What can bitcoin do for you?
A Simple Overview
Moving value, shopping, micro-payments and a bit more.
What if you are not bitcoin-savvy enough? Are you a traveler? An entrepreneur? Just curious? What should you know?
Bitcoin, Overview, Pseudo-tutorial
January 15th, 2015
The world is changing, and crypto-currency is becoming mainstream; this is good because right now it is not "What can YOU do for bitcoin?" but rather "What can BITCOIN do for you?". If you have to know only one thing, let it be this one:
Crypto-currency is the most cost-effective way of transferring value worldwide
Forget about Western Union, forget about Wire Transfers, forget about SWIFT codes and banking red tape. It does not matter if a bitcoin is worth a million dollars or just cents, it is hands-down the best way of sending cash, and you're in control. Literally you're sending money flying through the internet ready to be spent in ten minutes or less. Even a street panhandler with a QR code could receive coins from people thousands of miles away.
Note: Remember crypto-currency is not
just only bitcoin, as there are hundreds of coins that have been
developed (more or less copy-pasted) from bitcoin. This article will
refer to crypto-currency using that definition and "bitcoin"
I'm an entrepreneur. What can I do with this?
If you wish to "bitcoinize" your services, there's one decision you must make first: will you handle your payments? or would you delegate this to someone else?
This is not an obvious choice,
while some people would prefer to cash in the coins themselves, many
others just want to receive dollars in their bank accounts and have
their bookkeeping already handled. Thankfully there are currently
companies that do exactly this at almost no cost, better yet the
technology is so open and capable that you can do it yourself.
Albeit with some little caveats:
1) Bitcoin is volatile. The price fluctuates wildly, even daily. Each
payment you receive would have to be recalculated constantly and its
input exchanged for USD as soon as possible. Exchanging is easy,
recalculating is just a division.
2) Bitcoin is public. Each and every payment an address receives can be seen by everyone. For security and privacy reasons, it is advisable to use a single address per payment. There are many ways of doing this.
Once you are all
technologically set up, you might think about the legal aspects of using
a currency that can't be printed by a government. Which leads us to the next question.
Is this legal?
Unless you live in Bolivia, Ecuador, Bangladesh or Kyrgyzstan it is. Some other countries have restrictions for it, for instance, in Thailand you're not allowed to change bitcoin for any currency that is not the Thai Baht.
When doing the paperwork, as far as I know (and
some accountants have said) you don't need to declare the
bitcoins you receive when someone pays you, just write it off in your
local currency, and receive bitcoin for that value.
While it's safe to think that the activity is harmless, it might not work in your country and I'm no international accounting law expert, so don't take this for legal advice.
Any entrepreneurial ideas?
Sure, why not? Think about a thing you couldn't do because you didn't have access to a payment network backbone. Think about something very lucrative that is going on with mobile phones and small amounts of money. Micro-payments.
And here's another one, think about the many uses of unfalsifiable tokens, I for example know a guy who used to falsify beer tickets to drink for free at certain venues. While it might be overkill in that case, creating a blockchain based ticket solution would certainly work in that market.
Thinking about voting systems? online democracy? Well, I've debated by and large about the subject, and it certainly isn't as easy as it would be. Right now I wouldn't recommend starting a business around this.
No exchange or bitcoin payment processor in your country? What are you waiting for?
I'm a freelancing traveler. What for me then?
Bitcoin is a god-send for people who travel constantly and work remotely. Let's assume you want to send money back home, what would be the traditional way without bitcoin? Either you can pay a very hefty fee via Western Union, give all your personal details to them, and wait some time. Or you can pay another less hefty fee via Payoneer/PayPal/Etc. Payment processors will have to take a cut every time to sustain their big structure (and profits).
If you have a bank account abroad, you might have access to slightly more sophisticated ways of moving money, but it's riddled with legal issues, SWIFT codes and red tape. All in all, these choices will take time, and most certainly will take money from you. Bitcoin will do the same, but with less red tape, time and money involved.
The main difference with transferring fiat money
With crypto-currency you might as well send this "magical internet cash", and that's it. But it's not all rose-tinted glasses in crypto-land, as these "currencies" are not yet money that you can exclusively live with day-to-day, you must change it for fiat money before using it. And that is the main difference with using a money operator.
Money -> Operator (Bank, WU, Whatever) + Time + Fees + Identification -> Money
-> Bitcoin -> Operator (the bitcoin network) + 10 minutes +
Almost 0% fee + Pseudonym -> Bitcoin -> Money
"Money -> Bitcoin" step is exchanging, and it is the crucial step in
entering or exiting fiat money. In a mainstream crypto-world it wouldn't
be needed at all, we're not there yet. You can get it done via an exchange, a broker, or someone else (at localbitcoins).
How to get started with bitcoin?
First of all, get a wallet.
that a bitcoin wallet holds addresses, each address is like a bank
account ID where your coins go; actually more like a safety deposit box,
where your "private key" gives you control over it. On iOS you should
get Breadwallet, on Android Mycelium, if online GreenAddress, if on a pc desktop Electrum, on Mac Hive.
Your second step is to get some bitcoin.
Whether it is from faucets, buying or working for them. Just get them. Faucets are places that give away very small amounts of bitcoin for people to get started with it. Buying, as I said previously, can be done with exchanges, brokers or post listings at localbitcoins. Working needs no explanation, and you can get job listings at r/jobs4bitcoins.
Third, you'll need to create an exchange account.
Bitfinex and BTC-e allow you to hold dollars (yes, US dollars) without any sort
of identification. If you live in countries like Thailand where it is
restricted to do so, this option is not for you. I lack information
about the health of the Thai Baht but surely it is not as madly volatile
as bitcoin, get an exchange at your trusted local exchanger and change
your coins for a more stable currency.
Wait, what? Having coins in an exchange as another currency is not having coins at all.
And whomever says so is right, the point here is that crypto-currency in its current form is not liable to be used as a store of value. hyper-inflation and hyper-deflation are too common. If right now a country used bitcoin as its national currency without any means to stop volatility its economy would be a train-wreck. And you don't want your holdings to be a train-wreck, do you?
Introducing stable wallet services
Some entrepreneurs have already figured out how to soothe the bitcoin volatility problem, and thus bitreserve and coinapult were born. These "wallets" store your coins as your currency of choice, but then transparently allow you to use your coins like you would normally do.
Coinapult has a feature called "locks" where you "lock" your coins in a given price in either USD, GBP or EUR. Bitreserve allows you to send your coins to "cards" to achieve the same thing in the same currencies. Under the hood, this is just exchanging coins without the "hassle". Bitreserve charges you 0.45% for this service, which on plain sight is four and a half times higher than an exchange's usual 0.1% fee.
Which one charges less? Definitely Coinapult. So far it has a
difference in buying and selling price of just 1.5%, where bitreserve
has about 1.5-2.5% plus "Bitcoin Network Fees". On average, bitreserve is twice as expensive as coinapult.
While I don't know for sure how legal these services are in countries like Thailand, since you are not exchanging money yourself perhaps there is a chance that you are not infringing anything.
I'm just curious, what else can I do?
Crypto-currency is not just for freelancers and entrepreneurs. Apart from remittances and payment processing, some other uses you might find for it are:
No other currency form online is as cheap and secure as having a paper wallet. That is, a bitcoin address that is off the internet. Properly handled it is extremely secure, if the volatility calms down it will be hands down the best way to securely store large amounts of money.
Haven't you got a credit card? Some services and products can be acquired with bitcoin, allowing you to pay for them without needing a credit card. If you live in Argentina, there's still customs waiting for you to try to bring anything physical and bash it with a ~50% markup. Just so you know.
This is way more advanced, but by implementing your own coin a whole world of possibilities open up for you. One of the more promising ones is issuing equity, that is, backing your own coins with shares of your ventures.
If you fancy yourself good with stocks then bitcoin might be for you. There sure is a lot of volatility to profit from the currency market in the exchanges. Some people I know are making a living from this, however, this is not for the faint-hearted. Discipline, Knowledge, and why not automation (*coughs* Crypto-Shuffle) are needed to be a successful trader in the rocky and dangerous bitcoin trading world.
Oh really? What kind of advice is this? If you dream about making it big à la Wolf of Wall Street, while forgetting that there is not a thing as something from nothing, bitcoin is just for you. I've never seen so many ponzis in so little time as with bitcoin: Pump-and-dump schemes, shady alt-coins, High Yield Investment Programs, Cloud Mining, you name it. If you really hope doing this, enjoy the money you steal from blatant idiots, because sooner or later you'll rot in jail.
There's almost zero friction to sell digital goods with bitcoin, there's success stories, and best of all, there's very little fraud going on. No charge-backs disrupt the possibilities of buyers screwing you, so you better fulfill your promises or the small online world of cryptos will get back at you. Unless you live in countries where the government is blind to this job-creating dollar-making business opportunity.
Aaand, that's about it.
I apologize for not providing a detailed explanation of how to create wallets, or the specifics involved, it is really simple actually. With breadwallet it is just tapping "New Wallet" and that's it. On exchanges, you'll be guided accordingly, just don't start with bitfinex (too complex). As an overview I hope it has been helpful.
Thanks for reading! Any feedback or suggestions are very welcome. Thank you!
And special thanks to Gus Aragón for the inspiration to write this.