If you intend to invest in bitcoin, there are a few things you should know about. Bitcoin allows to achieve gigantic profits, but it can also be a cause of a surprising loss. Although the bitcoins are treated as a digital currency and can be paid in selected branches, the transaction is carried out in a slightly different way than through the traditional banks or payment systems that you already know. There’s a lot to learn. Do not let the emotions obscure your purpose and detach from the chosen investment strategy. Moreover, most importantly – take care of the security of your funds before you invest really large amounts.
What is Bitcoin?
To start with, a few words about where Bitcoin came from and what it is. Bitcoin is modern technology and at the same time, the first ever currency based on mathematical laws. It has two functions:
1. the system (Bitcoin written with a capital letter)
2. the digital token (bitcoin written with a lowercase letter)
The Bitcoin system has been designed in such a way that direct transactions between users are possible, i.e., without the mediation of the so-called third party (e.g., bank). The transactions are verified by the network nodes and are stored in a public, decentralized register called blockchain. Units of measure of transactions in the Bitcoin system are called bitcoins. They are divided into eight decimal places. The smallest bitcoin unit (0,00000001 BTC) is called Satoshi.
Who invented the Bitcoin?
Satoshi Nakamoto described the concept of the digital currency in 2008. The programmer (or group of programmers) hiding under this pseudonym wanted to remain anonymous, and although it is hard to believe, we still do not know much about the creator of Bitcoin. Since 2009, one can generate Bitcoin coins with special software that solves complex math problems for this purpose. It is widely believed that Bitcoin was invented in response to the global financial crisis of 2008 – in theory, it was supposed to be a currency and a payment system independent of central banks, enabling the free transfer of funds securely, while maintaining its real value.
How are bitcoins generated?
In the Bitcoin system, there is no central issuer of bitcoins, central treasury, owner, authorities, or administrators. Bitcoin supply is regulated not by central banks, but a computer algorithm in a peer-to-peer network. They are released into the network at regular intervals and a certain size. At the very beginning of bitcoin’s operation, its quantity was set to 21 million units. Currently, over 80% of all bitcoins have been mined, but according to most predictions – the last bitcoin will be mined in over 100 years.
Is bitcoin real money?
Yes and no. Some countries have recognized bitcoin as a legal tender that can be used to trade and pay taxes, while the rest of the countries see it as a threat to the monetary system, or considers it only as a speculative asset. At the moment, the authorities of most countries and international organizations do not look at the spread of bitcoin too kindly. It is difficult to predict if in the future bitcoin will gain the confidence of all major governments in the world. It will be more appropriate to say that bitcoin is not real money, but it is a digital asset that can be used for payments in an increasing number of retail and service outlets around the world.
Is bitcoin the best store of value?
The value of bitcoin can in a short time unexpectedly increase or decrease due to the young economy, the innovative nature and sometimes the illiquidity of the markets. For this reason, it is extremely difficult to answer unequivocally whether bitcoin is a good store of value these days. Analysts argue that cryptocurrencies still have a long way to become a widely recognized and used asset. BTC supporters refer to price charts from the last 10 years, proving that bitcoin is undisputedly better than gold, silver, real estate and other forms of storing savings, and those who do not make a big mistake. Perhaps it is the right time for bitcoin to be included in the diversified wallet of every long-term investor?
The advantages and disadvantages of bitcoin
- The most important advantage of cryptocurrencies is the convenience of its use. As it has already been said before, bitcoins are not processed during the transaction by any intermediaries. With international trade based on traditional money, considerable costs are generated by currency conversion. Besides, transferred bitcoins get instant on the target account – regardless of the countries from which users participate in the transaction.
- Bitcoin has a defense mechanism against inflation – its resources will only increase to a certain limit. Impossible is also occurring situations of “printing” money, known after all, from the modern practice of states.
- Moreover, last, for many a key advantage of bitcoins – they ensure reliable anonymity during the transaction. This convinces those who are fearfully observing further reports of violations of Internet users’ privacy by government institutions in many countries.
Among the enthusiasts of cryptocurrency, there is a belief that Bitcoin is perfect. This is not true, and although the disadvantages are usually overlooked, it is also worth taking a look at them for a moment.
- Bitcoins are not controlled in any way by financial institutions, no state guarantees its stability and value. This makes the course of this cryptocurrency extremely susceptible to speculation
- The next disadvantage of cryptocurrencies is its attractiveness to all kinds of criminals. Anonymity makes Bitcoin eagerly used in illegal businesses. Criminals can also use Bitcoin for hacker attacks.
- A lot of economic authorities think that bitcoin is just another speculative bubble. Among the figures sharing such an opinion is Warren Buffett, the world’s most well-known investor. According to the legendary investor, “bitcoin has no real value,” “it nothing creates,” and you should not invest in it because it is only a „speculative game and gambling“. Moreover, while it’s hard to argue with the first two statements, it’s easy to counter Buffett’s opinion proving the great convenience of using bitcoins when transferring funds and easily achieved profits even by inexperienced investors.
Bitcoin transactions are irreversible
No transaction made using Bitcoin can be undone. This means that you should pay attention to conducting business with people or organizations that you know and trust or have an established reputation. Do not make ill-advised operations, because the withdrawal of their effects (making a new transfer this time on your wallet) depends only on the goodwill of the beneficiary.
Where to find information about bitcoin and other cryptocurrencies?
There are many valuable sources where you can look and understand the mechanisms that govern the crypto exchange from day to day. Websites, blogs, forums, tutorials on youtube, audiobooks, books – Bitcoin along with the imitators have entered everywhere – we have a wide and free choice depending on whether we prefer to read, listen or watch. There is one obligatory item for everyone in all of this – Cryptocurrency Market Capitalizations website, also known under the name CoinMarketCap This is the most up-to-date information base on the cryptocurrency market. The website contains many interesting data, such as:
- the amount of all cryptocurrency
- the number of all available trading pairs (Markets)
- market value (Market Cap) in US dollars. This entry determines the total value of all cryptocurrencies
- the trading value of all cryptocurrency in the last 24 hours, also expressed in USD
- Bitcoin’s market share expressed as a percentage
If CoinMarketCap does not suit you, you can use WorldCoinIndex – is the second, similar website collecting and processing data from the cryptocurrency exchange.
Where to store bitcoin? Choosing a wallet is a key matter
Trading the cryptocurrencies requires a wallet that will allow storing funds and make transactions. From the theoretical point of view, the cryptocurrency wallet is identical to a well-known personal bank account. Thus, it is protected by appropriate passwords and keys, enabling only the owner of the wallet to trade the cryptocurrencies.
There are many types of crypto wallets. It is recognized that the most modern and technologically advanced, and above all, ensuring the greatest security are hardware wallets, such as Ledger and Trezor.
Where to buy bitcoin cryptocurrency?
Bitcoin can be bought in several different ways. For occasional investors or for those who take their first steps, the most convenient way to buy bitcoins will be to use Crypto Money exchange platforms with instant buy (instant purchase) feature such as Coinbase or Bitpanda. An important advantage of platforms with an instant buy option is the fact that in the majority of them, we can buy and sell bitcoins in a completely anonymous manner, which significantly simplifies and speeds up the purchasing process.
The disadvantage of such a purchase may be the fact that prices are usually (though not always) a few percents higher than on specialized bitcoin exchanges, but in the context of long-term investments or ad hoc purchases, these differences are usually not very important.
Another way to buy bitcoins is the cryptocurrency exchange. In this case, we have a wide range of choice, because there are several hundred platforms on the market. However, you have to be careful, and when choosing the right platform for trading, it is worth following common sense. There has already been a situation when cryptocurrency exchange owners disappeared along with deposited cryptocurrencies, or the cryptocurrency exchange was hacked.
To help with the selection, we have prepared a ranking of the best cryptocurrency exchanges.
The following exchanges are currently the most trusted among traders: