Quote:
Originally Posted by ZipZap
What's interesting to me, is that even when you decide to "cash out", at this point you still need to go back to the paper standard. When will BC be accepted at enough general locations to justify the value?
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TL/dr: This is too long. Don't read it.
Full text (see TL/dr warning above):
Bitcoin is relatively difficult and expensive to acquire and to spend and therefore to use for transactions. It's great for the person you're paying with bitcoin, but crappy for you. IMO unless someone is compensating you by giving you a very substantial discount for using bitcoin, just hodl (hodl -- rhymes with yodel -- is cryptocurrency-hipster-speak for "hold" and someone who hodls crypto is known as a hodler) your bitcoin and spend dollars or whatever currency you usually use.
To spend bitcoin, there are typically transaction fees from whatever bitcoin exchange you're using, (e.g. coinbase.com or gemini.com or one of the many others). These fees range from a fraction of a percent to around 2%. (You also paid a transaction fee when you acquired bitcoin, but at least that fee is considered part of your cost basis, which will be important starting in the next sentence.) In addition, the IRS demands that you track your cost basis for when you acquired the bitcoin you used for the transaction as well as the cost basis for when you spend it. If you bought $1000 worth of bitcoin when bitcoin was trading priced at $10,000 and spent $100 worth of bitcoin when it was valued at $40,000, then you made a $75 profit when you spent the bitcoin and you must report that profit. That's because you only paid $25 for the amount of bitcoin you just spent that's worth now worth $100. So to spend that $100 worth of bitcoin, let's say it costs a 1% transaction fee ($1), plus $25 in income tax on the $75 profit (more or less tax depending on your tax bracket of course). So your $100 purchase using bitcoin really costs about $130 out of pocket in this specific example.
Does that sound like a good daily-use medium of exchange to you? Now you know why people say bitcoin is for hodling, not for spending.
NB: FWIW, it seems that the IRS allows you to choose whether you're spending the first bitcoin (first-in, first-out FIFO) or a specific bitcoin you bought at a specific price in order to help you minimize income tax on the transaction. And you can pay a service to help you track your bitcoin acquisitions and spending so they can help you optimize that reporting. They also incidentally help you increase your costs of dealing with bitcoin. You can try to factor that in to your costs of spending bitcoin.
But don't get me wrong. While you probably shouldn't bet too much on bitcoin since it's a purely speculative investment with no intrinsic value, it still might be worth having some. But a man should never gamble more than he can stand to lose. (Remember, the value of stocks is hypothetically based on the long-term expectation of future earnings of the underlying company. Bitcoin has no long-term expectation of earnings because it doesn't earn anything except insofar as the price goes up. Price rise of bitcoin is based on the "greater fool" price theory in which you buy something under the proposition that some other idiot will pay more than you did for that something.)
As the saying goes, of course the game is rigged but if you don't bet you can't win. So make a point of going through the steps of opening an account on one of the exchanges. Coinbase is popular and easy to use, and you can later transition to Coinbase Pro to reduce transaction costs and give you more trading options other than market orders. But just buy $100 worth at first, just so you know that you know how to buy it. It takes a little time to set up an account with a bitcoin exchange and verify you are the legitimate holder of the bank account used to fund the bitcoin account. You'll want to be ready to go on the day you finally decide that you have to go all-in on the tulip mania.
After that there is a lot more to learn. Among those lots is that you can't really trust your bitcoin exchange. There have been some spectacular thefts from these exchanges. Read up on MT Gox, for instance. You'll want to learn about "cold wallets" where you keep your own bitcoin in your offline crypto wallet. Sort of the equivalent of keeping your money under your mattress, but the mattress is encrypted. And then hope that the blockchain itself doesn't get compromised. The blockchain is the encrypted worldwide database that keeps records of which amounts of bitcoin go with which ID/password combination for all bitcoin ever brought into existence, i.e. mined.) In theory, it's not hackable, but you probably already know the difference between theory and reality: In theory, theory and reality are the same, but in reality they're not. Oh, and here's some reality for you:
Once hailed as unhackable, blockchains are now getting hacked - MIT Technology Review
https://www.technologyreview.com/201...etting-hacked/
How Blockchain Can Be Hacked: The 51% Rule and More - Cipher.com
https://cipher.com/blog/how-blockcha...rule-and-more/
Massive Hack Exposes Bitcoin’s Greatest Weakness - Forbes
https://www.forbes.com/sites/billyba...test-weakness/
Billions were stolen in blockchain hacks last year - ZDNet
The total value of the losses from 122 attacks in 2020 would be worth $3.8 billion today.
https://www.zdnet.com/article/billio...hacks-in-2020/
While we're on the subject of bitcoin, let's look at how much electricity it takes worldwide to run all the computers that maintain the blockchain: More electricity than is used by entire small countries, and growing. Add that to the electric load of electric cars and maybe your best bet is on stocks of electricity producers.
Caveat: I am not an accountant, tax advisor, investment advisor or any other figure of authority unless "random person on the internet" is what you consider to be a figure of authority whose advice should be blindly trusted. Anything I write on an internet forum is purely for my own entertainment. If you must read this drivel, do so with such a big pinch of salt that your doctor immediately puts you on medication for high blood pressure. If you don't buy bitcoin because of what I wrote and it turns out you would have been fabulously wealthy if you hadn't listened to me say whatever it is I said, it's on you. If you do buy bitcoin because of whatever you thought you read that you thought that I wrote and find yourself penniless, crapping on the streets of San Francisco, it's on you. I am only a mirror for your own greed, fear and/or indifference.