A Guide to Bitcoin Investment and Blockchain
By: Sofia Lambrou
Tags: Business, Blockchain, Bitcoin, Dao, Innovation

As Stephen J. Bronner explains, Bitcoin is “a digital currency that isn’t controlled by a central authority such as a government or bank. It’s created by “miners,” who use computers and specialized hardware to process transactions, secure the currency’s network and collect bitcoins in exchange. Supporters say it allows for more secure transactions over the internet. That’s in part due to blockchain, a technology that records a variety of transactions chronologically in a public digital ledger”.

This definition could thus be subdivided in 6 key axes:

No central command

“Bitcoin isn’t owned by anyone. Think of it like email. Anyone can use it, but there isn’t a single company that is in charge of it. Bitcoin transactions are irreversible. This means that no one, including banks, or governments can block you from sending or receiving bitcoins with anyone else, anywhere in the world” (bitcoin.com)

With Bitcoin thus comes responsibility to inform yourself and to be prepared to face challenges without a safety net to rely on.

Optional wallet securitization

“Most wallets, allow the user to be in charge of their own private keys. This means that no one in the entire world can access your account without your permission. It also means that no one can help you if you forget your password or otherwise lose access to your private keys. If you decide you want to own a lot of Bitcoin it would be a good idea to divide them among several different wallets. As the saying goes, don’t put all your eggs in one basket.” (bitcoin.com)

Wallets are programs which are set to send, receive and store Bitcoins, as well as monitor Bitcoin balances. Simply put, if Bitcoin was an email, Gmail or Outlook would be its wallet. What defines a wallet is where its private key — which accesses your wallet’s password — is stored. There are two types of wallets: hot wallets and cold storage wallets. Hot wallets are the most convenient as they enable to buy and sell Bitcoins at a moment’s notice (either through the internet — web wallets -, your desktop — desktop wallets -, or your smartphone — mobile wallets), but they are nonetheless the least secure solutions as they store the private key for you, making it quite sensitive to hacking attempts. Hardware wallets, on the other hand are much more secure, as they store your private key in locations that are independent from any internet connection — such as a piece of paper or a USB key -, and therefore cannot be stored remotely. Those can be paper wallets, brain wallets and hardware wallets.

Bitcoin price

“Like everything, Bitcoin’s price is determined by the laws of supply and demand. Because the supply is limited to 21 million bitcoins, as more people use Bitcoin the increased demand, combined with the fixed supply, will force the price to go up.” (bitcoin.com)

Currently, one bitcoin costs approximately $11,500. One can also decide to buy subunits of a Bitcoin. The smallest unit of the currency to have been recorded on the Blockchain is called a “satoshi” — after its inventor — and is a one hundred millionth of a single bitcoin (0.00000001 BTC).

Non-anonymity & Tax payment

“Because all Bitcoin transactions are stored on a public ledger known as the blockchain, people might be able to link your identity to a transaction over time. Some companies offer various tools such as Bitcoin mixers to help achieve greater privacy, but it takes a huge amount of effort to use Bitcoin anonymously. You may want to follow your country’s tax regulations regarding Bitcoin in order to avoid trouble with the law, but you have the power not to should you choose to take that risk. To improve privacy, most newer Bitcoin wallets will use a new Bitcoin address each time someone sends bitcoins to you.” (bitcoin.com)

While governments might have trouble being notified of each of Bitcoin owners’ investment, Bitcoin owners are nonetheless required to pay capital gains tax through an annual assessment. In other words, you are supposed to do so, but whether you do it or not depends on your own will. See the trick there?

What is a Blockchain?