BY Howard T. Brody


What is Bitcoin? Is it money? Is it like a stock? Where does it come from? Why has it gone up in value? How can you buy and sell them? Where can you buy and sell them? Is it a scam? Why are so many people making money from it? 

Understanding The Basics

For starters, Bitcoin is not an actual coin. As a matter of fact, it has no physical properties at all so you cannot actually hold one. Bitcoin is also not a stock nor is it a commodity. Bitcoin is a Cryptocurrency. And to fully understand what a Bitcoin is, you first need to know and understand what a Cryptocurrency is.

It sounds complicated, but it’s not. Just follow along.

Cryptocurrencies, which are also known as digital currencies, are a form of digital public money that is made up of lines of computer code that hold monetary values. These lines of code are created by high-performance computers that use a lot of electricity to do complex mathematical computations. The lines of code are monitored and verified by millions of computer users who are called “miners.” This massive network of people who contribute their personal computers to the Cryptocurrency networks act as a swarm of ledger keepers and auditors for all transactions. Miners are paid for their accounting work by earning new Cryptocurrencies for each week they contribute to the network.

Cryptocurrency is a compound word comprised of the words currency and cryptography. Cryptography is the security process that is used to protect the transactions that send out the lines of code for purchases. Cryptography also controls the process behind the creation of new “coins,” which is the term that is used to describe specific amounts of code.

Unlike U.S. dollars and other regulated currencies, the creation of Cryptocurrencies are not overseen or controlled by any government, which is what made Cryptocurrencies so popular, to begin with. Most Cryptocurrencies start with a pre-determined market cap, which means that their production will dwindle over time, theoretically making that particular Cryptocurrency more valuable as time goes on.

What Are Bitcoins?

Bitcoin was the first Cryptocurrency ever created. While no one knows exactly who invented it, since Cryptocurrencies, in general, are designed to give users maximum anonymity, they first appeared in 2009 from a Japanese developer named Satoshi Nakamoto, who has since vanished but supposedly left behind a Bitcoin fortune. Many “miners” and Cryptocurrency gurus believe Nakamoto was a ruse; a ploy to hide the real inventor’s identity.

In November 2017 a wild rumor began circulating that billionaire CEO Elon Musk of Tesla and SpaceX was the actual inventor of Bitcoin. A former SpaceX intern named Sahil Gupta wrote a blog post in which he claimed that Musk was “probably” the inventor of the Cryptocurrency because of his deep understanding of economics and cryptography, his grip on advanced coding languages and the fact he is a “polymath” – a person whose expertise spans a significant number of different subject areas drawing 
on complex bodies of knowledge to solve specific problems. Musk said this was untrue and that he had actually lost some Bitcoin a friend had sent to him some years ago because he doesn’t know where it is. 

Because Bitcoin was the first Cryptocurrency to exist, all digital currencies created after it are sometimes called Altcoins, short for alternative coins. There are more than 800 different Cryptocurrencies now available with some of the more popular being Dash (formerly known as Darkcoin), Ethereum, Litecoin, Monero, Ripple and Zcash.

One of the advantages of Bitcoin and other Cryptocurrencies is that they can be stored offline on a person’s local hardware that is often referred to as “cold storage.” Unlike “hot storage,” when the currency is stored somewhere online like a cloud server, cold storage adds a layer of protection and prevents the currency from being stolen.

On the flip side, if a person loses access to the hardware that contains the Bitcoins or Altcoins, the Cryptocurrency is gone forever. There is simply no way to recover it. It has been estimated that as much as $30 billion in Bitcoins alone have been lost or misplaced by investors and miners. Nonetheless, Bitcoins remain incredibly popular as they are the most recognizable Cryptocurrency by name.

Why Are Cryptocurrencies So Controversial?

Aside from the fact that Bitcoin became the center of the media frenzy when it experienced a meteoric rise over the past year – going from $1,020.83 on January 1, 2017, to $14,773.85 on January 2, 2018 with it reaching an all-time high on December 16 at $19,187.32 – there are many reasons why Cryptocurrencies and Bitcoin, in particular, have become so controversial.

Between 2011 and 2013 when Bitcoin was trading at $10.35, it found itself in the news when criminals bought millions of dollars of Bitcoins so they could move money outside of the eyes of law enforcement.

Since then, scams  have become very real in the Cryptocurrency world as inexperienced and veteran investors alike have been duped out of thousands of dollars to unsavory schemes.

But at the end of the day what makes Bitcoins and Altcoins highly controversial is the fact that they take the power of making money out of the hands of central federal banks and place them in the hands of the general public. Cryptocurrency accounts cannot be frozen or examined by government tax agencies like the Internal Revenue Service, and go-between banks are entirely unnecessary for the digital currencies to move. Police departments and banking institutions often see Bitcoins as “gold nuggets in the wild, wild west,” beyond the control of traditional law enforcement and financial institutions.

How Cryptocurrencies Work

Bitcoins and other Cryptocurrencies are designed to be “self-contained” for their value and are completely virtual. Because there is no need for banks to store and move the money, once you own the Cryptocurrency, they almost behave like pieces of gold: they hold value and trade just like if they were gold nuggets. You can use Bitcoins and Altcoins to purchase goods and services online – although most places do not yet accept them – or you can hold on to them and hope that they will increase in value over time.

o use Bitcoins, they are traded from one personal “wallet” to another. Wallets are small personal databases that are stored on one’s computer drive (cold storage), on smartphones, tablets, or somewhere in the cloud (hot storage).

It should be noted that Bitcoins are forgery-resistant as it is so computationally-intensive to create a Bitcoin, the time and effort it isn’t financially worth it for counterfeiters to attempt to manipulate the system. 

Cryptocurrency Values and Regulations

It is estimated that there are more than $2 billion worth of Bitcoins in circulation and they vary in value on a day-to-day basis. A simple Google search will produce the current daily market value. Bitcoins will continue to be made until 21 billion coins are produced, which is estimated to be sometime around the year 2040. As of January 2018, more than half of those had already been created.

As previously explained, Cryptocurrency is both unregulated and decentralized. Since there is no national bank or mint, there is no depositor insurance coverage. Because the currency is self-contained and absent of collateral, meaning that there are no precious metals behind them, the value of each Cryptocurrency resides within itself.

How Are Cryptocurrencies Tracked?

Cryptocurrencies hold a very simple data ledger file called a Blockchain which is unique to each individual user and his or her personal wallet. All transactions are logged and made available in a public ledger, which helps ensure their authenticity and prevents fraud. This process helps to prevent transactions from being duplicated and people from copying the Cryptocurrencies.
It should be noted that while every Bitcoin records the digital address of every wallet it touches, the Bitcoin system does NOT record the names of the individuals who own those wallets. In practical terms, this means that every Bitcoin transaction is digitally confirmed while being completely anonymous at the same time.

So, although miners cannot easily see your personal identity, they can see the history of your Bitcoin wallet. This is a good thing, as a public history adds transparency and security, and helps discourage people from using Bitcoins for illegal purposes.

What are the Fees to Use Cryptocurrencies?

There are very small fees to use Cryptocurrencies. While there are no ongoing banking fees with Cryptocurrencies because there are no banks involved, you will pay small fees to three groups of Cryptocurrency services: the servers (nodes) that support the network of miners, the online exchanges that convert the Cryptocurrencies into dollars, and the mining pools you may join. 

Some server nodes owners will charge one-time transaction fees of a few cents every time you send money across their nodes, while online exchanges will also 

charge when you cash in your Cryptocurrencies for Dollars or Euros.

Additionally, most mining groups will either charge a small 1% support fee or ask for a small donation from the people who join their groups.

In the end, while there are nominal costs to use Cryptocurrencies, the transaction fees, and mining group donations are much cheaper than monthly conventional banking or wire transfer fees. 

How do I turn Bitcoins and other Cryptocurrencies to Cash?

You can exchange your Bitcoin for cash either online or in person.

To exchange Bitcoin online, you have three options at your disposal:

1. Debit cards. There are multiple existing debit card programs. For a list of recommendations, visit

2. Trading with an online exchange. Some of the more popular ones include Coinbase (, Cex-Io ( and Kraken ( In January, CashApp by Square began processing Bitcoins.

3. Directly trading with another person.

To sell Bitcoins in person, all you have to do is scan a QR code on another person’s smartphone in exchange for cash and the transaction is complete.

Security Concerns and Cryptocurrency Abuse

Cryptocurrencies are just as secure as physically holding a precious metal is. Even though they do not physically exist, in many ways having a Cryptocurrency is like having a satchel of gold – and if a person takes the proper precautions, he or she will be safe from having their personal accumulation stolen.

As mentioned earlier, your wallet can be stored online through a cloud service or offline on a hard drive or a USB stick. The offline method is much more secure and is recommended to anyone who owns more than one Bitcoin. But, remember, wherever it is stored is not without risk. More than a potential hacker intrusion, the real risk with Cryptocurrencies and Bitcoins in particular concerns not having your wallet backed up with a fail-safe copy. There is an important .dat file that is updated every time Bitcoins are sent or received. This .dat file should be backed up every day Bitcoin transactions are conducted.

In addition to standard security concerns, those who own and trade Cryptocurrencies should show caution for other issues too. For example, there are currently three known ways that Cryptocurrencies can be abused.

1. Technical weaknesses. Because of a time delay during transaction confirmations, in some rare instances, Bitcoins and other Cryptocurrencies can actually be issued twice. Since Bitcoins are sent peer-to-peer, it takes several seconds for a transaction to be confirmed across the P2P network. It is during these few seconds that someone who uses a fast clicking process can submit a second payment of the same amount to a different recipient. While the system will ultimately catch the double-spender and reverse the second transaction, if the second recipient transfers goods to the buyer before they receive confirmation, then that second recipient will lose both the goods and the payment.

2. Deceit. Because Bitcoin mining is best achieved when joining a group of thousands of other miners, the organizers of each group get the advantage of deciding how to divide any Bitcoins that are found. Bitcoin mining group organizers can deceive their group members by taking more Bitcoins for themselves. 

3. Mismanagement of online exchanges. Those who manage unregulated online Cryptocurrency exchanges that trade for cash can be incompetent or dishonest. This is the same as when Freddie Mac and Fannie Mae investment banks went under because of incompetence and lack of integrity. The only difference is that conventional banking losses are partially insured for the bank customers, while Bitcoin and other Cryptocurrency exchanges have no insurance coverage at all. The biggest example of this was the 2014 collapse of the Mt. Gox Bitcoin exchange service. Located in Tokyo, Japan and launched in 2010, when Mt. Gox suspended trading, closed its website and exchange service, and filed for bankruptcy protection in February 2014 it was the largest Bitcoin intermediary and the world’s leading exchange handling more than 70% of all transactions worldwide. At the time it was estimated that 850,000 customer and company Bitcoins valued at more than $450 million were missing, most likely stolen. For all intents and purposes Mt. Gox had a large bank with no security guards, and it paid the price.

What do the Billionaires say?

If something is “virtual,” does it really exist? When it comes to Bitcoin and other Cryptocurrencies, this is an important question. You can buy and sell stocks, bonds, paper currencies and commodities like corn and wheat. They exist in the real world. You can physically deliver them, although they mostly are represented in electronic form. Although anyone can speculate on conventional investments like stocks and precious metals, it’s important to know what Bitcoin is not. Anyone is free to speculate on anything from land to football games. It’s human nature. Yet don’t confuse a Cryptocurrency with something you can hold in your hand – like gold. And for every positive thing about Bitcoin, there seem to be negative things too. Here are what some of the world’s most insightful millionaires and billionaires have to say about Bitcoin, Blockchain, and Cryptocurrencies.

Sir Richard Branson, Founder, Virgin Group

“Well, I think it is working. There may be other currencies like it that may be even better. But in the meantime, there’s a big industry around Bitcoin. — People have made fortunes off Bitcoin, some have lost money. It is volatile, but people make money off of volatility too. If you take somewhere like Egypt, 90% of people have got houses, they’ve got a garden, but they’ve got no piece of paper to show ownership of that — And without ownership of your property, it’s almost impossible to start a business or get a bank loan or anything. Blockchain technology could create a real economic revolution in these countries. I do think Bitcoin is the first (encrypted money) that has the potential to do something like change the world.”

Warren Buffet, CEO, Berkshire Hathaway

“In terms of Cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending. When it happens or how or anything else, I don’t know... If I could buy a five-year put on every one of the Cryptocurrencies, I’d be glad to do it, but I would never short a dime’s worth. We don’t own any; we’re not short any, we’ll never have a position in them.”

Mark Cuban, Owner, Dallas Mavericks

“It’s OK to invest up to 10% of your savings in high-risk investments, including Bitcoin and Ethereum. You’ve just got to pretend you’ve already lost your money. It’s like throwing ‘the Hail Mary.’ It’s still very much a gamble. It could go to $15,000 or zero and maybe both on the same day. If it’s money you need to depend on and can’t afford to lose, don’t do it. If you have money you can gamble with, then it’s worth taking a shot.”

Bill Gates, Co-Founder, Microsoft

“Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than currency in that you don’t have to be physically in the same place and, of course, for large transactions, currency can get pretty inconvenient. (It will) make moving money between countries easier and getting fees down pretty dramatically. But, Bitcoin won’t be the dominant system... We need things that draw on the revolution of Bitcoin, but Bitcoin alone is not good enough.”

Elon Musk, CEO, Space X and Tesla

“I think Bitcoin is probably a good thing. I think it’s primarily going to be a means of doing illegal transactions – But that’s not necessarily entirely bad. You know, some things maybe shouldn’t be illegal. It will be useful for legal and illegal transactions. Otherwise, it would have no value as a use for illegal transactions, because you have to have a legal to illegal bridge.”

Kevin O’Leary, Co-Fonder, O’Leary Funds and SoftKey

“The fact is, it is so unstable — volatility in both directions, it’s up, and it’s down — that nobody in a substantive transaction will take that risk. So it is a long way from being a currency. However, is it an asset? Yes. It is one of the most successful assets on the planet right now because it’s a global speculation. I have no idea what its value is, and neither does anybody else. The volatility makes it very difficult for me as an investor to put that into a portfolio. So to me, it is a speculation.”

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