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Currencies & Rates

Dear parents, heres what you need to know about Bitcoin

Mar 13, 2018, 7:45:18 AM Published By Wirex Team
If your kids have been through their teens (or are going through them now), youre probably used to unpredictable behavior. Sudden mood swings, confidence highs and lows, a rebellious nature. Should that sound familiar, you already understand the nature of Bitcoin. Bitcoin acts a bit like a teenager. Volatile and fickle, Bitcoin has been through a series of dramatic price swings. A parade of gains and drops have captured media attention. As you know, the rough phases your kids go through are part of them growing up and figuring out their place in the world. Despite its unpredictable behavior at the moment, Bitcoin has enormous potential. Bitcoin is still very new so it hasnt figured everything out yet. Here at Wirex, we want to explain to you why Bitcoin fits into the future of you and your children. This is what you need to know.

What exactly is Bitcoin?

You dont need to be tech-savvy to understand Bitcoin. In its simplest form, Bitcoin is a digital currency. You can:
  • Buy it with your regular (fiat) currency.
  • Sell it for fiat currency.
  • Swap it for another cryptocurrency.
But there are a few big differences between Bitcoin and fiat currencies. Governments and banks back fiat currencies. They have total control and can print as much as they like. They can also inflate and deflate the value. No one owns or controls Bitcoin. Not even the people who created it. No individual has the power to create more Bitcoins or inflate the value.

How does that work?

Bitcoin uses a new type of technology called a blockchain. A blockchain is a record keeping system. Instead of being kept in one place, the records synchronise across every blockchain user. Each time someone buys, sells or spends Bitcoin, the blockchain records the transaction. The records are permanent, meaning no one can spend a Bitcoin twice (which was a problem with previous digital currencies.)

What does that mean in practice? And why is it better than using a bank?

There are a few big benefits of Bitcoin. For example:
  • You can send money to anyone in the world, fast and without paying any fees or sales tax.
  • If you go abroad, you can use Bitcoin with no need to exchange currencies.
  • Bitcoin purchases are private and not directly linked to your identity. Sure, youre not trying to hide anything - but why does anyone need to be able to see your transaction history?
  • There are no middlemen involved - no one can freeze your account or take high fees. Bitcoin is a truly democratic currency.
  • There are a finite number of Bitcoins available: 21 million. Once those have all been mined, thats it. This scarcity gives Bitcoin value, a lot like precious metals.

Is Bitcoin legal?

Unless you live in Algeria, Bolivia, Ecuador, Kyrgyzstan, Bangladesh or Nepal, Bitcoin isperfectly legal. If you plan on buying Bitcoin, you might want to let your accountant know so they can explain if youll need to pay tax on it.

What if it all ends badly?

You have lived through (and maybe felt the effects of) several asset bubbles. Hearing about Bitcoin, the dotcom bubble might come to mind. There is a key difference here, though. Bitcoin isnt a company. Sure, it has a creator. But it doesnt have an owner. As discussed in the last section, it is decentralised. This means, unlike many of the companies that have been and gone on the stock market, there's no manipulation. Bitcoin cant manipulate the books, hiding the things it doesnt want the public to see. No underhand tactics can be deployed by any all-powerful individual. I wouldnt worry about Bitcoin beinganother Enron, for example.

How can Bitcoin be a currency and an investment?

Many people are buying it as a store of value long-term investment. The day to day volatility may be off-putting, but the price has gone through a striking upwards trend over the last few years. Bitcoin is becoming a popular store of value because its so accessible and easy to use. The benefits are clear if we compare it to the usual low-risk investments:
  • Buying property requires an increasingly large amount of money to get started. Selling a property can take months or even years, and involves high fees. Bitcoin can be bought with any amount of money and can be sold fast if needed.
  • Keeping your money in a savings account might be safe, but it will lose value over time.
  • Precious metals have never experienced the kind of price increases as Bitcoin. Sometimes the price stays the same for years, sometimes it declines for years. For many people, Bitcoin is a more exciting, fast-paced form of investing.

How hard is it to buy and use Bitcoin?

Getting involved with Bitcoin is simple andyou dont even need to buy a whole coin. With Wirex, you can buy Bitcoin online, then use a payment card to spend in anywhere. You can also manage your account from your phone and transfer money without paying fees. Want to know more about how you can get started? Head to our homepage and read more about the simple, safe and secure Wirex account.
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