A Beginner’s Guide to Bitcoin Investing.
You may have noticed that bitcoin is everywhere…
Not only is everyone talking about it, everyone seems to have already invested!
Are you missing out? Is it too late?
Should you get in, and if so, how?
What even is bitcoin?
Don’t worry, we’ll hopefully demystify bitcoin together now…
Our Bitcoin for beginners article discusses its history and current status as the “worlds most valuable investment vehicle”. You’ll then be ready to make an informed decision about bitcoin (and its crypto cousins) and what role it should play, if any, in your financial life.
Let’s get into it!
Bitcoin For Beginners
What Is Bitcoin?
First things first – what is bitcoin?
Bitcoin is a cryptocurrency – a kind of digital asset that only exists in cyberspace in the form of computer code, unique ones and zeros that represent a unit of currency.
Bitcoin, along with the other cryptocurrencies that followed in its wake, is made possible by a disruptive technology called blockchain. This is a method of public, anonymized digital record keeping across multiple computer servers.
How Was Bitcoin Invented?
On October 31, 2008, a white paper appeared online titled “Bitcoin: A Peer-to-Peer Electronic Cash System.”
The paper was attributed to “Satoshi Nakamoto,” but the true identity of the author has never been verified. Mysterious right?
The paper described both blockchain technology and its first output – a peer-to-peer electronic cash system that did not depend on the credit of a government to assign it value.
Why Is Bitcoin Valuable?
It is important to understand that there is no underlying asset behind bitcoin. There’s no precious metal, no real estate, no company. The computer code is the asset. So what makes it valuable?
For one thing, it’s hard to obtain without buying it.
The code of an individual bitcoin is unearthed by performing a complex mathematical equation, only decipherable by powerful supercomputers. Companies and individuals that attempt to produce bitcoins from the math are known as “bitcoin miners.”
Secondly, the supply is limited. Bitcoins are still being mined, but the code limits the number of unique bitcoins to 21 million. As of this writing, almost 18.75 million bitcoins have been mined, but eventually the supply will run out. By the laws of economics, anything in high demand and in limited supply is valuable.
So that’s the supply … What about the demand? Where does the demand come from if bitcoin doesn’t do anything and has no government backing?
At the most basic level, bitcoin is valuable for the same reason anything is valuable – people want it and are willing to pay for it. The hype drives the demand more than anything else.
Why Are People So Crazy About Bitcoin?
Bitcoin enthusiasts border on fanatical. How did bitcoin get so huge?
- Volatility. In 2010 bitcoin enjoyed its first major price increase – from $0.0008 to $0.08 per bitcoin. Those numbers are tiny, but think about it – that’s a 10,000% increase! Anyone who had a lot of bitcoin enjoyed a huge increase in value … but that was just the prologue. Bitcoin has soared and crashed in value several times, a roller coaster ride that has made millionaires overnight and broke them just as quickly. As of this writing, the value of a single bitcoin peaked at over $64,000 in April 2021, but tumbled down below $40,000 by July. The drama alone is hard to resist.
- Notoriety. Bitcoin got a big boost in public consciousness when it was exposed as the currency of choice for The Silk Road and other “dark web” marketplaces where users bought and sold illegal drugs. Its association with dark web crime has left it with a light dusting of outlaw appeal.
- Celebrity Endorsements. Bitcoin has several high-profile backers, including but not limited to Elon Musk, Bill Gates, Serena Williams, Paris Hilton, Kanye West, and Floyd Mayweather.
- Philosophy. Bitcoin has become a lynchpin of certain philosophies, ranging from libertarian to anarchist. It represents an opportunity to have a currency outside of the control of a government, corporation, or any centralized authority. Bitcoin transactions are currently anonymous, nearly impossible to track, and nearly impossible to tax. For this reason, governments dislike bitcoin and other cryptocurrencies, jealously guarding their right to issue currency (also known as fiat currency). Several countries have banned bitcoin transactions, including Bolivia, China, Colombia, Russia, and Vietnam.
Buying And Selling Bitcoin For Beginners.
So you want exposure to the bitcoin market … how do you go about getting some?
Three major ways:
You can buy bitcoin and other cryptocurrencies over several private online exchanges. Since these exchanges are often offshore and unregulated, reputation matters. Coinbase is our recommended place to buy bitcoin for beginners.
The exchange will require you to open up a digital “wallet” to hold your crypto, like a PayPal or Venmo account. Don’t lose the password to this account! People have millions of dollars in crypto assets stuck in online wallets protected by forgotten passwords.
Depending on the exchange you choose, you may be able to transact using bank transfers, mailed checks, wire transfers, mobile wallet transfers, and sometimes credit card transfers. Some exchanges even offer bitcoin ATMs with physical locations where you can transact in cash!
On the online exchange, you can buy and sell bitcoin and other cryptocurrencies at market rates. Buying and selling bitcoin this way is the best way to leverage some of bitcoin’s core philosophical advantages – privacy, secrecy, untraceability.
You can buy a whole bitcoin, or a fraction of a bitcoin. Fractional bitcoin ownership is measured in sub-units called satoshis, after the mysterious bitcoin creator Satoshi Nakamoto.
Buying a crypto-backed ETP.
Some large investment banks are experimenting with crypto-backed exchange-traded products (ETP). An ETP is like an ETF (exchange-traded fund), a portfolio with shares available for trading on public exchanges. The difference is that while an ETF usually bundles stocks and bonds as the underlying asset, with a crypto-backed ETP the underlying asset is cryptocurrency.
Investors who choose this method sacrifice privacy, but gain exposure to crypto markets with the added peace-of-mind that comes from the government regulations of exchange-traded products.
Buying stock in a company invested in bitcoin.
Several major companies and funds have invested in bitcoin. Tesla is the most notable example, buying $1.5 billion in bitcoin in February 2021. For anyone who owns TSLA, some portion of the value of that stock can be attributed to the value of the company’s bitcoin holdings. We recommend eToro for stocks and shares.
Is Bitcoin A Good Investment?
That’s the $9 trillion question, isn’t it?
It’s a question you can approach from a number of angles.
From a pure market sTandpoint – comparing it to every other investment vehicle available to you, including stocks, commodities, and bonds – bitcoin is distinguished by its extreme volatility. Stocks and stock indices can endure huge swings in value over the course of a month or even a day, but bitcoin makes them look like pure amateurs.
What does this mean for the rank-and-file bitcoin investor? It means that if you buy at the right moment, your portfolio could soar in value overnight. But be careful—it could crater just as quickly.
What about the philosophical arguments for or against bitcoin as an investment? Proponents argue that world powers like the US and China will face inevitable decline, and a currency untethered to the fate of nations is inherently more valuable because it will outlast the fall of nations. They see cryptocurrency as a technological equivalent to gold – money that transcends cultural borders.
More conservative investors buck at the notion that bitcoin is similar to gold. Gold is a physical asset, with uses and properties outside of its status as a scarce resource and a repository of value. Bitcoin, by contrast, is “just ones and zeros.” It is computer code with no use other than an agreed-upon medium of exchange. If the agreement changes, the value changes. To them, that’s a bad bet!
Will Bitcoin Be Banned?
No beginner’s guide for Bitcoin will be complete without touching on this question. Will Bitcoin be banned? Bitcoin is the most decentralised cryptocurrency as of 2021. This means it has the most number of stakeholders who can all govern in some format if everyone else went to hell in a handbasket. In short, the network can be operated by validating transactions from the miners via a standard laptop plugged into a low quality internet connection somewhere in the middle of nowhere. It’s almost nuclear winter proof.
These validators, known as ‘Nodes’ ensure that the network can always continue to operate. The more of them there are, the harder it is for one country to ban it.
In addition it’s been declared as an asset by the US Government, many countries now allow Bitcoin funds to trade on public markets and as long as they continue to enable it, it doesn’t really matter how many times China announces a ban on it.
In fact China has announced a ban on Bitcoin over 20 times, but only one ban on Facebook.
It says something about the strength of Bitcoin that they have to keep announcing a ban.
In short, it’s going to be pretty hard to ban Bitcoin now it’s a trillion plus asset.
As of October 2021, Bitcoin is the 3rd largest global currency.
Is Bitcoin My Only Option To Invest In Cryptocurrency?
Absolutely not. Over 4,000 cryptocurrencies have followed in the wake of bitcoin. If it feels like you missed the boat on bitcoin, there are still nascent cryptocurrencies you can get into on the ground floor.
Be careful, though – many new cryptocurrencies never go anywhere, so watch out for hype about the “next bitcoin.”
Conclusion To Bitcoin For Beginners
Ultimately, cryptocurrency is so new on the financial scene that it is hard to make firm judgments about its present or it’s future. But by educating yourself on this disruptive financial force, you can make an informed decision as to whether investing in bitcoin is right for you.
Remember, always do your own research before pulling the trigger; never invest more than you can afford to lose!
And that’s it folks – bitcoin for beginners!
To continue exploring the world of cryptocurrency, keep reading…