After much discussion and debate, the Federal Ministry of Finance has decided to allow Bitcoins as official means of payment in Germany. This could open up new paths in the credit market in the future as well.
Bitcoins are subject to tax law and are therefore taxable. However, if the holder has at least 12 months in his possession, the tax is waived.
What are bitcoins?
Bitcoins are a digital currency that came on the market in 2009. It is subject to strict, highly complicated mathematical algorithms and is almost tamper-proof. Of course, what has been created by man can also be hacked by humans, but currently bitcoins are still considered the safest currency.
How are Bitcoins encrypted?
When a Bitcoin is created by mining, it receives a transaction number, simply number 1, which is stored in a database. Now the Bitcoin can be used for payments. If a user uses the bitcoin with the number 1 for a payment to book a room, for example, this bitcoin is transmitted. Now the algorithm is changed and the 1 becomes a 1/2.
The 2 stands in this case for another transaction. The bitcoin now has to be sent to the database with its modified algorithm and it is noted in the bitcoin signature that it is a registered bitcoin and was used for a transaction.
Bitcoins retain their value with this principle. This electronic signature corresponds approximately to the serial number of a bill. The difference to the bill is that the serial number can be changed with each transaction and the owner change of Bitcoin can be reconstructed at any time. In short, each transaction number, eg 1/2/346/59876, indicates another owner from the past.
What is Bitcoin Mining?
Bitcoin mining is the process of producing bitcoins using the computer. How it works? Here’s an example:
In the beginning, bitcoins were generated using the computing power of the computer’s CPU. So if a private computer of Peter Sauer in the Bitcoin network has provided computing capacity, this has gotten a Bitcoin for a certain time as a reward. His computer only has to solve a complicated mathematical task. How much computing power Peter had to provide for a Bitcoin was also prescribed mathematically. Today, graphics cards with high computing power are mainly used for mining. This means that Peter, who today is an ambitious 3D shooter fan and always uses the best graphics cards in his computer, can earn more bitcoins than 3 years ago.
Furthermore, CPUs are also being built today which consume less energy than graphics cards and can even accelerate Bitcoin “mines”. These CPU’s are more expensive to buy than good graphics cards but ultimately more lucrative. Nevertheless, the mining is still very expensive and time-consuming. Most miners (English miners) operate it only as a hobby. The really lucrative Bitcoin business is in trading with them. Where the risk, as on the stock market, is quite high, especially with this young currency.
Borrow and lend Bitcoins with short term loans
Trading with Bitcoins could be interesting in the future for punters, banks, which lend credits or become private P2P lenders.
Let’s say a lender buys 100 bitcoins to loan them. After a term of 12 months, he receives back 110 Bitcoins from the borrower. If he keeps the Bitcoins in his possession for another 12 months, any taxes will be deducted and his profits will not be reduced. Thus, the lender has earned after 24 months 10 Bitcoins tax-free. Calculating this in higher amounts, this could be extremely lucrative in the millions.
It gets even more interesting with short-term loans, where the waiting times for the lender are not as long as with conventional loans. The online loan will be refunded within 30 or 60 days. Save 12 months and wait again and the profit is tax-free. Here it takes a maximum of 14 months until the profit distribution.
Sure, it will not be long before there are laws that make such transactions taxable, but in the near future, it will bring some small rewards to some traders.
The value of bitcoins stabilizes after 6 months
Bitcoins are currently traded like foreign exchange and are still subject to strong fluctuations. If a Bitcoin was still worth 25 euros in February 2013, there was a high of 133 euros per Bitcoin in April. After this high came a rapid fall in price, but finally despite the ups and downs a good profit for investors in May 2013 to 84 euros. This value has remained relatively stable until today. Investors who bought bitcoins in February 2013 have been able to make a profit of 60 euros per Bitcoin to date. Now it remains to be seen how it will look until the end of the year to make further forecasts for the business with the money and whether a short-term loan will become a clever tax-saving method in the future.