Earning Interest on Bitcoin
It seems the whole world has taken an interest in Bitcoin. It has dominated headlines the last several years — which is no mean feat, given the current political climate! But what is Bitcoin and blockchain technology, and how can you earn interest on your Bitcoin investment?
What is Bitcoin?
Bitcoin, or ₿, is a decentralized form of digital currency known as a cryptocurrency. It has no centralized authority, such as a bank, and is traded using an encrypted, peer-to-peer process. This process eliminates the centralized intermediary and works the same way Bulletin Board Systems, or BBS, from the 1990s did: Instead of connecting to a third-party web host, BBS users called other computers directly.
Bitcoin is kept in cryptocurrency wallets, specially designed for digital currencies like Bitcoin. A decentralized ledger known as a blockchain records all cryptocurrency transactions, and is publicly distributed to each user.
Although it is considered the first, actual cryptocurrency, the idea stretches all the way back to 1983. An MIT newsletter laid out a working system for cryptocurrencies in the 1990s.
Blockchain technology is the process behind cryptocurrency. It got its name from the fact that it consists of blocks of data, transferred together as a chain. Each transaction constitutes a block which is added to the chain of data.
Because of its high degree of security, cryptocurrency is often connected to criminal activity. Bitcoin mining and ransomware top that list. But cryptocurrency was not created for criminals; it was created to eliminate the middle-man in transactions, as well as the associated costs and transfer times. However, cryptocurrencies also charge a transaction fee.
It was also developed to provide privacy in an age of out of control surveillance and information hijacking.
How to earn interest on Bitcoin?
Due to the nature of cryptocurrency, investing can be a difficult matter to undertake, much less explain. However, there are a few different ways you can turn cryptocurrencies like Bitcoin into an investment.
Bitcoin mining is the validation of transactions in exchange for bitcoins. These transactions actually create new units of currency that are rewarded to miners. It takes a lot of electricity to do this, so your light bill could potentially offset any gains you make. Cryptocurrency mining is also very competitive and requires special, dedicated hardware, but you can pool resources with other miners over a network.
Many people buy cryptotokens to resell later at a higher price. However, cryptocurrencies’ valuations fluctuate greatly and often, making the market difficult to predict. Many celebrities have invested in Bitcoin this way, including the Winklevoss twins and Steve Wozniak. This supply and demand exchange is largely responsible for the value of the cryptocurrency.
Right now, the practical uses for cryptocurrencies are limited; they are mostly investments. However, as the technology becomes more mainstream, cryptotokens may be used to make purchases both online and offline.
Cryptocurrency valuations can be volatile, but it is better to invest early than it is to wait.