In part one of our Bitcoin series, we discussed the basics of Bitcoin and how this virtual currency ecosystem is supposed to work. In part two, we look at the practical aspects – How we can physically buy, store and use bitcoins.
So where can I get my bitcoins from?
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There are basically two ways to accumulate bitcoins. You can mine them by connecting your pc to a network, running it 24/7 and dedicating computing technology to the solving of complex mathematical problems, or you could buy bitcoins with actual money. For today we shall just focus on the buying bitcoins.
Where does my bitcoins end up after I buy them?
Before you can even buy bitcoins, you need an address to store them. Think of it as your email address or even as a P.O box by which others are able to send bitcoins to. Your address would look like this.
In order to create an address you will need a virtual wallet to manage and access your address. Two leading Bitcoin wallet sites are Coinbase and Blockchain.info. Opening an account with either is simple.
Bitcoin is a virtual currency. There will NOT be any physical coins involved. The only indication that you have owned bitcoins is your virtual wallet statement.
How can I purchase bitcoins?
There are three avenues. Bitcoins can be purchased on a Bitcoin exchange, through a third party broker and most recently, via a Bitcoin ATM.
A Bitcoin exchange functions like your broker and stock exchange combined. Buyers and sellers come together and the exchange matches the best prices for both and facilitates the transaction, taking a small commission in the process.
To participate, you would require an account which you could sign up for (easy and painless), and complete a verification process that involves sending copies of your identification (passport, NRIC or driving license) and proof of address (slightly more complicated). Once you are verified, the buying and selling is actually quite simple.
You could also choose to purchase bitcoins through a third party broker. Coinrepublic is rather established and a good source of information on Bitcoin. Users generally leave good feedback and the purchasing process is stated clearly and made easy to understand. However, their fees of 5% per transaction tend to be on the high side compared to itBit at 0.7%.
Finally Bitcoin ATMs has descended onto Singapore in a flurry. At last count there are six, with most of them in the city area.
Now that I have bitcoins in my account, what can I do with them?
The list of merchants accepting bitcoins is growing everyday.
Amazon.com, the granddaddy retailer of the western internet world has recently jumped on the bandwagon and started accepting the vitual currency as payment. Other notable ways to spend your bitcoins in cyberspace include WordPress and eGifter.
Major retailers in the US such as GAP, Sears and JC Penny have also started to accept payment in bitcoins. In Singapore at this moment, we only have a sprinkling of cafes and pubs.
A good compilation of bitcoin merchants in Singapore can be found here.
Is Bitcoin legal in Singapore?
Some countries such as China have stated outright that companies are not allowed to accept payment in Bitcoin and buying and selling of the currency is illegal.
Monetary Authority of Singapore has taken a progressive approach to the entire Bitcoin issue. Rather than outright stating that Bitcoin is illegal, they have sounded a cautionary note about the currency, leaving the onus to be on the user himself.
And in recent weeks MAS is starting to take a regulatory approach towards the currency. For more background on the pros and cons of Bitcoin adoption in Singapore, read these two articles here and here.
How does Bitcoin compare with physical currencies?
Bitcoin is a virtual currency. The concept of virtual currency is still very novel. While they share the same functions as physical currencies, many aspects are radically different. Hence we cannot measure Bitcoin with the same yardstick used on physical currencies.
Traditional currencies are backed by Governments and nations (or a group of nations in the case of the Euro). The strength and stability and security is tied to that of the host nation. A virtual currency like Bitcoin bypasses this issue altogether.
Proponents of Bitcoin state that transactions are free, anonymous and instantaneous, qualities that no doubt make Bitcoin the next big thing provided it conquers the security issues it is facing right now.
Shall I buy bitcoins now?
As a replacement to physical currencies, bitcoin does have some way to go. It will be a long while before virtual currencies will become accepted in kopitiams, supermarkets and for our MRT rides. Many merchants are accepting bitcoins in pursuit of the novelty factor in marketing their brand. Early adopters amongst you might want to give it a go and learn along the way.
For investors and traders looking to buy into Bitcoin, do lookout for part 3 of the series where we discuss the pros and pitfalls of Bitcoin as an alternative asset class.