Bitcoin is a currency that was created in 2009. Since its creation, it has gone through a tumultuous ride of ups and downs. In 2011, bitcoin was valued at less than a dollar. When its popularity began to rise, so did its worth. After its amazing rise in value, came a massive decline that has shocked the bitcoin community and left them scrambling for ways to protect their investment.
With some now questioning their involvement with bitcoin, many are asking questions regarding whether or not they can convert their bitcoin to cash. Before plunging into the deep end of the pool, it is important to learn some of the basics of bitcoin -what it is and what it is not.
What Is Bitcoin?
Bitcoin means two different things. First of all, Bitcoin is a payment network. Unlike major payment networks, there is no central managing unit that is in charge of Bitcoin. This network is a peer-to-peer network where transactions are shared and recorded via a ledger called blockchain.
The name Bitcoin also refers to the currency that is used by the network. Many people find the Bitcoin system a little confusing because there is no governing company to guarantee the Bitcoin will have a certain value or any value at all. The value of Bitcoin is based entirely on supply and demand which can be both good and bad.
This currency is an invented one so there were bound to be problems in use. There is no physical Bitcoin coinage to speak of and Bitcoins exist only as entries in a blockchain. Those who own Bitcoins have access to a key that allows them to spend them. As many people learn the hard way, there are no physical Bitcoins that can be collected. The system is entirely digital.
How Can Bitcoins Possibly Gain Value Without Being Tied to Actual Currency?
This is, perhaps, one of the biggest concerns people have regarding Bitcoin. When Bitcoin was first introduced, it was barely worth a passing mention. As more and more people learned about Bitcoin it moved up to being valued at a dollar.
Suddenly, in 2011, the news media caught on to Bitcoin and started reporting on its activity. This is when Bitcoin suddenly became a big subject in financial sectors, making its value rise to as high as $30. Over the years, Bitcoin has risen and fallen many times, but the latest plunge has certainly caused people to begin asking questions and wanting answers.
Basically, you have a group of people that are betting on the value of Bitcoins rising in the future. Bitcoin is still, in many ways, considered unchartered territory and it is difficult to understand, even by those who have used it.
Why Would Someone Want to Use Bitcoins?
Although Bitcoins have risen greatly in popularity over the years, they are still considered risky. The average person is likely not going to want to use Bitcoins because it is so unstable. Bitcoins have been known to lose their value within a couple of days, making for risky transactions.
For years, the Bitcoin community has discussed creating payment applications that work for everyone. Unfortunately, Bitcoin has yet to gain full support for such applications so many people still shy away from using them. For the average person, Bitcoin is still too complicated to use and does not offer the stability of other payment platforms. As Bitcoin continues to mature over the years, it will be interesting to see how the market changes.
Is It Possible to Convert Bitcoins to Cash?
Now that you know more about Bitcoins, it is time to get to the meat of the matter. The answer to the above question is yes, but we must delve a little bit deeper to understand why conversion is not as cut and dried as it seems.
It is hoped one day that people will be able to use Bitcoin to pay for all of their purchases, but this is not possible now. There are still many businesses that are leery about Bitcoin and only a few accept them as currency.
Not being able to purchase tangible things from stores they love is one of the biggest reasons people want to know about converting Bitcoin to cash. There are a few different ways people can convert.
- One of the easiest methods is selling Bitcoin on a cryptocurrency exchange. A cryptocurrency exchange is a place where individuals can turn one kind of digital asset into another kind. The top two cryptocurrency exchanges are Coinbase and Kraken. Individuals can sell their Bitcoin and withdraw the cash they earn to their bank account.
- There are also Bitcoin ATMs that can be used to convert Bitcoins to cash. Right now, there are around 2,200 ATMs worldwide and this number is expected to continue growing. The main drawback for this type of transaction is you must have physical access to the ATM. Without physical access, you will not be able to make a transaction.
- Many people are surprised to learn there is the option of getting a Bitcoin debit card. Some websites offer these cards for their customers. When a person sells their Bitcoins, the money is placed on the debit card and they can then make a withdrawal at any ATM.
- Finally, individuals can convert their Bitcoins to cash by selling them to their friends. When carrying out any private transfers, it is critical you know the person and can trust them to send the money when they receive the Bitcoins.
While cash conversion is easiest with cryptocurrency exchanges, there are fees involved. When a person uses a Bitcoin ATM, they could end up being charged as much as 15%. The Bitcoin network will then also charge the individual a fee, causing them to lose a big chunk of their Bitcoin without having much to show for it.
There are many companies that are working diligently to make Bitcoin conversions and transfers much easier and less expensive. Countries such as Asia are also working to make the process much faster so wait times are greatly diminished.
While the Bitcoin terrain is certainly changing, it still has little to offer for the average person. This will hopefully change as Bitcoin continues to mature. It is important to remember that it took the Internet around twenty or more years to rise to the popularity it has today. It is very possible Bitcoin could take the same route and one day become a household name.
There Are Some Negatives to Consider Regarding Conversion
When deciding on whether or not to convert Bitcoins to cash, there are a few things to keep in mind and they are not all good. While it may seem advantageous to convert and have physical cash you can lay eyes on, conversion may not always be beneficial.
One of the biggest things to consider when making a conversion transaction is the tax implications. Many jurisdictions are still deciding on their stance regarding the taxation of Bitcoin. Even though they have not put forth a specific policy, most jurisdictions expect individuals to pay taxes on any of the profits they make off of the sale of Bitcoin.
For those who think they might be able to avoid paying taxes by simply not reporting their earnings, they need to think again. Some Bitcoin exchange sites report profits so dodging paying taxes could be a big mistake.
Another negative regarding conversion is all transactions are non-reversible. If you make the conversion and immediately change your mind, there is no going back. This is also something individuals need to consider when selling peer-to-peer. If the transaction is conducted before payment, there is no way to hold the Bitcoin buyer accountable for paying. There is also no way to get your Bitcoins back.
Some people have run into problems by sending their Bitcoin to the wrong address or wrong receiver. There have also been plenty of instances where individuals ended up sending the wrong amount. The process of conversion should never be rushed so mistakes can be avoided as much as possible.
As stated before, Bitcoin is risky. Hackers can hack your wallet and steal your Bitcoins so you should never keep them all in on wallet. On exchange sites, make sure you use strong passwords to ensure your wallet is protected at all times. It is also wise to use different passwords for each exchange site.
Yes, it is possible to convert your Bitcoins to cash, but there are definitely some drawbacks to keep in mind. Carefully researching your options and using reputable companies will help to mitigate the risks. As time goes on and Bitcoin matures, it is hoped transactions will be more streamlined and safer for all users.
Whether you are new to using Bitcoin or a pro, it is wise to remain proactive and protect your wallets and all transactions. Before you decide to cash it all out, make sure you fully understand the implications of taxes and fees so the right decision is made.