Please ensure Javascript is enabled for purposes of website accessibility

4 Facts You May Not Know About Bitcoin

By Matthew Frankel, CFP® - May 1, 2018 at 8:07AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

No. 1: There's a major bitcoin billionaire, and nobody knows who they are.

Some facts about bitcoin (BTC-USD) are rather well-known at this point, such as the digital currency's mysterious origin and the fact that a few dollars invested in bitcoin in its early days would be worth millions today. Having said that, there are some bitcoin facts that aren't as well-known, such as how much of the currency its investor still owns and that people have paid more than $50 per transaction to use bitcoin at its peak popularity. Here are the details about those and two other lesser-known bitcoin facts.

Bitcoin's creator could be worth about $9 billion today

By this point, many people know that bitcoin (BTC-USD) was created about 10 years ago by an unknown person using the pseudonym Satoshi Nakamoto.

Stacks of gold coins with bitcoin symbol.

Image source: Getty Images.

What you may not know is that this creator was the sole bitcoin miner for the first 10 days of bitcoin's existence, and all of these original coins (often called "Satoshi coins") remain unused. In fact, it's a verifiable fact that there are about 1 million bitcoins in wallets known to be linked to bitcoin's creator. Based on the bitcoin price as of this writing, that translates to more than $9.3 billion worth of the digital currency.

There are plenty of ways to invest in bitcoin -- without buying bitcoins

There are several conflicting opinions about bitcoin (BTC-USD) by major players in the financial world. For example, Warren Buffett and Jamie Dimon both believe bitcoin is destined to fail, while people like the Winklevoss twins and Jack Dorsey think bitcoin is the future of money. However, there's one thing pretty much everyone can agree on. Whether bitcoin goes up or down over the long run, there's likely to be lots of volatility along the way.

So, if you want to invest in bitcoin, but the massive price swings scare you (bitcoin rose by 30% in April, in a relatively calm month for cryptocurrencies), the best way to go may be through a stock or two that stand to benefit if bitcoin continues to gain traction.

Square (SQ -1.40%) is perhaps my favorite example and is one of the largest stock positions in my own portfolio. The company enabled bitcoin trading in its Square Cash app earlier this year, and there's massive potential if Square eventually allows its hardware (and its millions of merchants) to accept bitcoin payments. With a CEO who believes strongly in bitcoin's potential, it could certainly happen.

Bitcoin transaction fees have been as much as $54.90

There are several obstacles that must be overcome before bitcoin could become a mainstream payment currency, and a big one is scalability. The bitcoin network only has the ability to process about three transactions per second (for comparison, Visa and MasterCard can process thousands of transactions per second). So, when the network gets backed up, transaction fees, which are paid to bitcoin miners as an incentive, rise.

This rise got pretty dramatic in late 2017 when the cryptocurrency boom was in full force. In fact, on Dec. 21, 2017, the average bitcoin transaction fee was $54.90, according to bitinfocharts.com.

Transaction fees have come down considerably since then -- about $1.81 on average as of April 30, 2018 -- but this remains a major obstacle to bitcoin's widespread adoption.

You might owe tax on your bitcoins, even if you didn't sell them

Tax season recently came to an end, and there was much publicity about the taxability of cryptocurrency profits. Specifically, bitcoin and other cryptocurrencies are considered property and are therefore subject to capital gains tax -- just like stocks and other types of investments.

So, if you buy $100 worth of bitcoin and later sell it for $300, the $200 profit is a taxable capital gain. Makes sense, right?

However, you may be surprised to learn that simply using your bitcoin as a currency (spending it) could also lead to a tax bill. For example, if you bought $100 worth of bitcoin years ago, and use it to buy a $1,500 computer, the $1,400 difference is also considered a capital gain, even though you never saw any money. Keep this in mind if you spend bitcoin in 2018 in order to avoid an unexpected tax bill.

Matthew Frankel owns shares of Square. The Motley Fool owns shares of Square. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Block, Inc. Stock Quote
Block, Inc.
SQ
$86.72 (-1.40%) $-1.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.