There is no question about it; Bitcoin is hot. There are those who are predicting it will go through the roof and make those who have invested in it rich, but I'm not buying any. Why?
What is Bitcoin?
Bitcoin is a currency not backed by any government that some people or companies accept as a medium of exchange. Unlike currencies backed by governments, Bitcoin does not have a physical form, it exists only in "bits" in pieces of information on computers. The Bitcoin network is decentralized and interconnected--there are lots of computers with the same information on them. That's the fifty cent summary of a New York Times article, but the bottom line is, I really don't understand it.
How Do You Get Bitcoins?
Like anything else, you buy them. You can buy them through companies that require indentification and in ways that do not. For some reason, drug dealers like the ways that do not. I have no idea how much of the money you give these companies goes into currency vs how much is fee or profit for the company.
How Do You Make Money with Bitcoins?
You make money with Bitcoins by selling them for more than you paid for them. In some ways, all currencies are subject to the law of supply and demand, though usually we see it on the side of a good or service that is purchased as opposed to the currency side. Last year $10 purchased a widget; this year $10 only purchases 90% of a widget. We say the price of the widget has increased--and if doohickeys and thing-a-ma-jigs are the same price they were last year, then yes, widgets cost more, but if "everything" has gone up 10% then in reality the currency is worth less.
If you want to buy Bitcoins you have to pay what those possessing them are charging. If you want to sell them, you only get what people are willing to pay. How that is determined is something I do not know.
So, Why Am I Not Investing in Bitcoin?
If you read each of the paragraphs above, you'll see why I am not investing in Bitcoin--"I do not know" "I have no idea" "I really don't understand it". I'm not saying I'll never invest in Bitcoin--maybe one day I'll do the research and understand those things and feel comfortable investing. However, someone once told me that if I wanted to invest in something, I should be able to tell you what it is I am buying, how I expect to make money from it, how I could lose money from it, and why, and who is making money because I'm buying it (and how they are paid). If I don't know those things, then my "investing" is really gambling--it might work, it might not but I'll have no way of duplicating the success or avoiding the problems in the future. In other words, I am counting on getting lucky, nothing more, nothing less.
Bottom line--if you don't understand it, you shouldn't invest in it.
Agreed. I don't understand it, at least not beyond the basics I've read, so you won't find me investing in it either.
ReplyDeleteI don't understand it either although your post enlightened me a little. I'll pass on this one too!
ReplyDeleteI didn't even understand as much as you've written here, but I love your investing advice. It's something I'll have to research when we get that far.
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