What are Bitcoins, and how can you get some? Here’s a simple introductory guide to help answer these questions and more!
What is Bitcoin?
Bitcoin is an entirely digital form of money. In other words, if the U.S. has dollars, and Europe has Euros, the internet has bitcoins.
But the fact that bitcoin is digital isn’t the most interesting thing about this type of currency. Economists estimate that 92% of all money is digital, no matter what currency.
What makes Bitcoin so attractive is that it’s decentralized. No single nation, bank, or institution controls bitcoin. The bitcoin currency is administered and propagated by Bitcoin users.
How Does Bitcoin Work?
Bitcoin works much like a regular currency.
- Buy and sell digitally
- Make “real life” purchases if the vendor accepts bitcoins
- Invest with Bitcoin
- Exchange for other forms of currency
- Transfer bitcoins
- Create new bitcoins through a process called mining
Mining is where bitcoin’s decentralized system becomes super-interesting. Rather than a large financial institution printing money, anyone can mine new bitcoins.
“Miners” solve complex mathematical problems, which validate other bitcoin transactions within the bitcoin network. This system of peer-validation is the bedrock of the revolutionary blockchain technology that makes Bitcoin so secure and allows for peer-to-peer value transferring.
Is Bitcoin Legal?
Yes, despite its infamous reputation. Bitcoin can be traded securely and anonymously without the regulation of a centralized institution. Because of this, bitcoin has been associated with money-laundering and illegal purchases on the web’s black market – but it’s still legal.
Of course, as with all currencies, bitcoin is illegal when you use it to purchase illegal products.
How Can I Earn Bitcoins?
Mining. In 2009, you could earn 50 BTC per “block” mined. Today, it’s considerably less, at just 12.5 BTC. These mathematical problems are a lot harder than what you’ve encountered in high school calculus. You’ll also need to invest in specialized computers to tackle these problems.
You can also work for bitcoins. You’ll find lots of job postings on the internet. An excellent place to start is Reddit, which has one of the most popular message boards for jobs paying in BTC.
Do I Have to Pay Taxes on Bitcoin Earnings?
The IRS views your bitcoins as property rather than currency; so every transaction you make within the bitcoin network will impact your capital. This income will be taxed if you are paid in any crypto-currency.
In many ways, bitcoins are subject to the same tax laws as regular currencies, including regulations, rules regarding reporting, and sales tax.
If you use bitcoins frequently, check with your accountant. Keep accurate records of your transactions so you can report your bitcoin income. Keep in mind that bitcoins must be recorded in U.S. dollars at the exchange rate it was valued for at the time of the transaction.