Over the past few months I have watched bitcoin’s value rise exponentially. I had no idea what bitcoin was and never even heard of crypto currency a few months ago. But with the recent government and media attention crypto currencies have received, they have gotten everyone’s attention.
Crypto currency or more simply digital money is gaining acceptance quickly all over the world as it makes transactions quicker and cheaper. These transactions are secured by cryptography and each transaction has its own signature or private key. With its rise in value and popularity everyone wants a piece of the action. There are two main ways to make money with bitcoin. The first is a pretty straightforward method of purchasing the coin as an investment and hope that its value increases. The second is the process of “mining” bitcoins. Once a transaction has occurred they are then verified over the network by “miners” using complicated algorithms. As a reward for their work they receive transaction fees and/or freshly minted bitcoins!
From an investing standpoint there is a big risk/reward factor as this currency is relatively new and has no intrinsic value causing volatility and big price changes. A positive fact is that there is a huge amount of money invested in this and companies are signing on to use this currency so we have no idea when its value will go back to zero!
“Mining” also has a big risk/reward factor. In the beginning of bitcoin, you used to be able to “mine” with an ordinary laptop or home computer. But now as more people are doing it the difficulty and power needed to “mine” increases. Bitcoins have a maximum amount that can be minted (21 million). And as we get closer and closer to 21 million the amount of bitcoin rewarded for each successful “mine” gets smaller and smaller. Now “miners” looking to be profitable have to invest in complicated high tech mining rigs and there is still no guarantee they will be profitable or even make their costs back.
There is a third and safer option, though. In any sudden happening that promises riches the most lucrative venture is selling the tool that helps produce these riches. For example, in a gold rush it would be the shovel and in “mining” for bitcoin it would be mining rigs or powerful graphic cards. If you can produce these or even get your hands on some cheap you would make a considerable profit flipping them. Unfortunately, only a select few have the luxury of choosing this option.