Monday, December 9, 2013

Get Bit, The Bitcoin Market

Get Bit, Bitcoin

There is a debate in the financial world as to the value of digital (or crypto) currencies. Bank of America recently stated they "could become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money-transfer providers" and assigned a fair value of $1300 per bitcoin. On the other side, critics argue, "It’s a complete joke.  Even a crappy currency has government taxing ability behind it, or some sort of a standing army or something like that." My opinion is that crypto currencies are a revolutionary idea that provides an alternative to fiat currencies (dollars) and precious metals.

Get Bitcoin
The two major online currencies are Bitcoin and LiteCoin. Neither are backed by governments, but instead are generated by deciphering encrypted keys. Each "coin block" found makes the next more difficult to find through increasingly difficult encryption. The code that generates this currency is completely open source which ensures there are no back doors or cheating. Solving these encrypted codes is known as "mining." The coins mined are then traded for goods and services or other currencies. The coins have value for the same reason the US dollar or other currencies have value. People assign them value.

What are the mayor differences between fiat currencies like dollars and crypto currencies?
  • There are no governments involved to inflate and manipulate the value of crytpo currencies. 
  • Most crypto currencies have an absolute limit in quantity, so they can't be printed. 
  • There is an equal opportunity to find or "mine" for crypto currencies with free software.
  • Very few transaction fees, no wire fees and quick transactions. 
  • The exchange of coins is a completely free market with major players (like coinbase) helping users move money between fiat currencies and crypto currencies.
  • You can save your crypto currencies in a file with backups and encryption known as a "wallet" instead of a bank.

bitcoin market
Bitcoin Exchange

The value of crypto currencies is mostly determined on exchanges, like other currency exchanges. There are dozens of crypto currencies, some are created as college projects and others by enthusiasts. Most can be exchanged for bitcoins, the dominant player. For instance, the video game Second Life uses Lindon Dollars to transact within the game. An exchange called Virwox allows the purchase of Lindon Dollars and the exchange between bitcoins and Lindons. This is one of the more expensive ways to purchase Bitcoin due to the number of transaction fees.

Bitcoin Gold CoinWhere as most crypto currencies have little value, Bitcoin is essentially the gold of cryptos. Litecoin is the silver of crypto currency. You can see this relationship in the markets, with Litecoin slightly above the value of silver and Bitcoin slightly below the value of gold. It is a safe bet that many people are diversifying away from precious metals into cryptos due to recent market manipulation by central banks.

The exchanges are mostly completely free markets with little or no regulation or manipulation by governments. As such people have begun to speculate in the markets as an alternative to stocks or slow moving precious metals. The result is an explosion of wealth creation for both bitcoins and litecoins.

litecoin market
Litecoin Exchange

If you read candlestick charts and indicators, there may be a place for you in the exchanges. If you don't, you can "mine" for crypto currencies like a old-timey gold prospector. You could also buy crytpo currencies while they are cheap as Christmas presents for family members who are always on their smartphone.

As a Christmas present, there is a growing number of markets and apps that accept bitcoin and litecoin. SpendBitcoins and UseLiteCoin are incomplete lists of places where the digital currency is accepted. You will mostly find tech related goods and services.

Right now the risk of holding bitcoin as a currency is about the same as holding currency from Cuba or Zimbabwe based on the market cap of $11,023,236,650. As you can see in the above charts, that market cap is rising fast. As of writing this article, one bitcoin is $840 and a litecoin is $30.50. This is definitely something to look into for yourself.

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Basic Information

Government vs We The People


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