If you’ve been paying attention to the news lately, you’ve probably heard about something called Bitcoins—and how they’ve suddenly become a pretty big deal. The hoopla around this emerging form of currency has been stirred up by a sharp rise in its value. Just a year ago, one Bitcoin was worth around $10; as of this writing, it’s worth $123* and has gone as high as $260.
Bitcoins combine a few of the things we’re into here at the Movoto blog: Math, technology, and finance. After reading up on them and why they’re so hot at the moment, we started to discuss how they might impact the world of real estate and home buyers specifically, now and in the future. We also thought it would be fun to create one of our trademark calculators, in this case for determining how much your house would be worth in Bitcoins. Only this time, we decided to push ourselves and do something even more unique by having the calculator update in real time to adjust for the (sometimes wild) fluctuations in the currency’s value. You can use the fruits of our efforts up top.
If you’d like to find out more about Bitcoins and what we learned while researching the currency, pull up a chair—preferably one you bought using Bitcoins—and keep reading.
What is a Bitcoin?
With all the talk about them lately, you’d think Bitcoins (abbreviated BTC) are a new thing. In fact, they’ve been around since 2009. Bitcoins are a virtual currency, in that there’s no physical paper or coin equivalent (well, unless you count this one). They exist entirely in cyberspace and rely on peer-to-peer networking (think BitTorrent or the old Napster) using personal computers as a means of exchange and accounting rather than actual banks. Unlike standard fiat currencies like the dollar, they’re not issued by any central bank or controlled by any organization. They’re also limited; there will only ever be 21 million Bitcoins issued.
By kicking the traditional banking system to the curb and using some hardcore cryptography, Bitcoins are basically untraceable, something that appeals to security-minded individuals, people that dislike the big banks, and, well, criminals (in some cases). It also means that since there’s no central governing body, Bitcoin investments aren’t insured in any way and funds are stored on your computer in a virtual wallet. The result: If there’s a hard drive crash and you’re not backed up, you could lose everything.
The way Bitcoins are traded is also more dependent on technology than traditional currencies, which can lead to swift devaluation if there are technical problems. It’s not uncommon for Bitcoins to lose considerable value if one of the exchanges has a glitch.
How Do You Buy Bitcoins?The process of getting your digital hands on Bitcoins is a little convoluted at the moment since you can’t really walk into an established, physical business and say “I’d like to get some Bitcoins for this cash.”
The most straightforward way is to wire money to one of the Bitcoin exchanges from your bank. You then get Bitcoins (or portions of them, since they can be broken into amounts as small at BTC 0.00001) to store in your wallet. Another, far trickier way is to use a wire service to convert cash and get it to the exchanges. There are also local Bitcoin sellers you can use—basically people nearby who will sell you Bitcoins for cash.
There’s a good overview of what’s involved in buying Bitcoins at New York Magazine if you’re interested in learning more.
Can You Buy a House with Bitcoins?
You can—if both you and the person you’re buying the house from have Bitcoin wallets set up. It would basically be like a cash transaction between two individuals. If not, things get trickier.
There currently aren’t any real estate companies, escrow services, or banks that accept Bitcoins, so traditional real estate transactions using the currency isn’t possible—at least not yet. There are also limits on the dollar amount of Bitcoin value you can withdraw as cash per day and month. So, while it might be possible to take out enough for a down payment in a reasonable amount of time, paying for an entire house in cash this way could be time consuming.
There are quite a few online retailers that accept Bitcoins as payment, a list of which you can check out here. There are also some online “trading posts,” including one on Reddit, where people can sell real-world goods in exchange for Bitcoins. What’s more, some brick and mortar establishments are experimenting in taking them, and there’s even been some movement in making Bitcoin ATMs available.
Still, until more (and larger) businesses start accepting Bitcoins, they’re really only practical as investments for the moment. Even then their suitability as something to sink your life’s savings into is questionable, given the dramatic ups and downs the currency has been experiencing as of late.
*During the time it took to write this piece, the value of a Bitcoin dropped from $123 to $61 due to a technical problem with one of the Bitcoin exchanges. If that’s not an indication of just how unstable the currency is, we don’t know what is.