Bitcoin has hit the mainstream in New Zealand today, with new of the first piece of real estate being sold for the digital currency that is taking the world by storm. In this article we discuss the new financial technology that is set to revolutionise the banking paradigm, and highlight a few ways New Zealanders can get involved with crypto currencies such as Bitcoin in these early times.
First, let’s take a look at what Bitcoin is, and the technology that makes it work. Bitcoin is a virtual currency that is immune to inflation, because there can only ever be 21 million of them in existence due to the mathematical system that creates them. There are currently around 16 million bitcoin in existence, and new coins are slowly generated through a process known as “mining”. All 21 million coins will have been mined by the year 2140.
The term “bitcoin mining” is a bit of a misnomer. Theres is no actual mining involved. Mining refers to the processing of financial transactions on the bitcoin network. Imagine how a transaction through a normal bank has to be processed. If someone makes a purchase using EFTPOS, funds are withdrawn from their bank acount and are deposited into the account belonging to the person they are buying from. The bank processes the transaction and charges a small fee for doing so.
The same thing happens with bitcoin: the buyer sends the agreed amount of bitcoin to the seller using an app on their smartphone or pc; the bitcoin network processes the transaction, and receives a small fee for doing so. Infact, almost anybody with a working computer can connect it to the bitcoin network using free software, and start processing transactions on it and earning part of those transaction fees themselves. This is called “mining”, and the people and the computers they use for mining are called “miners”. Bitcoin mining is highly profitable, even for small-time miners running a few pcs or dedicated miners at home.
Bitcoin and other “crypto currencies” (crypto is short for “encrypted”) are stored in people’s phones and computers using small apps called “wallets”. Well, sort of. In reality, only proof of ownership is stored in the wallets. The coins themselves are recorded as entries in a a ledger which is shared and duplicated right across the entire bitcoin mining network, making it very difficult for hackers or fraudsters to get up to any dodgy business. Details of every transaction are permanently recorded, and are viewable by anyone with a web browser using websites such as BlockExplorer. Details of the transaction are recorded, but the names and personal details of the sender and receiver are not, so there is a combination of security and privacy, sometimes referred to as pseudonymity.
As transactions are created using bitcoin and are submitted to the bitcoin network for processing, they are grouped together in batches of transactions known as blocks. Think of a block as being a page bearing a list of perhaps a dozen transactions. Once a block is formed, it is published on the network and waits to be validated or “confirmed” by a number of “miners”. It is encrypted to keep the details secure, is allocated a block number, and is added to the exiting list of previous blocks in a fashion that creates a permanent, unbreakable chain. This is what’s known as the blockchain, and is the underlying technology that is changing the world as we know it and will most likely end the stranglehold that traditional banks have over the world’s financial system.
Bitcoin and blockchain technology are creating a decentralized money system that allows anyone in the world to easily and quickly make payments to anyone else, anywhere else in the world, without the need for an intermediary such as a bank. This is revolutionizing business and will transform the way the world conducts trade, thereby transferring the ability to generate wealth from the extremely rich banking elite to the common people of planet Earth.
The bankers are already kicking up a stink and are doing all they can to make sure bitcoin doesn’t succeed: they don’t want freedom for the masses, but the cat is already out of the bag. Bitcoin is spreading like wildfire around the world, and is now becoming welcomed into the mainstream here in New Zealand. A plethora of bars and cafes around Auckland and Christchurch already accept bitcoin for some products, and the movement is gaining traction.
There are a few downsides to bitcoin as it currently stands. The value of each Bitcoin fluctuates tremendously as traders look to profit from differences in supply and demand, just as they have done in traditional forex and stock markets in the past. This causes a bit of annoyance to bitcoin users but is generally accepted as part of life. Every decent wallet app is constantly updated with the current value anyway, so it is not really much different than having New Zealand dollars and watching the price rise against US dollars or Aussie dollars. Welcome to the age of global trading (which is different than globalization but that’s food for another article).
For people new to the bitcoin world, you need to know that there are many other crypto currencies in existence, not just bitcoin. The other big coins include names such as “Ethereum” (great name and a great currency), Litecoin (designed to act as “silver” in relation to Bitcoin’s status as digital “gold”), DASH (short for “Digital Cash”), and Monero (a crypto currency with an even greater level of privacy).
Each crypto is designed for use in slightly different industries or scenarios. For example, Ethereum (ETH) is designed for use in generating “smart contracts”. One example of a smart contract could be an automatically generated and administered insurance policy, than remains in place so long as the proper conditions such as premium payments are made, and which pays out automatically when a claim is made.
You can monitor the value of each crypto currency on websites like WorldCoinIndex and CoinMarketCap (Cap is short for capitalization). Values are usually represented in comparison to US Dollars, so keep your calculator app handy or find a converter on google.
How to buy Bitcoin in New Zealand.
So how does one get their hands on some of this digital gold, you ask? Well, it is pretty easy, really. There are websites such as “Localbitcoins.com” that let you arrange meetings with other kiwis to do deals for cryptos, but not everyone is comfortable meeting strangers to buy and sell money, and understandably so. A better option is to use a reputable online coin broker or exchange such as Coinmama.com, and just buy bitcoins using your credit card. Just sign up for an account, make your purchase, and wait for the bitcoin to be deposited into your coin wallet app.
If you need a good wallet for pc try Jaxx.io or Exodus wallet. For smartphones, do a search for your particular phone’s operating system as the apps do vary. Just do a bit of research before you jump into it. Make sure the wallet you choose gives you access to your “private keys”. If it does not, keep on looking. Whoever controls your keys, controls your coins. It is not recommended to treat your accounts on coin exchanges as wallets, for the very same reason.
So there is a bit of an introduction to Bitcoin, a background and overview of the mining process and the underlying blockchain technology. You should definitely look into bitcoin. Do some research and get yourself a wallet. Keep in mind that it is very easy to change wallets later, so don’t be scared, just keep a copy of those private keys.
Bitcoin and the other cryptos are the future of finances, and they are here to stay. By jumping onboard now you are still at the leading edge of things, and will be well placed to use the technology to your advantage as we progress. It is an exciting time, so embrace the change and take control over your own finances. Be your own bank!!