Introduction to Bitcoin
Bitcoin is a decentralized virtual currency. It was created by an unknown person under the alias Satoshi Nakamoto, which means no middle men. Bitcoin can be bought, sold, and exchanged directly without an intermediary like a bank. Most of the hype about bitcoin is individuals making money off of Bitcoin trades, however you can also use bitcoin to purchase hotel rooms on Expedia, household items on overstock.com, cars on BitCars, groceries using the Spend mobile app, and much more! An Easy way to think of Bitcoin is like cash for the internet. Bitcoin offers a lot of freedom to its customers allowing them to make transactions, or trade any amount instantly, at any time.
Bitcoin basics
Bitcoin Trading: Bitcoin trading is the most common way to earn cryptocurrency. Buyers need to keep up to date with Bitcoin news and market movements in order for them to gather adequate facts on which moves to make trading-wise. The buyer needs to do their due diligence to find the best forum and cryptocurrency exchange to begin their trading. Once the investor has chosen an exchange, they would want to obtain Bitcoin at a low price, and then eventually market them at a higher price.
Bitcoin Mining: Bitcoins are created as a reward for a process known as mining. Mining is the process of creating new Bitcoin by solving a computational puzzle. It is a system using high-powered machines to solve problems and calculations. Bitcoins are mined using the Hashcash proof-of-work function by individual miners and verified by the decentralized nodes in the P2P Bitcoin network. As more miners join, the rate of block creation increases. However as the rate of block creation goes up, the difficulty rises to compensate, which in turn will push the rate back down.
Bitcoin Privacy: Bitcoin is anonymous, meaning that funds are not tied to people or entities. Bitcoin wallets (where bitcoins are stored) are identified by a unique address. Even though bitcoin owner’s addresses are not identified all transactions on the Bitcoin block chain are public.
Bitcoin and your personal taxes
Bitcoin that you buy, sell, mine, or use pay for things can be taxable. If you acquired bitcoin from mining, the value is taxable immediately. If you dispose of or used bitcoin to buy goods or services on an exchange, you will owe taxes if the sale price of the bitcoin is greater than the price at which you purchased the bitcoin at. You may have a capital gain that could be taxable at either a short term or long term rates. You need to keep record of the fair market value of your bitcoin when you buy and sell it. That information will help you calculate your bitcoin taxes.
Disclosure: This blog is not official financial advice.
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