meantime, there’s a big industry around Bitcoin. — People have made fortunes off Bitcoin, some have lost money. It is volatile, but people make money off of volatility too.” [SOURCE]
Al Gore, former Vice President of the United States:
“When Bitcoin currency is converted from currency into cash, that interface has to remain under some regulatory safeguards. I think the fact that within the Bitcoin universe an algorithm replaces the function of the government …[that] is actually pretty cool.” [SOURCE]
Eric Schmidt, executive chairman of Google:
“[Bitcoin] is a remarkable cryptographic achievement… The ability to create something which is not duplicable in the digital world has enormous value…Lot’s of people will build businesses on top of that.” [SOURCE]
Peter Thiel, co-founder of PayPal:
“PayPal had these goals of creating a new currency. We failed at that, and we just created a new payment system. I think Bitcoin has succeeded on the level of a new currency, but the payment system is somewhat lacking. It’s very hard to use, and that’s the big challenge on the Bitcoin side.” [SOURCE]
