Bitcoin is the star of the cryptocurrency craze. It has generated a lot of buzz on the internet and many people want to invest in bitcoin because of its profitability. Despite its anonymous nature, bitcoin has a potential to change the way we bank, make transactions and view money. The world is learning more about cryptocurrencies and bitcoin and it is expected that bitcoin will be the first common currency to be employed in the entire world in the near future.
Investing in bitcoin is quite easy, but most people are nervous to start. It makes sense to only want to invest in something you understand. Trading in bitcoin requires skill and expertise and bitcoin investors can either self trade or do it with the help of a professional broker. In this article we are going to look at what bitcoin is, how it works, how to start investing in bitcoin and the risks associated with investing in bitcoin.
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What is Bitcoin?
Bitcoin, normally abbreviated as BTC, is a virtual currency controlled by a decentralised user base and is not controlled by the whims of Central Bank authority or National government. Bitcoin was introduced by one Sakoshi Nakamoto and is the most popular type of cryptocurrency for investment. Other cryptocurrencies available are often known as altcoins. When we say bitcoin is virtual, it means that it has no physical backing and can be sent electronically from one user to the next, anywhere in the world.
The value of bitcoin is known to fluctuate because of a finite number of coins available as a result of bitcoin mining. Bitcoin mining involves “digging up” of bitcoins and bringing them to light, a little at a time. There are bitcoin protocols that contain bitcoins which have not yet been brought out. Bitcoin protocol stipulates that a maximum of 21,000,000 million bitcoins will exist at one point, in the future.
What bitcoin miners do is that they bring these bitcoin up a few at a time. Once the maximum number of bitcoins to be mined is reached, no more coins are mined. When the bitcoin protocol allows for a larger supply, bitcoin mining continues. Mining ensures fairness, stability and security of bitcoins. This is as a result of scarcity and the blockchain technology that bitcoin embraces. Bitcoin miners get paid in transaction fees for creating blocks of validated transactions and including them in blockchain.
How Does Bitcoin Work?
With a coin, you can buy products or services. However, bitcoin has no tangible attributes, but it operates almost in the same way as normal currency. Bitcoin has a decentralised structure, which means there is no interference from the government or the Central Bank and users are in complete control of their transactions.
A bitcoin miner gets money after creating blocks and incorporating them into the blockchain through transaction fees. Once a bitcoin miner obtains bitcoins, he or she keeps them in a wallet before deciding to sell them to another investor at a price. You can buy either low quality or high quality bitcoins. Bitcoin can also be used as a payment method for the purchase of goods and services and is accepted by some merchants.
How to Start Investing in Bitcoin
To invest in bitcoin, you have to first buy them on bitcoin exchange. When you are buying bitcoins, it is good to buy high quality bitcoin, but you can opt for either according to how much you are willing to invest. When buying bitcoins, you have to consider the payment method,the bitcoin platform and where you want your bitcoins to go (wallet). You must also have a bank account, personal identification information and a good internet connection to trade.
One such exchange, eToro, allows investors to purchase and trade cryptocurrencies quickly and securely. Since it is a popular online trading platform that provides a secure and easy way to buy bitcoin with eToro and other cryptocurrencies such as Ethereum, Litecoin, etc., quickly and conveniently.
Here are the simplified steps:
- Join a bitcoin exchange. Bitcoin exchanges allow you to make purchases of bitcoins. Although there is no bitcoin company, there are many cryptocurrency exchanges that can help you get started in your bitcoin investment. Some of the most popular exchanges include Coinbase, Binance and Kraken.
- Get a bitcoin wallet. Once you have purchased your bitcoins, they have to be stored in a wallet. There are two types of bitcoin wallets: a hot wallet and a cold wallet. Your cryptocurrency exchange provider is responsible for operating your hot wallet, whereas you can operate your own cold wallet. Some of the best bitcoin wallets include Electrum and Mycelium.
- Have a bank account. A bank account is a necessary part of bitcoin investment because it allows you to connect your wallet. This makes the sale and purchase of bitcoins easier.
- Place your bitcoin order. Here, you can either buy a whole bitcoin, which is quite costly, or a fraction of a single bitcoin.
- Check on your bitcoin investment. Once you have bought your bitcoins, you have an option of holding them in your wallet until they appreciate in value, make online transactions or trade your coins with other bitcoin investors.
Risks Associated With Bitcoin Investment
Before you decide to invest in bitcoin, it is necessary to be wary of these risks.
- Security risk. Bitcoin investment operates on a digital platform. If you do not have a wallet and you forget or misplace you key there is rarely a way to retrieve your coins. Hacking is also a serious risk, since there is no way to retrieve lost or stolen bitcoins.
- Fraud risk. Hackers gain personal information and use that for transaction fraud, where they make purchases in your name and never refund the bitcoins. This is one of the biggest risks of bitcoin investments.
- Market risk. The price of bitcoin is volatile. Because of this fluctuation, a bitcoin investor faces the risk of losing a lot of money once the bitcoin value goes down.
- Insurance risk. Bitcoin is not insured by the government, hence there will be no compensation in case of loss arising from risk.
Bitcoin is a viable investment for any average investor. Bitcoin has facilitated faster payment and transactions at significantly low fees in place of traditional banks and Many people believe that bitcoin has an ability to bring about a shift from a cash to a cashless society. However, before you start investing in bitcoins, it is important to understand the fundamentals of this financial market. For starters, make sure you do your research and learn as many important concepts as possible that will help you navigate this type of investment easily. Talk to experts and have someone to help you through this investment process.