What you need to know and where to start
We have all heard of Bitcoin. We have heard of people making a lot of money from it, how its value fluctuates, the questions and controversies surrounding it, and people losing money after investing in it.
It’s bitcoin, the seemingly ubiquitous form of so-called “cryptocurrency” that is suddenly everywhere and yet, somehow, nowhere.
You may have wondered about bitcoin and whether it is a practical investment strategy, perhaps even the currency of the future, but aren’t sure where to start. A few basics can help you understand if bitcoin is right for you and get you started.
What is Bitcoin?
Bitcoin is one of many forms of cryptocurrency, essentially a digital form of currency commonly referred to as coins. Government entities usually do not control cryptocurrencies. Instead, shoppers attribute their value to them and use them to make online purchases. These currencies, including Bitcoin, rely on “blockchain” technology – a decentralized ledger of all transactions using cryptocurrency. An important thing to understand about cryptocurrency is that it is used on a peer-to-peer system, meaning that no centralized bank or government is involved in its production or use.
Who made it?
There is debate surrounding the true identity of Bitcoin’s creator, who goes by the name Satoshi Nakamoto online. Nakamoto aimed to create a “peer-to-peer electronic cash system” described in a whitepaper in 2008. As the first and most common cryptocurrency, Bitcoin has the largest market share, with $1.1 trillion in market capitalization.
Where are you from?
Bitcoin and all other cryptocurrencies are produced in a process called “mining”. Computers compete against each other to solve mathematical equations to create a new block in the blockchain. Whoever solves the equation first is rewarded with new bitcoin. Bitcoin can also be purchased for regular currency, such as dollars, using online accounts. This process is similar to buying stocks.
How do I invest in Bitcoin?
The first step if you want to invest in Bitcoin is to choose a Bitcoin wallet where you store your Bitcoin. Then join a Bitcoin exchange – essentially marketplaces to buy and sell Bitcoin. Many of these exchanges exist, so do some research and find the one you like best. Then link your wallet to your bank account and place an order for Bitcoin. You then manage this investment in the same way as any other you might have, such as stocks. Pay attention to what is happening in the Bitcoin market and do your best to make wise decisions about holding or selling your Bitcoin. You can also make some purchases with it.
How much does Bitcoin cost?
Like any currency, the value of Bitcoin against the dollar fluctuates every day based on changes in the market. It recently hit an all-time high of more than $60,000 per Bitcoin. Cheaper cryptocurrencies exist, but they are likely to have lower returns over time since they are used less and are less well known.
Should I invest in Bitcoin?
As with any investment, you should do a lot of due diligence before getting involved with Bitcoin. This is more complex with cryptocurrency because it means learning the ins and outs of an entirely new, entirely digital system. You should understand blockchain, cryptocurrency and Bitcoin well before investing. Talk to your financial advisor to find out if Bitcoin is a good investment for you, and remember that all investments carry risks.
Bitcoin is still new in the big system of currencies and trading platforms, but has its potential benefits and rewards. Although difficult to understand at first, this digital currency has real value in certain circles and many see it as the currency of the future. Since owners trade it on a decentralized ledger, some see it as more secure than typical currencies. Like any investment, there are risks, but it’s worth learning about.
