Business Finance

What Is Bitcoin and Should You Invest In It?

Here's a symbol of Bitcoin, one of the most popular cryptocurrencies in the world.

Bitcoin is a cryptocurrency that is a novel kind of digital currency. It is so secure such that it is immune from counterfeiting, and you can’t spend it more than once. It is based on a decentralized structure, meaning that there is no controlling center or entity.

Thus, in this regard, it is unlike fiat currency that is controlled by governing authorities. All cryptocurrencies are based on blockchain technology. Bitcoin was the first cryptocurrency developed by an enigmatic individual named Satoshi Nakamoto. It was launched in 2009, and since then, other cryptocurrencies like Ethereum, Litecoin, and others have been launched.


An overview of Bitcoin 

Bitcoin network runs on blockchain technology, which is a decentralized or shared public ledger. Just as banks and credit card companies validate the correctness of any transaction you make using the dollars, bitcoin does the same using a system known as hashing. 

Whenever a transaction is made in bitcoins, computers on the blockchain hurry to check that the transaction is correct. To include new transactions to the blockchain, a computer has to solve an incredibly difficult math equation. 

When any computer on the network becomes the first to solve the math problem, it saves the transaction permanently as a block, a block in the blockchain, and is rewarded with a specific amount of bitcoins. 

This process of earning bitcoin rewards after adding a transaction to the blockchain is called bitcoin mining. Years ago, mining was simple and could be done on a regular desktop computer using tailored software. 

However, the influx of more people joining the mining pool has increased the competition and made the hash (difficult math problem) even more challenging to crack. And so, today, miners used specialized electronic devices with powerful computing powers to mine bitcoin more effectively.


Basics of Investing in Bitcoin

Bitcoin cryptocurrency e-wallet
Photo by Bitcoin BCH on Unsplash

If you aspire to invest in bitcoin, then there are some things you will need. A wallet, means of identification, reliable internet connection, a crypto account, and a payment method are the standard prerequisites.

The method of payment mentioned above could be a credit card, debit card, or even your regular bank account.

How to Invest in Bitcoin?

1. Get a Digital Wallet 

Personal bitcoins are stored in a bitcoin wallet. Therefore, you’ll need the latter to get you started. There are two choices for a wallet: software or hardware wallet. 

Software wallet stores your bitcoins with a server in a third-party corporation operated using which you can link with your normal bank account. There are several of them.

Coinbase, in the United States, is the most popular software wallet. It offers users protection by storing the bulk of their currency offline. Coinbase is also connected to a bitcoin exchange, thereby making it easier for beginners to buy and sell currencies. 

Hardware wallets are old-fashioned but thought to be better in security since they are offline. Ledger is a manufacturer of hardware wallets. The user’s private key is stored on a solid hardware device like a memory card. It’s unhackable. 


2. Link to Your Bank Account 

You need to link your bank account to your bitcoin wallet to enable you to trade bitcoin and deposit money into your account. Linking a bank account helps to secure your wallet, especially if you are dealing with a huge amount of money. 


3. Join a Bitcoin Exchange 

Like a traditional foreign exchange online marketplace where you can trade different currency pairs, bitcoin exchange permits you to trade your bitcoin for regular currencies like the US dollar. 

There are different bitcoin exchanges you can select from. Always do your research to know how secure, reliable, and credible an exchange is before choosing it.


4. Buy or Mine Bitcoins 

Now that you have everything all set up, you can proceed to buy bitcoins. Bitcoins are divided into several decimal fractions, up to eight places, and so, even though one bitcoin goes for a few thousand dollars presently. You can still afford to buy smaller units. Satoshi is the smallest unit of bitcoin you can buy. 

You can purchase bitcoin at a special automated teller machine or through the peer-to-peer exchange. However, you can also mine Bitcoins by solving incredibly complex computational mathematical problems. Don’t get your hopes up, the mining process is certainly sophisticated that not even your computer can help.


Why You Should Invest in Bitcoins and Cryptocurrencies

Bitcoins virtual currency
Photo by Dmitry Demidko on Unsplash

Presently, one bitcoin or 1 BTC is worth thousands of dollars and climbing. How is Bitcoin valuable? 

Bitcoin is limited in supply and is useful. There are only 21 million Bitcoins, and less than that amount has been mined. And it shares certain similarities to gold in this regard. The implication of this is that bitcoin is better understood, can be pretty predictable, and allows for better monetary policy. 

Because bitcoin is internet-enabled, it has widespread appeal and can serve the purposes of cross-border payment and currency for global transactions.


Bitcoin Price

The price of bitcoin is never fixed but rather is determined by market forces. This means that the price varies or fluctuates and is determined by people—by how much we are willing to pay for it. In other words, bitcoin value today is determined by market forces. The desire for bitcoin prediction has opened up an opportunity for it to be traded as bitcoin CFDs like other derivatives such as gold and crude oil on the financial market.


Should You Invest In It?  

Many speculators and investors have been looking interested in bitcoin as a future replacement for our traditional fiat monetary system. Whether that will happen or not is unknown, but since its advent bitcoin has ushered in a world of cryptocurrencies

From an all-time high of $19,783 per coin in May 2017, bitcoin has seen quite a fair share of volatility with a decline over the years. And with this rise and fall in value, many individuals have become quite skeptical about investing in the crypto market. 

Nevertheless, current events have caused Bitcoin value to rise substantially and it has once again caught the interest of many investors and potential investors. And with the recent supervision and institutional controls and support from the government, many investors are looking to take advantage of this and seize a profitable return. Also, considering the halving of Bitcoin mining that’ll be rolled out, this eventually makes it even more valuable in the future. 


How to Successfully Invest In Bitcoin

1. Spread Your Risk

Get rid of any get-rich-quick ideas you may have if you hope to profit from your investment in crypto. Don’t depend on immediate buying and selling strategies. You can time the market and win. You can also time the market and lose all your money quickly. 

Success in the crypto market is achieved by diversifying your crypto portfolio. This implies that you invest in bitcoin and several other cryptocurrencies that are recommended by a financial professional. 

The goal is to put all your eggs in separate baskets so as not to lose all your money due to the risk and volatility involved in crypto and also in the event of a market crash.


2. Use Regulated Professionals

As the cryptocurrency world continues to mature and become more intricate, it will become even more challenging and stressful to determine which coins are good for investing and which ones to eschew. Working with professionals who are regulated can help save you time and money and most importantly, hopefully, better your chances of a profitable investment. 

While there are numerous options you can select from when looking for a cryptocurrency app or investment platform, it’s necessary to select a financial professional with a Registered Investor Advisor (RIA) status by the SEC.


3. Prioritize on Education and Wealth Accumulation 

While the professional opinions of a financial adviser can help, it’s not entirely a wise idea due to the possibility of conflict in interest, and this may cost you greatly. 

Hence, it is important that you enhance your competence in managing your bitcoin portfolio. Various online platforms such as Coinbase Earn can provide you with educational resources such as short video lessons and quizzes with the goal of helping you understand cryptocurrency better.


How to Secure Bitcoins?

Safeguarding your bitcoin again hackers, scammers, and thieves is very important. Otherwise, you could lose all your investment. Bitcoin by itself is secure. But bitcoins are not—their security depends on the integrity of the wallet in which you store them. Only store your bitcoins in the wallet that you can control. Here are some tips to help you protect your bitcoins:

  • Vet online wallet services – Be wary of most online bitcoin wallet services. Many of them are susceptible to hacking. Before choosing any online wallet or bitcoin exchanges, ensure you ascertain their level of security. Always use two-factor authentication to keep your account secured.
  • Keep a small amount – Only store small amounts of bitcoins in your wallet for daily transaction purposes. Keep the rest in a safer environment.
  • Wallet Backup – Ensure you backup your wallet. This will help protect you in the event of a computer crash, or a mistake on your end.
  • Save offline – Saving your bitcoins offline is the highest form of security, especially if you invested a huge amount. The offline environment provides a place that is away from any network. And is this hacker-proof. For additional security, it’s best if you use an offline wallet together with backup and necessary encryptions.


How to Trade Bitcoin?

Bitcoin statistic and charts
Photo by Chris Liverani on Unsplash

Trading bitcoin has become increasingly popular in recent years. And looking at the bitcoin price history, one can anticipate a lot of volatility. Here’s a step-by-step approach to trading bitcoin: 

1. Choose how you wish to handle your bitcoin. 

There are two major ways you can deal with bitcoin. You can buy them in hopes of selling at a profit in the future as we have discussed earlier. You can trade them at a brokerage firm like Forex and merely speculate its value without having to buy the token. We’ll dwell on the second means.


2. Study the elements that move bitcoin prices. 

Bitcoin is highly volatile, which makes it risky but also attractive to traders. Its price can fluctuate wildly within split seconds. Since this instrument is still young and not fully understood, it leaves room for quite a lot of speculations. Here are the known elements that affect bitcoin prices:

  • Bitcoin Supply – Bitcoin supply is limited. There’s a total of 21 million bitcoins with more than 80% already in circulation. Prices can fluctuate aggressively depending on the actions of holders or the rate at which they take positions in the market.
  •  BTC Market Cap – The outlook of the crypto market and how people perceive it to be. If people perceive it to be valuable, price surges positively—the converse is true.
  • Integration – Market confidence in bitcoin is affected by how well its integration with novel payment systems and other platforms.
  • Industry adoption – Though Bitcoin is acceptable in smaller merchants, many industries still prefer dollars over cryptocurrency. But, what effect this might have is yet to be seen.


3. Design your bitcoin trading strategy

There are about four major types of trading strategies:

  • Day trading – Consider day trading if you would like to react to the short-term price fluctuations in the market. This can be an opportunity due to the emerging fluctuation patterns and developing news stories. To be a day trader, you take short-term positions due to predictable price movement and close your position at the end of the period.
  • Swing trading – Here you identify a trend and take a position and hold it until it runs out. To be a Swing trader, you have to take advantage of identifiable market trends.
  • Scalping – This strategy involves making profits on minute price fluctuations at a high velocity. It’s suitable for you if you would like to make small but consistent profits instead of one huge breakout.
  • Automated trading – Here you simply delegate your trading action to a computer, and it replicates your trade decisions using a pre-designed algorithm. This is alright for you if you would like to trade passively.


4. Begin trading

To begin trading, here are the steps you need to take: 

  • Open an account  – To trade bitcoin, you have to open a trading account with a CFD online brokerage. Popular choices include IQ option and the Expert option. Remember, unlike buying and selling bitcoin, an account with an exchange is not necessary. This is because you only trade bitcoin prices and not the token itself.
  • Create a trading plan – A trading plan is necessary to keep you focused and minimize your loss or risks. It helps you decide when to open a position, hold, or close.
  • Do your research – Always make sure you are up to date with current information before making a trade. Place your trade once you’ve done your research. You are good to go. Start trading.


Investing in Bitcoin

There is no straight answer if or not to invest in Bitcoin. Mainly because this cryptocurrency still remains an enigma to many people. However, you have to consider your risk appetite, and if or not, you can afford the risk of losing your money. If you’re still unsure about investing in cryptocurrency, there are other types of investment to venture in that are safer. Study your financial plan and decide if investing.


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