BITCOIN PART 2

BITCOIN THE ULTIMATE GUIDE

1. At the time when this guide was written, January 2014, the price of one bitcoin stood at $913, down slightly after reaching an all-time high of over $1,200 earlier in December. The new cryptocurrency came a long way from trading below $4 just two years ago. Major online and offline retailers are starting to add the new currency as a payment method. But what exactly is bitcoin?

2. According to a recent Bloomberg poll, only 42 percent of Americans correctly identified bitcoin as a virtual currency. Six percent thought it was an iPhone app.

3. Bitcoin is a peer-to-peer digital currency launched in 2009 by ‘’Satoshi Nakamoto’’. Satoshi worked on the project alone for 2 years before releasing the code to the public. He disappeared shortly after creating the cryptocurrency, but before leaving he posted the now infamous quote:

4. ‘’It might make sense just to get some in case it catches on’’

5. Satoshi Nakamoto, January 17th, 2009.

6. Bitcoin is a cryptocurrency and a new and unique financial vehicle, unlike anything the world has ever seen. It’s called a cryptocurrency because it uses cryptography to control the creation and transfer of money. Despite the name, there is no physical coin to speak of, Bitcoin is a completely electronic form of money.

7. Bitcoin solves the so called ‘’double spending problem’’ present with digital goods. For example, if I have an mp3 file or an ebook on my computer, I can freely copy that file a thousand times and send it to a thousand different people. For a digital currency, the possibility for unlimited copying would mean a quick hyperinflationary death. Bitcoin solves this by maintaining a peer to peer network and recording each transaction in a public ledger called the block chain. Say I send 1 bitcoin from my bitcoin address to my friend John. The bitcoin network records that transaction in the block chain and I no longer have possession of that bitcoin. The coin ‘’moved’’ from my bitcoin wallet to John’s wallet.

8. What’s so special about Bitcoin? There are many arguments on whether the new virtual currency will succeed or fail. We will not get into this nor discuss the politics behind the project. Our concern is strictly with the profit opportunities provided by this new payment phenomenon. In the next few pages on the new digital currency we will outline our thoughts from the perspective of a trader and a potential investor in this upcoming market.

· Bitcoin Basics`

h1. Bitcoin is a peer-to-peer virtual currency. This means that in order for a transaction to occur, no middle men or central authority is needed. You can send any amount of bitcoins to anyone living anywhere in the world, completely eliminating the need for traditional third parties like banks or money transmitters. The cryptocurrency also allows the bypassing of capital and AML restrictions.

2. In order to send or receive bitcoins, all you need to have is a bitcoin address and internet access. You only need to be online long enough for the transaction to process. Similarly to traditional bank accounts, you can receive bitcoins to your bitcoin address even if you’re offline. When you want to ‘’collect’’ your coins however, you’ll have to find an internet connection.

How Bitcoin Exchange

The simple answer is: just like physical currency exchanges. You're essentially buying one currency with another. The relative value of a nation's physical currency is a reflection of the country's economic and financial health, especially since we moved off of the gold standard. The U.S. dollar, for example, is worth more than that of the Mexican peso due to the discrepancies between the two countries' economies—therefore you can buy lots of pesos for very few dollars (the dollars being relatively more valuable).

The same holds true for Bitcoin, except that its value comes not from an industrial economic base but from the work performed by your computer. That means it can be traded like a commodity, no different than pork bellies or Florida oranges.

That said, exchanges like Mt. Gox act as intermediaries for currency transactions, converting wealth from Bitcoin to US dollars to other national currencies, back to dollars or Bitcoin. And that's how you make money. By exploiting the constantly shifting relative values of various currencies, savvy investors can make a tidy sum simply from moving money around these markets, in a process known as arbitrage. But they can lose it just as easily.