Millennial Money: Is bitcoin the new tulips?

Thursday, 26 October 2017

How Bitcoin works.

OPINION: It's hard not to have heard of bitcoin at this point.

The bitcoin mania has been compared to the 17th century tulip bubble.

In the 1630s people went nuts over tulip bulbs and they became so valuable that investors used their houses as collateral to buy them, but when the bubble popped, many lost all their money.

Millennial Anuja Nadkarni ponders investing in bitcoin as a fast track to getting rich.

Despite this lesson in history the bitcoin remains enticing to the less risk averse investor.

Join our four millennial business reporters on their money journey.

This month the cryptocurrency broke another record with one bitcoin being worth US$6000 (NZ$8600).

* Blockchain technology could increase the trust in data that we never knew we'd lost

Overseas bitcoin is becoming a more popular form of payment, but New Zealand has been slow to pick it up.

* Richard MacManus: bitcoin bottleneck continues to frustrate kiwis

Imagine how many smashed avocado on toast one could pay off with that.

Overseas, Microsoft, Dell, Expedia and sandwich chain Subway all accept bitcoin as payment for their goods and services.

So, plagued by the eternal fear of missing out, I wondered why hadn't I joined? What do I have to lose?

It could be a lot, but I could also gain, a lot. Remember how much I said one bitcoin was worth?

Bitcoin works on a cloud database called the blockchain, which houses all transactions ever made.

Before we get to getting rich, here's what bitcoin is.

bitcoin is essentially a new form of money.

Bitcoin is internet money, which unlike normal money is not controlled by banks or governments.

The currency works on a cloud database called the blockchain, which houses all transactions ever made.

Imagine a massive $5 note with all the transactions that have ever been made written on that note.

To use bitcoin you need to download software that lets you access the blockchain and get an online wallet. There are many apps that can help you get one.

Then you can start trading the currency, make purchases or transfer dollars into your wallet through intermediaries that convert your traditional money into cryptocurrency.

Bitcoin is not anonymous, it is pseudonymous. Instead of your name it uses your wallet's address. This could look like: 2384jrhGYGher28o4u83712e.

Bitcoin can eventually be traced back to a person but users could become truly anonymous if they create multiple wallet addresses. This opens room for unregulated or illegal purchases using the currency.

Now to the getting rich quick part.

Since bitcoin is so new, and unlike the stock market which history has taught people to read its patterns, you don't know what you're going to get with cryptocurrency.

Financial adviser Martin Hawes says bitcoin is too speculative and volatile.

But I'm a millennial and time is on my side so I can afford to take some risks, right? What about YOLO ('you only live once' for those aged over 40)?

Hawes says by all means dabble in it if you have the funds, but don't invest. Use it for easier transactions.

Keep in mind you don't have to buy a whole bitcoin. You can buy one hundred millionth of a bitcoin, which is one satoshi, or a cent in physical money. One satoshi, named after bitcoin's creator, is worth US0.00057c.

Another investment adviser Louis Boulanger says it takes a 'good stomach if you consider it an investment,'

Bitcoin is booming, for now, but after every boom comes a bust, and we don't know how soon that could be. Boulanger says.

To me bitcoin is quite the gamble. Bitcoin could be the early ancestor to a much more evolved form of cryptocurrency in the future.

As for now, I'm not tempted by Lotto tickets, nor am I by bitcoin as a fast track to becoming a millennial millionaire.