Bitcoin for Everyone

Lesson 3: How You Can Use Bitcoin

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Welcome to Bitcoin for Everyone, an original coin academy course. This is the third lesson of eight and in this lesson we are going to be looking at different ways in which you can use Bitcoin.

The most obvious use is to spend Bitcoin for goods and services. There are now more then 35 thousand merchants who accept Bitcoin including some very big names out there, including Expedia, Google, Dell computers, you can even buy a car from Tesla Motors. Virgin accepts it for airfares as well. There’s a wide number of vendors today who accept Bitcoin. Moreover that number, 35,000, actually under represents the Bitcoin ecosystem as it doesn’t take into account all over the various freelancers developers, designers, programmers and contractors around the world who you can pay directly with Bitcoin

Now of course another common use if we turn this around, you can become a merchant yourself and you can accept Bitcoin for goods and services. There are several merchant solutions already in the market. These are complete point of sale solutions and solutions that integrate with e-commerce’s websites. Two of the biggest are called BitPay and Coinbase; you can see their logos on the screen. They offer very attractive terms. Coinbase offers no fees for the 1st $1,000,000 in transactions. BitPay offers a completely free plan for small businesses and a more advanced plan with additional features for less then $1 a day. It’s actually quite attractive, these are not the only solutions in the market place.

Transactions are processed almost instantly, and both Coinbase and BitPay will convert your Bitcoin value into fiat currency and deposit it in your bank for you. Now these solutions are pretty much North America specific, if you are living outside or operating outside of North America you’ll see to research and find out what’s available and what will interface with your local bank and operate in your chosen fiat currency. But there are significant advantages aside from the fact the transaction fees are quite low. There are also no chargebacks, once a Bitcoin transaction goes through its done. Unlike credit cards where some credit cards will allow the users up to 30 days to reject a charge and incur therefore a chargeback. Really a large issue particularly for the people in the food and beverage industry. These solutions both BitPay and Coinbase offer a variety of software plug-in you can stick into your website and integrate with your website shopping cart really making it a turn-key solution for accepting Bitcoin for payment for your goods and services.

But buying and selling are not the only way you can use Bitcoin. You can also trade it like a foreign currency. It is a currency so this shouldn’t come as surprise to anybody. There are multiple exchanges in the market place right now and you can buy and sell Bitcoin like a commodity on those like a commodity, or like a currency.

Bitcoin is more volatile then the major currencies, and this opens up possibilities to buy and sell at a profit. Moreover, the pricing often varies between exchanges, making it possible to buy and sell on different exchanges for a better margin. Typically the lower volume exchanges will allow you to purchase Bitcoin at a lower price. Why? Because they don’t have the volume to command higher prices closer to the market rate. This allows you the opportunity to purchase on these exchanges and then to sell them on a different exchange. You can do this because once the Bitcoin is in your possession it doesn’t matter what exchange it was obtained on you’re not restricted in where you can sell.

Another alternative is to use it to move between fiat currencies. Basically, you are using Bitcoin as an alternative to the US Dollar or Euro when you move between exotic currencies. Typically now in exotic currency transactions, its the US Dollar or Euro that serves that role. Its very simple it works like this. You’ve got currency A and you wish to move to currency B. But your bank doesn’t provide a direct translation from currency A to B; you’d have to go through the US Dollar or the Euro. Well another alternative is you take currency A, you go to an exchange, you buy Bitcoin then you go to a different exchange and you take your Bitcoin and you buy currency B.

Now this does have a big advantage namely that the transaction costs are cheaper than they are with the traditional methods. It can also be actually faster then traditional methods. The big disadvantage here is the Bitcoin price volatility has to be taken into account. You don’t want to conduct the transaction on one day and then wait several days and conduct the 2nd transaction. You might be disadvantaged by the volatility. Then again it might be to your advantage as well.

Another alternative is to use Bitcoin as a hedge against inflation. Basically if you live in a country that has unstable economy more specifically you have a currency that is deteriorating in value through inflation: the governments printing more money, the value of the money is dropping, you can change some of your local currency in to Bitcoin as a way of storing value and hedging it against inflation. Basically it would look something like this. Your local currency is dropping in value across time, instead you take part of that money and buy Bitcoin and the Bitcoin will at least hold or more likely given the history of Bitcoin it will actually rise in value, giving you a hedge against the inflationary factors in your local market. This is particularly attractive in some of the smaller 3rd world countries right now where currency volatility is a big issue.

Finally you can of course treat Bitcoin as an investment vehicle. Now Bitcoin is a deflationary currency. What do we mean by that? We mean that since the supply is limited, Bitcoin should increase in value over time. Unlike a fiat currency where the government can go out and print more dollar bills or more Euros we know how many Bitcoins there are in the market, we know how many Bitcoins there ever will be in the market, therefore its a fixed supply, and it mean consequently that as trading volume increases and demand for Bitcoin increases the value of that unit is going to increase. This opens up the possibility that you can hold Bitcoin like a stock, a buy and hold approach and use Bitcoin as a unit of stored value.

Of course given the track record to date, good gains are possible, but always caution is advised.

This actually is a good segway for our next lesson, which is all about Investing in Bitcoin. So join us next for Lesson Four.