All the talk about cryptocurrency has caused a lot of excitement and confusion. Let’s start from the beginning and simplify it to the basics. Here is everything you need to know about Bitcoin:

 

What is it?

Bitcoin is a cryptocurrency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. It can be used to purchase just about anything without the use of a bank. Over the past few months, the prices have dramatically increased, which is why many are tempted to invest in the currency.

 

What are the benefits of it?

The largest perks of bitcoin are anonymity – you can make purchases namelessly, and international versatility – it is not regulated or country-specific.

 

How do people purchase it?

You can purchase Bitcoins on an exchange like Coinbase, Bitstamp, Bitfinex or transfer them from person to person digitally. The major speculation is around “mining,” or the discovery of new bitcoins. Simplified, that means miners use computers to solve math problems, and in turn, get rewarded with bitcoins in exchange.

 

How is it stored?

Bitcoins can be stored in “virtual” bank-like accounts in the cloud or on personal computers. However, servers can be hacked and viruses on computers can destroy them.

 

What are the concerns?

The biggest concern here is always security because nothing backs up the currency – if it’s lost, it’s lost. Additionally, because people can make anonymous purchases, only revealing the ID number for their virtual Bitcoin account, purchases can be untraceable. This anonymity can promote illegal behavior. The Bitcoin and cryptocurrency space is largely unregulated. Though countries are developing ways to best tax and monitor illegal activity, there is still no clear solution. 

 

What is my take?

Bitcoin is the future. Removing intermediaries like banks and hopping onto a completely digital platform will only dominate, especially as we see with companies like PayPal and Square, who remove the bank presence altogether. Until there is more clarity on the regulations and security, however, it’s a speculative game.

 

Lawrence W. Waller II is a registered representative and investment advisor representative of SA Stone Wealth Management Inc. Securities offered through SA Stone Wealth Management Inc. Member FINRA and SIPC. Advisory Services through SA Stone Investment Advisors Inc. HLM Financial Services is not affiliated with SA Stone Wealth Management Inc. Securities and advisory activity are supervised by SA Stone Wealth Management Inc.