Bitcoins and Other Cryptocurrencies
A Volatile Market
The value of bitcoin compared to other currencies is incredibly volatile. The famous cryptocurrency has been worth as little as 1 BTC (Bitcoin) to 1 USD (United States Dollar), all the way up to 1 BTC to 1,200 USD, seemingly making a stop at every point in between. There is no doubt that bitcoin represents an interesting investment opportunity, but this volatility implies that the smart investor will only buy as much bitcoin as they can afford to lose to deflation.
Other people may be concerned not about the changing value of the currency, but flat out losing their bitcoin investment altogether. This is what happened to people that deposited their bitcoins with Mt. Gox, a Tokyo-based online exchange that was hacked and subsequently lost more than 745,000 bitcoins that depositers had entrusted to the exchange. However, it was clear to people entrenched in the world of bitcoin that Mt. Gox had problems at least since April of 2013. Others may have suspected Mt. Gox of incomptence long before that, since the MT. GOX is an acronym that stands for "Magic: The Gathering Online eXchange," the original purpose of that business. Simply put, it is not the wisest course of action to use a financial institution that originally traded in collectible trading card games.
Acquiring a Bitcoin Wallet
Alternatives to Mt. Gox
How, then, does one begin the process of using and storing bitcoin, if not through an online exchange like Mt. Gox? Many experts, such as tech-entrepreneur Andreas M. Antonopoulos, suggest that it is almost always a mistake to deposit bitcoin funds with a company that has centralized control of those funds. The advantage of BTC is is that it is by nature decentralized, but this also means there is no oversight or regulation for institutions with shoddy business practices. It is up to the end user to make sure that they retain control of the keys that represent their cryptocurrency, and also to use only transparent and trustworthy companies for services such as web-wallets or currency exchanges.
Fortunately, it is quite easy to open a new wallet with services like Blockchain or Microwallet, or to make a deposit with a BTC exchange that guarantees cold storage of your cryptocurrency.
Taking Your BTC Offline
So what exactly is cold storage? Simply put, it is taking an amount of BTC and storing it offline. This can be done by storing keys on a wallet program on a USB stick, or even by printing your BTC keys out on a piece of paper (called a paper wallet). Some enterprising individuals have even begun to mint actual physical bitcoins with names like the Casascius coin. Take a look at the photo below of some actual Casascius coins, and note the motto emblazoned on the left side: "vires in numeris," latin for "truth in numbers." These physical coins have a visible public address for an amount of BTC, as well as a hidden private key under a tamper-evident seal or hologram. Think of it as a safe way to trade and redeem one's cryptocurrency, and you will start to get the basic idea.
With these and other methods of cold storage, it is possible to see how one can avoid the errors that led to theft and robbery of BTC from failed exchanges like Mt. Gox. But none of these methods serve much purpose if you do not have any bitcoins in the first place.
How to Earn Bitcoins
Or Fractions of a Bitcoin
Once you have a wallet, it is theoretically quite easy to earn bitcoin. The absolute simplest way to do would be to provide the same goods or services you always would as an individual or business, but then inform your customers that you now accept BTC in addition to currency like USD. Then, they can either send you bitcoins through your wallet's provided QR code, or deposit it directly using your BTC address, which is an alphanumeric key that looks like this:
So that is one way to earn BTC, and in the long run will be the most profitable and worthwhile way for you to invest in this cryptocurrency. But there are certainly other ways to increase the amount of BTC you own.
One way is by mining, which requires investment in special hardware that will solve complicated algorithms to generate bitcoins. This is doable, but requires quite a bit in start-up costs. Also, at this point, anyone engaged in mining will face lots of competition from others with the same idea, so keep that in mind before you invest heavily in the high-end graphics cards necessary to make this process profitable.
Earning Satoshi and uBTC
Turning on the Faucet
The last thing we will discuss that allows you to earn BTC is visiting a faucet. A faucet is a website that disperses a small fraction of BTC, commonly called a satoshi, to IP addresses based on answering a captcha or other means of verification. Many variations of this exist across the web. One such service is Free Bitcoin, which allows users to roll a virtual die to win as much as 0.225 BTC.
Another popular faucet is BitVisitor, which will pay users (in bitcoins) to visit specific websites. This has the dual benefit of being profitable and exposing the user to more websites that reveal the vast bitcoin economy.
It is also important to note that BTC can theoretically be divided into infinitely smaller units. Right now, the smallest unit is called the satoshi, after the creator of the cryptocurrency. The satoshi is 1/100,000,000 BTC or 0.00000001 BTC. Some faucets will offer cryptocurrency in amounts like milliBTC (1 mBTC is equal 0.001 BTC) and microBTC (1 uBTC is equal to 0.000001 BTC). Although this may seem complicated at first, compare it to various other currencies in the world, with denominations that have names like won, quid, pennies and nickels, and you will see that it is not any more complicated than what people already use. Plus, bitcoin has the added benefit of being a decentralized currency with universal appeal.