Cryptocurrencies like Bitcoin and Ethereum have mostly become known for their potential to gain (and more recently lose) value very quickly. But if, as their proponents suggest, they are set to become standard units of currency for a digital age, they have to be useful beyond merely acting as vessels for speculative investment.
Real life currencies can be spent on goods and services, traded for other currencies, and acquired as payment for work.
Slowly but steadily, cryptocurrencies – particularly the two largest – appear to be acquiring these properties. Here’s a look at some of the different doorways into the crypto economy. Before we go any further I just want to reiterate that investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.
Buying Bitcoins and Ethereum
This one isn’t difficult! There are plenty of places out there offering to sell cryptocurrencies, particularly Bitcoin, in exchange for hard-earned fiat (government-issued) currency.
For the purposes of this article I am going to ignore platforms which only allow the buying and selling of cryptocurrency-based derivatives – this is for people who want to take ownership of actual coins (with all the security risk which this entails).
Broadly speaking, they can be categorized as either exchanges, or peer-to-peer markets.
Exchanges, such as Coinbase, Bitfinex and Binance offer Bitcoin, Ethereum and hundreds of other lesser-known cryptocurrencies. They vary a great deal in complexity and the technical expertise needed to operate, with Coinbase often being seen as the simplest and most straightforward for beginners. Be warned though – this does come at a price, as you pay for this with slightly higher fees.
The more sophisticated exchanges allow trading of Bitcoin, Ether or any other supported coin, just as if it was a regular currency. That is, trading is based on currency pairs, and markets operate 24/7. All these options and technical finance tools often make them seem complicated to newcomers, particularly those who want to buy cryptocurrencies for their utility rather than as investments.
The other option is peer-to-peer marketplaces, such as Localbitcoins and Localethereum. Essentially these put buyers and sellers in touch with each other – buyers can state the price they want to pay, and sellers can state what they are willing to accept, and the site matchmakes them together so a deal can be struck.
Because they don’t offer so many of the tools and options of exchanges, the interfaces are more straightforward. However, there is an additional layer of risk – because as well as trusting the site itself (as is the case with exchanges), users must trust the individual they are matched with. However, tools such as escrow facilities, centralized ID checking and user feedback scores help to mitigate these risks.
How to earn Bitcoin and Ethereum
There is a growing number of options for those who want to acquire digital currencies, or grow their existing stash, without spending their real-world money.
The simplest option is to work for them. Several job boards exist where employers or potential clients look for recruits that are happy to be paid in cryptocurrency. These include Jobs4Bitcoin, Coinality and XBTFreelancer.
Mostly these are IT-based roles but there are opportunities for marketers, designers, photographers and translators, too.
Another option for making cryptocurrency, as mentioned above, is trading. As most of the large exchanges allow cryptocurrencies to be traded for one another, crypto traders try to make money just as foreign exchange traders do – by buying currencies when they feel they are priced low and selling when they feel they are high. However, given the volatile nature of cryptocurrency markets, this isn’t an option I’d recommend for the faint-hearted. Whereas foreign exchange and commodities markets are regulated and react to world events, crypto-currency markets are very much in a “wild west” state, with large rises and falls often driven by manipulation.
A third method is through peer-to-peer cryptocurrency lending. Platforms such as BTCPop and Bitbond match lenders with borrowers who are willing to make repayments with interest. As with peer-to-peer trading, reputation and feedback systems help lenders make educated assessments of the risk of each particular loan, and borrowers can generally “earn” the opportunity to take out future loans at lower interest rates by showing that they will make repayments on time.
Where to spend Bitcoin and Ethereum
Ok, so you’ve grown your stash of cryptocurrencies through investing, earning, trading or lending – now comes the fun part. Luckily there are now plenty of options for changing those ethereal digital currencies into things which will be useful in the real world.
While it’s true that most major retailers are not yet ready to start accepting Bitcoins and Ether, many of them offer gift cards which can be spent online. This has led to services such as Zeek and Gyft – where unwanted gift cards from iTunes, Tesco, Starbucks and many other outlets are traded for Bitcoins. (Zeek is currently available in the UK and Germany).
Other retailers have made the bold move of directly accepting Bitcoins, Ethereum or other cryptocurrencies.
It’s also possible to buy a wide range of internet-related services – from website hosting, to VPN protection, using cryptocurrencies. Overstock was one of the first and most prominent, and offers everything from furniture and jewellery to electronics and video games.
If you are in the mood for a holiday, then travel site Expedia lets you book flights and hotels using digital currency.
And smaller local businesses are starting to get in on the act too – Bitcoinrestaurants is a directory of (US) eateries where the owners are happy for you to pay for your food and drinks with Bitcoins.
And if all of that still seems too limiting, then UK startup Block Exchange is launching a pre-paid cryptocurrency debit card which will let you spend Bitcoin or Ethereum anywhere that accepts Visa.
So, while Bitcoin and Ethereum may not yet be as widely accepted as traditional, government-issued currencies, that situation is changing. Rather than simply thinking of cryptocurrencies as something that can be bought today and hopefully sold for a profit at a later date, there are opportunities to put them to use now. And the more widely used they become, the more their “real” value is likely to increase.
Bernard Marr is a best-selling author & keynote speaker on business, technology and big data. His new book is Data Strategy. To read his future posts simply join his network here.