It is certainly something that is hard to get your head around. We can all understand computer-based banking and financial transactions, but if Bitcoin doesn’t use ‘real’ money, then what is it?
Here is a simplified way to begin to understand it – if you want more in-depth understanding, you will need to do some research on the Net.
You first need to know that a finite ‘quantity’ of Bitcoin was created, and rather like gold, it can be ‘mined’. Mining is a tricky process that requires super-computing and super-skills that most of us don’t have. It is about solving a puzzle. Most of us mere mortals who might get involved in Bitcoin won’t mine, but will use it to make purchases, to exchange or to trade in Bitcoin.
Next, you need to understand that the Bitcoin system isn’t held in one spot, but is on a global database called the blockchain, maintained by many people – think Wikipedia, to give you a starting point of understanding. The blockchain ‘ledger’ records Bitcoin transactions, and because it has to balance and because it’s public, it would be very hard to cheat the system.
Finally, how do you access your Bitcoin? Access is via a ‘wallet’, although that term is misleading, as the ‘wallets’ are more like ‘keys’ to give you access to your Bitcoin. There are various digital, hardware, and paper wallets, with various pros and cons. You can treat your Bitcoin as currency to pay for something and you can trade in it, just like real money. The same sorts of taxes you expect to apply to real money transactions apply to Bitcoin. Go to the ATO site to for more info about the tax implications: https://goo.gl/cbQqNx.
So unless you want to mine Bitcoin, it might be best to consider it as just another form of money, albeit, not one that can be stored in a piggy bank!
Is it a good thing? Well we don’t pretend to have the sort of in-depth knowledge to answer that question and the answer will also depend on your attitudes to technology, old vs new and so on. It’s certainly here and evolving rapidly as all technology does, so having at least a rudimentary understanding of it is a good thing!
Information was sourced from:
https://www.coindesk.com and https://www.moneysmart.gov.au
PS: There’s a bunch of similar currencies now, that use the idea that Bitcoin invented, ie cryptocurrencies. For example: Ethereum, XRP, Monero. Most of them are legit, but some are created by scammers who run off with everyone’s untraceable money, so Girls and Boys, be careful!
…and keep on keeping on