Bitcoin - Bit.... what?

You've probably already heard people talk about Bitcoins, especially during the Cypriot debt crisis last week. It seems that some Cypriots tried and are still trying to exchange their Euros (or at least part of them) for Bitcoins. So I guess it's about time that you learn about the basic facts of this new currency.

What is Bitcoin?

Bitcoin is an electronic currency which was invented by Satoshi Nakamoto in 2009. It's based on cryptographic keys and a P2P network which is formed by the users who run Bitcoin clients. Each transaction of money between users is recorded in a public database.

What can I buy with Bitcoin?

There are some small companies that accept bitcoins for all kinds of services: internet hosting, blogging, online gambling, etc. But even some big well-known entreprises like Wordpress accept payments in this new electronic currency.

How much is a Bitcoin worth?

A bitcoin cost about 20$ at the beginning of 2013, but it's risen to more than 120$ lately.

What's the difference between Bitcoin and “traditional” money?

Almost all national currencies are controlled by a central bank which manages the money supply by raising or reducing interest rates. The value of “traditional” money depends entirely on the capacity and possibility of exchanging this paper money for physical goods and services.

Unlike “traditional” money there is no central bank which controls the money supply of bitcoins. New bitcoins are generated with digital signatures (“bitcoin mining”) and the (future) supply of bitcoins is limited to 21 million units.

How and where do I get Bitcoins?

You can buy them on websites like MTGOX or can accept payments in Bitcoins. And you'll also need an application like BitcoinQT or Armory Bitcoin in order to use and manage your bitcoins.

What are the advantages of Bitcoin?

Bitcoin can have many advantages. For example:

• All payments are anonymous.
• You don't have to pay any comissions to any “middleman”.
• Nobody can rob you: your Bitcoins are clearly yours.
• It's technically very difficult (if not impossible) to counterfeit bitcoins.
• Any payment made in Bitcoin is irreversible. This means nobody can trick you when you try to sell something on the Internet.

Are there also some disadvantages and even risks?

The biggest disadvantage is that there are not that many stores that accept Bitcoins. And there is also one majoy risk: many analysts and prestigious economists (like Sala i Martín) are already talking about a “Bitcoin bubble” - you could lose a lot of money if you bought Bitcoins right now!

A newbie's guide: Stock market – what you really need to know and what is just “nice to have”

Investing in stocks seems to be really complicated if you've never done it before. Many of you may have friends who told you that they made a lot of money by buying and selling shares, others probably have heard stories about people who lost all their money due to a fatal investment. Actually investing in the stock market is not that difficult if you learn some basic concepts.

What you really need to know

News and Common Sense: Before buying some company's shares, make sure you scan the news for any information about that company. Is their business growing, are they having financial difficulties or have their competitors just launched a new product that is likely to have a negative impact on the company's turnover? Use your common sense and don't try to speculate – if you read in the newspaper that an entreprise is likely to go bankrupt soon, then don't buy their shares.

Rating Agencies: There's been a lot of Rating Agencies bashing lately. Ok, they didn't anticipate the bankkruptcy of Lehman Brothers and that they may play an “ambiguos” role in the European debt crisis, but it's also true that you shouldn't buy shares of companies that have bad ratings. The three major rating agencies are Moody's, Fitch and Standard & Poor's.

Balance Sheet and other stuff: Make sure you learn how to read a balance sheet so that you won't have to rely on someone else's opinion of a company. Learn how to calculate the most important balance sheet ratings and what a cash flow is.

Monetary system and policy: You really have to understand how the monetary system of your country works and the effects of your central bank's monetary policy, you need to know the basics. What's going to happen with your share prices if the interest rates rises or falls? Are you likely to lose or win money?

Risk Diversification: Try to diversify your risk by buying companies' stocks that operate in different business sectors. There is a lot of information on risk diversification on the internet.

Stop-Loss order: Make up your mind on how much money you're willing to lose and always set your stop-loss orders accordingly.

Nice to have, but not essential

Day trading and Day Trading Algorithms: Unless you are going to do this for a living and you really know what you're doing, don't try to take part in this (Russian) Roulette. If you want to be a day trader, you need (a lot of time) and mathematical, programming and economic skills.

Technical Analysis: Many of you may have read that Technical Analysis is a kind of “Stock Market Voodoo” rather than a trading technique one should take seriously. I guess that nobody knows if technical analysis is really useful or not (maybe you want to share your opinion on this), but learning some basic inidcators like RSI or MACD may still be worthwhile, even for a newbie (it can help you to decide when to buy and whether a share is expensive or not - I wouldn't rely on them though).

Machine Learning techniques: This quite advanced mathematical “stuff”. These techniques help you to discover hidden patterns and word of mouth has it that they're used by hedge funds. There are many books on Random Forests, SupportVector Machines and Neural Networks out there.

Futures and options: Again, you'll need a lot of time if you really want to start trading with futures and options. Don't do it, you can lose a lot of money.

What else do you think a newbie has to take into account before investing his money in stocks?