What you buy with bitcoin

WHEN we talk about buying Bitcoin, it is not a physical coin. "It's literally just a number," said Carsten Sorensen, an associate professor at the London School of Economics who leads a course on crypto currency.

Depending on how much you want to spend, you can buy one Bitcoin, 10 Bitcoin or a fraction of a Bitcoin. Its founding protocol asserts that only 21 million will ever be minted.

Because it can be divided out to eight decimal places, small fractions of a whole can be purchased. So then, if you bought US$ worth of the crypto currency when it was trading at around US$19,, you would get roughly of a Bitcoin.

I've heard about 'Bitcoin wallets'. Do I need one?

Yes, you cannot buy Bitcoin until you have a wallet because this is the address you will give for where the purchased currency is sent. Wallets are what they sound like - places to store currency, except that in the case of Bitcoin, they are virtual. Some popular wallets include tallerembajador.com.mx, Exodus, Electrum and Mycelium. You can access them on your phone or computer.

Hardware wallets, which are places to store your Bitcoin that are completely severed from the Internet, add an extra layer of protection from hackers. The good news is that opening many wallets is free. You pay a minimal fee to move Bitcoin into or out of a wallet.

If you have read about Bitcoin, you will know that it has a reputation for anonymity. Wallets allow for this. You need a wallet to transfer Bitcoin, but you do not need to link your name or phone number to many wallets.

How do I buy Bitcoin?

Your most likely destination is a Bitcoin exchange. (Yes, you may have seen in-person Bitcoin vending machines, but these are mostly novelties.) You will create an account and enter a payment method. At reputable exchanges, you will be asked for information such as your bank account details or a debit or credit card. You will then need to prove your identity with a driver's licence, identity document or passport.

After you have been verified, you can start buying Bitcoin with your chosen payment method, transferring it to your personal wallet and watching with greater interest as its price fluctuates.

Can I buy stuff with my Bitcoin?

Sure. Some vendors have started accepting it as payment. These range from small shops to a Swiss ski resort. But most people do not really use Bitcoin to buy things, and instead use it as an investment or a store of value - in the way people purchase gold.

Some sceptics doubt the crypto currency will become a universal currency any time soon. But Bitcoin as a means of payment got a boost this year, when PayPal Holdings announced in October that it would allow customers to use it and other virtual currencies to shop at the 26 million merchants on its network.

What about a Bitcoin fund?

Bitcoin funds have been in the news this year, but are still relatively out of reach for most ordinary investors. In August, Fidelity announced the launch of its first Bitcoin mutual fund. The passively managed, Bitcoin-only vehicle will be made available to qualified purchasers through family offices, registered investment advisers and other institutions. Fidelity Digital Assets takes custody of the fund, and the minimum investment is US$,

Twin Cities Wealth's founder and chief executive Dana Menard said this means these sorts of funds are probably not right for most people. Bitcoin is normally meant to be a small portion of most portfolios.

"If the minimum to get in is US$,, and the maximum you want to allocate to it in your portfolio is 5 per cent, you'd better come swinging with a big, fat sack of cash," he said.

Bitcoin derivatives have also come under scrutiny this year. In October, US prosecutors charged the founders of BitMEX, a crypto- derivatives exchange in Hong Kong, with failing to prevent bad actors from using the platform to launder dirty money. And beginning in January, the sale of crypto-derivatives to retail investors will be prohibited in the UK. BLOOMBERG

READ MORE: Even billionaire investors are buying Bitcoin. Should you?