According to Federal Reserve estimates, less that 50% of Bitcoins (BTC) in the US are actually being used in transactions. This is because most Americans are yet to fully understand the mechanics and risks involved in the transfer of value via Bitcoins. In any case, many are used to currency-based methods of transaction; a culture that spans hundreds of years since independence. The Federal Reserve actually considers the Bitcoin system to be a bit complex since it involves the juggling of algorithms, cryptography and numerous incentives that the American public is yet to come to terms with. At the moment, small transactions range at around $100 while large transactions hover at around $40,000.
See also: How to Get Your Salary Paid in Bitcoins
What is Bitcoin?
Bitcoin is an electronic token whose value doesn’t depend on any underlying commodities or foreign currencies:
- It is virtual thus lacking in intrinsic value and cannot be used as a liability in the drafting of balance sheets.
- This is because it is not a legal tender and it lacks jurisdiction or nationality.
- Bitcoin value largely depends on the rate at which it’s used in the Bitcoin exchange system.
- This is why the Bitcoin currency has become a major subject for many economists today since its monetary status is quite controversial.
Progress so far
February 2013 is considered to be the period during which Bitcoins gained some serious momentum in the US. Since then, the Federal Reserve estimates that the US Dollar – Bitcoin exchange rate has increased exponentially by more than 5000%. Surprisingly enough, the American public never noticed this trend which has been remarkably stable to say the least. By the end of 2014, over 64,000 businesses across the US were accepting Bitcoins as a mode of transaction. Currently, one Bitcoin (BTC) trades at $222.5 (USD).
Risks and losses so far
As I mentioned earlier, the American public is yet to fully understand the mechanics and risks involved in Bitcoin exchange. For instance, Mt. Gox is considered to be one of the largest Bitcoin exchange platforms in the US:
- Unfortunately, in February 2014, Mt. Gox filed for bankruptcy after an estimated $500 million worth of Bitcoin currency mysteriously disappeared.
- This is attributed to the fact that Bitcoin exchange is yet to achieve the necessary depth in American exchange markets and thus executing Bitcoin exchange can prove to be quite costly.
- Moreover, holding onto Bitcoins can be quite risky since a third of Bitcoins currently in circulation have never been used in the past year.
- Plus, the Bitcoin is yet to be properly aligned with other major world currencies.
Having considered all the factors we’ve discussed, let’s now head straight over to Bitcoin transactions and find out how one can buy Bitcoins in the US.
1. Register for a Personal Bitcoin Address
Registering for a Bitcoin address entitles you to an online Bitcoin wallet that will hold Bitcoins for you. Remember, Bitcoins are electronic tokens that facilitate transactions worldwide without having to trade currencies. Again, it is virtual money and thus cannot be held.
2. Know the Bitcoin Exchange Rate
It’s also estimated that 41 currencies have so far familiarized with Bitcoin exchange. But remember, Bitcoins have no jurisdiction or nationality:
- Therefore, you as the buyer of Bitcoins will be considered to be an independent jurisdiction, so to speak.
- You’ll thus be regarded as an independent ‘central bank’ of sorts since Bitcoin value largely depends on the rate of exchange in the Bitcoin network.
- Plus, it isn’t backed up by any world currency.
- At the moment, Bitcoins are traded online and there are numerous facilitators that will register a Bitcoin address for you before you can purchase Bitcoins with your dollars. Of course, Bitcoin value varies with different platforms depending on the commission charged for each transaction.
3. Familiarize with the Bitcoin Network to Avoid Being Duped
The buying and selling of currency is something we witness every day. This protocol of executing a transaction depends on the buyer, the seller and the validity of the currency exchange itself. This is referred to as cryptography or the ‘secret code’ that defines monetary transactions:
- The same applies to Bitcoin transactions, only that the Bitcoin isn’t backed by any world currency.
- As I mentioned earlier, once you purchase Bitcoins, you become an independent ‘central bank’ since Bitcoins are not backed up by any Central Bank in the world.
- That being said, Bitcoin transactions are validated by a Bitcoin digital signature in order to avoid the injection of counterfeit Bitcoins into the Bitcoin system by hackers.
- Unfortunately, many have been duped for not verifying the validity of the Bitcoins they’re purchasing.
- That’s why Bitcoin cryptography is often referred to as the secret code that defines modes of transactions between Bitcoin addresses – that is the buyer and the seller.
There have been over 42 million worldwide Bitcoin transactions so far, and the trend seems to be gaining some serious momentum. Thus, if you’re looking forward to a one-world market without currency exchange huddles, then Bitcoins might be the best bet in familiarizing with that future.