What are Bitcoins?
Bitcoins are a form of virtual currency created in 2008. They act as real money on various online platforms and even certain real life shops. They are basically a means of exchange of goods and services, which are not controlled by any central government or banking authority.
They can also be exchanged into real money at certain providers that are specialized in this. Basically this works the same as when you would exchange USD into a different currency like EUR. Bitcoins are basically a form of currency much like EUR and USD, only that they do not have a physical form and are rather stored online on computers.
How are they created?
They are created by specialized computers that are used for Bitcoin mining. Mining for Bitcoins is possible by allowing computers to solve certain algorithmic problems. Each computer interlinked to a mining network will contribute towards unlocking a block of 25 Bitcoins.
Just image a bar like when you are installing a program that goes from 0% to 100%. People with their Bitcoin mining computers contribute to this “bar” and once it reaches 100%, 25 virtual currencies will be unlocked and randomly given to one of the participants who have minded for them.
So, basically nothing will guarantee that you will be able to successfully mine for this currency. Most of the time the people who mine for coins are people who have extremely high-performance rigs that cost in around $10,000+ or more. Since their processing power will be huge, these people will have more chances of being selected to receive newly mined currency.
However, the overwhelming majority of people will not be able to mine for this form of currency. Instead, they will have to purchase them for real money. A Bitcoin has a value expressed in USD, so all people have to do is to exchange USD into virtual currency if they want to get them.
Are they legal?
Bitcoins are neither legal nor illegal because they are random bits on the Internet basically. Governments might not like them since people can use them to avoid having to pay taxes however the only way to stop this form of online currency is to shut down the Internet itself, something that is not possible.
However, you are committing a crime if you use them for criminal activity. For example, if you buy drugs with Bitcoins then you are committing are crime since buying drugs is illegal. – It doesn’t matters if you used a virtual currency in order to achieve this.
Can someone just confiscate them?
Three is really no way to confiscate this form of online currency since it doesn’t exist in physical form. There is nothing to confiscate.
Trading Binary Options Using Bitcoins as Currency
As explained initially, there are basically two ways how this virtual money can be used in binary options trading. The first is to use them as a method of payment when trading binary options. In this case, the virtual currency will act like any other currency such as USD or EUR.
Rather than investing, say, $100 in a binary option contract you may as well invest 10 virtual currencies. Your payout will also be in virtual money. The broker will then transfer the virtual currency to your personal account.
At this moment only a small number of binary options brokers offer Bitcoins as payment and investment method. However, due to the popularity of this virtual money, more and more companies are expected to introduce this form of trading in the future.
The great thing about using this virtual currency in order to make payments at binary options brokers is the fact that you won’t have to directly transfer money to a binary broker. You may just exchange USD into Bitcoins and then use the virtual currency to trade binary options. This is completely anonymous.
Trading on the Future Movement of Bitcoins
And the second way in which this virtual currency is used in binary options trading is actually trading on the future movement in the value of Bitcoins. As explained above, each Bitcoin has a value expressed in USD. This value changes all the time depending on how much Bitcoins people buy or sell.
As such, this allows people to trade binary options on Bitcoins. This works the same as trading in the case of any other underlying asset. Imagine the following scenario in order to better understand how this works:
– Currently Bitcoins are priced at $150/coin
– You predict that this will go up to at least $160 in a week
Now, at a Bitcoin binary options broker you will have the possibility to buy a contract that is based on your prediction. Say that you have invested $200 in a contract like this and the broker offered a payout rate of 80%. In case your prediction did indeed come true, then you will receive $360 from the broker.
As said, it’s exactly the same as in the case of normal binary options trading.
However, at this moment there are only a very limited number of brokers that offer the possibility to trade on this virtual currency. But experts believe that in the near future trading binary options on Bitcoins will actually be an integral part of the business.
They believe that in a few years there won’t be any brokers at all on the market that won’t be offering this form of virtual currency. This, however, only under the condition that national governments won’t implement laws that would prevent legal binary options brokers from accepting this currency.
As said, governments have no power to shut down Bitcoins however they do have the authority to force licensed operators not to accept this virtual currency. It’s not sure at this moment how governments would act once this virtual currency will become even more popular in the future.
Bitcoin is the most popular virtual currency on the Internet at this moment. Due to this and the fact that it can be converted into traditional money (meaning that is has an exchange rate that constantly fluctuates) makes it a viable asset for binary options trading.
However, at this moment only a limited number of brokers accept trading on this virtual currency. But as explained above, this might change soon considering that a significant number of brokers have recently revealed that they are seriously considering implementing this currency.