The first thing you may be asking yourself is: what is a Bitcoin? Your next question after hearing my answer will be: how is that harvesting the earth’s resources? I have answers for both questions. If I didn’t I would not have put this section in this chapter.
First, what is a Bitcoin? I could try to answer that myself, but I am not smart enough to explain it well. BitCoin.org states:
Bitcoin is an experimental new digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin uses peer-to-peer technology to operate with no central authority: managing transactions and issuing money are carried out collectively by the network. Bitcoin is also the name of the open source software which enables the use of this currency. The software is a community-driven open source project, released under the MIT license.
Bitcoins are traded on the internet and redeemable in different currencies. They can be exchanged for value and have a value that goes up and down depending on the market. What backs up Bitcoins? Well, what backs up the US dollar or any fiat currency? The fact that people put trust in them and use them to purchase things of value gives them value, no matter how crazy that may seem to you.
Bitcoins have received some negative press due to some people using them to purchase illicit goods. At least one US Senator proposed legislation to ban them, although that bill didn’t go anywhere and would be impossible to enforce. Does this mean that there is something wrong with Bitcoins? No. It means that there is something wrong with that Senator. People use dollars and other currencies to do bad or illegal things all the time. Does that make those currencies bad? No. So why is a Bitcoin any different?
There are different ways to make money with Bitcoins. The most straightforward way is to buy and sell them. Bitcoins trade on an open market. The price of a Bitcoin fluctuates. It has seen extreme lows and highs. There are various sites on the internet that will either sell you Bitcoins or connect you to an exchange. It is important that you don’t do something foolish like sell all your property and put your money into Bitcoins. Remember it is experimental. They could go greatly down in value. They could, theoretically be hacked into, although that doesn’t seem likely. But if you have some extra cash, it might turn into a great investment.
It is also worth considering that there are many other Bitcoin alternatives out there such as Litecoin that may be worth considering as well. Because they are less well known there is a greater possibility for wild price swings that you could take advantage of, or get burned by. Again, don’t invest what you cannot afford to lose.
As usual, you have to consider the tax implications of any money-making venture. Are profits considered a capital gain by the IRS? I suspect that they are.
The other way to make money with Bitcoins (or Bitcoin alternatives) is to mine them. Your computer can download Bitcoin mining software. You can also join a Bitcoin mining pool, which probably makes more sense, unless you have some sort of super computer. How does this mining work? Bitcoins are being released on a set and known schedule. Your computer uses its processing power to solve puzzles to earn the Bitcoins. You have to determine your processing power on your computer, the amount of electricity that your computer uses, the current schedule for release of Bitcoins, and the current value of the Bitcoins. All of this information is freely available. You do some basic math and you can determine if you will make a profit or not. The problem with mining Bitcoins is that the process gets harder and requires more resources as more Bitcoins are released. This is why you might want to look into mining other Bitcoin alternatives that haven’t caught on as much yet.
Some companies sell Bitcoin Mining Rigs that are supercharged computers for mining Bitcoins, but useless for everything else. Like anything, the more money you put into it, the better prospects you will have. But also your prospects for losing money also increases, especially if the price of Bitcoins goes down dramatically.
Once you acquire Bitcoins you can sell them for cash, hold onto them as an investment and sell them later for (hopefully more) cash, or use them to buy goods online. There is at least one website that sells silver and gold for Bitcoins.
How is Bitcoin Mining or investing harvesting the earth’s resources? Well, it is indirect. You are using coal or some other power source to operate your computer. Your computer has gold and silver in it. Yes, I know that is a stretch. But this still seemed the best place for this section.
