The financial world has been ablaze with discussion of Bitcoin, the Internet's first dedicated currency, causing some to speculate (in the financial sense), while others disregard the cryptocurrency as just another fad, the domain of the underemployed, the teenaged, criminals, and pirates.
All of which leads us to believe people don't really know what Bitcoin are, let alone whether or not the data currency will be a viable investment as time goes on.
We grabbed Nima Mahdjour, of the website CoinJabber, to explain the cryptic cryptocurrency to us, as well as give a brief rundown on the operation known as "Bitcoin mining," which some are treating like a 21st-century Yukon gold rush.
First off, can you briefly describe what Bitcoins and cryptocurrency are?
Cryptocurrencies are digital assets that are limited in supply, global in reach, and decentralized in creation. They are transmitted via a decentralized global consensus mechanism that works on the basis of an open protocol where asset ownership can be reassigned at minimal to no fees in an openly shared ledger usually referred to as a "blockchain." Bitcoin was the first cryptocurrency to inhibit those characteristics and is still the largest one in terms of market capitalization. You can also roughly think of it as the digital version of gold.
How did you become interested in Bitcoin, in the first place, and what about the topic inspired you to to start CoinJabber?
I have always been interested in achieving the goal of limiting the power of the state by stripping it of its ability to create money and inflate our money in perpetuity, along with all the unspeakable horrors that this kind of power has unleashed upon human society for the past centuries. Bitcoin seemed like the perfect solution to that challenge.
I started getting into Bitcoin mining for a little while with my business partner James in 2011 and we soon had a bad encounter at the now defunct exchange Mt. Gox (years before they went belly up). We wanted to create a platform where people in the cryptocurrency community could share their experiences, good and bad, in an open forum, and so CoinJabber was born.
Can you briefly describe how CoinJabber works?
CoinJabber is a listing portal where people can submit and review organizations that are involved in the cryptocurrency community. These could be businesses or nonprofits that accept cryptocurrencies such as Bitcoin or Litecoin (or any of the 200+ others we have currently listed), publications that write about the the industry, and many more. As a reward for contributing helpful content, our users can receive Bitcoin and other cryptocurrency rewards. As a result we have a lot of traffic from people browsing the space, so we also offer paid featured spots for organizations to advertise themselves.
CoinJabber is a Bitcoin ranking and review site. What are some criteria that you and your audience use to rate the various websites?
We don't have a fixed set of dimensions, but we generally look for responsive and helpful customer support, a user-friendly interface, reliable and trustworthy service, unique content, helpful information - all in all, basically, how well does a business or nonprofit achieve the objective of helping users navigate the nascent and fascinating world of cryptocurrency and benefit from its potential?
Bitcoin and cryptocurrency are frequently associated with illicit activities. Is this just the currency of the underground, or do you expect it to gain more mainstream acceptance in the near future?
I could easily make the case that the US Dollar is being used for far more drug and black market arms purchases than Bitcoin ever has been. I would also consider the drone bombing and slaughter of millions of innocent civilians and the kidnapping and caging of peaceful individuals utilizing a harmless plant for recreational purposes, illicit activities (all of course brought to you via limitless central bank fiat money facilitated deficit financing), just to name a few. By the way, a US Dollar bill is actually more anonymous than a Bitcoin.
Bitcoin is a neutral medium of exchange. Of course it can be used by bad people, just as a knife can be used to stab someone or to spread butter. But it's not the job of Bitcoin to prevent people from doing bad things with it, anymore than it is the knife's job to remain in the kitchen. It is up to us, as individuals in society, to promote peaceful trade and exchange amongst all and to discourage and punish aggression and theft. I believe that Bitcoin can help us get there and that it will play much more of a mainstream role as a reliable global digital asset in the years to come.
Do Bitcoin always remain virtual, or are you starting to be able to use virtual currency in the real world?
I would avoid the term "virtual" when it comes to Bitcoin. The private keys that you hold to prove ownership are very real things, to the point where people actually store them on paper only for maximum security. But yes, you can absolutely buy real things with Bitcoins in the real world. I have purchased cupcakes, pickles, and condiments in San Francisco; cocktails in New York; beer and dinner in Berlin; cookies online, all with Bitcoins. If you look at the number of real-world business listings on CoinJabber, you'll see that there are many other goods you can purchase with Bitcoins.
You can use Bitcoins to buy computers from Dell, any overstock items from Overstock.com, electronics from Tiger Direct; Buy.com just recently announced acceptance; you can even buy gold and other precious metals at Provident Metals, Agora Commodities and many other dealers, all using Bitcoins. Hardly a day goes by without a new big real-world player jumping on board.
Do Bitcoin get taxed?
I am not a tax attorney, so please don't take my uneducated opinion on this matter as any sort of tax advice. The question of how Bitcoin is to be handled from a tax perspective is still being debated, and answers vary from jurisdiction to jurisdiction.
In the US, for example, as far as I know, if you purchase or mine Bitcoins and then sell them later at a profit, you owe capital gains tax just as you do on any other asset. If you earn Bitcoins, then you owe taxes on your earnings just as you would if you were paid in cash.
What I think everybody wants to know is: Can you make real money with Bitcoin? And, if so, what are some methods that people use to do so?
An easy way to potentially make some money would be to buy a small amount that you're comfortable losing, and then hold on to it for a while. For example, one guy bought $25 worth in 2009 and in 2013 looked at his Bitcoin wallet to see that it was now worth $800,000, part of which he used to buy an apartment in Oslo. Other ways would be to get involved in the space. Go to meetups, learn how the protocol works, get to know experts, users, miners, etc., in the space. Look at areas where the community or the industry is lacking and come up with improvements and suggestions involving your area of expertise. You could be a coder, an electrical engineer, a project manager, a salesperson, etc.; this industry really needs hands-on expertise in all areas. There's certainly no shortage of jobs in this space, and the beauty is that no matter who you are, if you get involved now you can still be a true pioneer.
Aside from CoinJabber, what are some other particularly useful Bitcoin resources?
Some sites and apps I use on an almost daily basis:
Do people need any kind of special software or hardware to get started mining Bitcoin?
Bitcoin mining is a tiny margin (many actually operate at a loss) and fierce competition business. You need incredibly specialized hardware (so called ASIC Miners) in order to be able to even think of mining Bitcoins. You can buy this hardware from various specialized vendors in the space, but once you've bought it you need to have the money (for electricity cost), skills, time, electricity infrastructure, cooling, and resources to maintain a 24/7 mining operation. Unless you have access to a large mining facility near the arctic circle and all of the aforementioned prerequisites, you're really much better off just buying some Bitcoins and holding on to them for a while.