Before now, many investors were skeptical about spending their hard-earned cash on bitcoins—because only few understood how bitcoin investment works and why it is worth giving a shot.
But now, the electronic currency is becoming more and more popular. And it has proven beyond doubt that it can survive a variety of disasters. For these reasons, many investors are now joining the bandwagon of bitcoin investment.
In November/December 2013, bitcoin reached an all-time high of $1,242—that’s a huge difference from the $4 investors paid for it about two years earlier. Who doesn’t want such a profitable investment? Everyone. But there’s one problem: most people don’t know jack about bitcoin investing. In this post, you will get to understand what bitcoin stands for and how you can get started as a bitcoin investor.
What Exactly is Bitcoin?
Bitcoin is a peer-to-peer virtual currency launched in 2009. It’s a new and unique form of currency that uses cryptography to control and transfer money. Despite its name, bitcoin does not exist in a physical form; it’s totally electronic. Bitcoins are a type of digital currency that is not controlled by any central bank and that makes use of encryption techniques to control currency units in circulation and manage the transfer of funds.
What makes bitcoin unique is that no middlemen or central authorities are involved in its transaction. You can send any amount of bitcoins to anyone in any part of the world, eliminating the need for traditional third parties like money transmitters or banks.
Are Bitcoins Good Investment?
I already stated above that bitcoin transactions eliminate the need for third party processors. However, in addition to this, bitcoins present a number of other advantages:
a. Low transaction costs: Sending and receiving bitcoins attract very little or no transaction costs. Though most transactions will be completed at no cost, you only pay a small fee when you want a faster transaction.
b. Irreversible transactions: Transaction involving bitcoins are irreversible. This is a huge benefit to merchants, as they can eliminate the risk of fraud and fraudulent chargebacks.
As more currencies are being printed and released into circulation, the rate of inflation keeps increasing and the purchasing power of currencies keep reducing as well. The same cannot be said for Bitcoins because the production of Bitcoins is highly limited and controlled. In fact, it is estimated that in 2050, there would only be one Bitcoin for every 500 persons. This helps to control the risk of inflation which other currencies are exposed to.
d. Less dependence on government
Another problem that regular currency has is that it is dependent on the government and its activities. And anything that affects or threatens the government or the country where a currency is used would affect the value of that currency. But Bitcoins is a global currency, and its value cannot be regulated or impacted by a single government.
e. Mobility-: It is dangerous to move around with physical currency; it could expose you to danger especially if you’re going to be carrying a huge amount. But with Bitcoins, you could even carry billions of dollars without any form of physical contact.
f. Secrecy-: Well, this might be seen as a risk especially since criminals can take advantage of it. But Bitcoins are untraceable and you can actually own and keep a lot of money without anyone being able to trace or discover your funds or its source.
g. Online transactions-: Many online stores now accept Bitcoins as a means of payment. Buying with Bitcoins is even more secure, safe and cheaper than other online payment methods.
5 Disadvantages of Bitcoins
However, in spite of all these attractive sides to Bitcoins, there are still some ugly sides, which potential investors need to be aware of.
I. Difficult to trade
The beauty of any investment is liquidity. You should be able to cash your investment easily whenever you desire. But Bitcoins have not been fully embraced, as a lot of people are still skeptical about whether they should invest in Bitcoins or not. This makes it very difficult to cash in on your investments. But it is believed that as time goes on, Bitcoins would be more popular and therefore become easier to trade.
II. ow acceptability
Another downside of Bitcoins is that it is not widely acceptable as the likes of PayPal, credit cards and other online payment methods. Holders of Bitcoins would therefore find it difficult to spend it. Nevertheless, this is a teething problem for Bitcoins because it’s still relatively new. But that’s not to say that there are no online stores that accept Bitcoins. Of course, you will find a good number of them both online and offline. But the problem is that they are not as many as would have been convenient for Bitcoins investors.
III. Volatility-: The prices of Bitcoins increases too rapidly at a rate that may be rather too inconvenient for stores that accept Bitcoins.
IV. Irretrievable when stolen-: Bitcoins are very easy to lose and hard to recover. Presently, there is no way to recover Bitcoins if they get stolen. And if your Bitcoins are not stored properly, you may end up losing your funds with no way to recover it again.
V. Difficult to trace
I mentioned earlier that this is both an advantage and a disadvantage. Bitcoins offer too much secrecy, making it impossible for financial agencies and the government to trace and monitor funds. This is very risky as criminals may capitalize on it to perpetuate financial crimes.
How to Get a Bitcoin Address
For you to be able to send and receive bitcoins, you need bitcoin address and a reliable internet connection. However, you only need to stay connected to the internet for the time you need for the transaction to complete. As with traditional bank and electronic accounts, you can receive bitcoins to your bitcoin address even if you are not connected to the internet. But you will require a connection to withdraw your funds.
Getting a bitcoin address is your first step towards sending and receiving bitcoins. You can get a bitcoin address by getting an online wallet or downloading the bitcoin client. The two most popular bitcoin clients are Multibit and Bitcoin-qt, which is the “official” bitcoin client. Both clients work in the same way, the main difference between them being the size of the block chain that you need to download.
Bitcoin-qt requires 10GB of hard disk space, but Multibit, being a lightweighte version of the bitcoin client, requires much less disk memory. Of the two, however, Bitcoin-qt is recommended. Go for multibit only when you don’t have enough disk space for Bitcoin-qt.
How are Bitcoins Stored?
Once you have installed any of the bitcoin clients mentioned earlier, you will find your bictoins in a file called wallet.dat. In windows, you will find the file in the application data section. It is highly recommended that you have a backup of this file to avoid losing your bitcoins in case your computer gets stolen.
Aside using your PC, you can store your bitcoins in online wallets like Blockchain.info and Coinkite.com. These specialized websites offer bitcoin wallet services, but using them is highly discouraged because they are usually a target for hackers. It is safer to store your money offline on your personal computer. Nonetheless, you can use online wallet services for storing small sums of bitcoins, so you can make quick online purchases.
A third way to store your bitcoins is to use a bitcoin exchange. This is a much safer alternative to using online wallets because bitcoin exchange services keep about 90 percent of your bitcoins offline, leaving only about 10 percent online, so you can use them for instant purchases. So, even if hackers get through to a bitcoin exchange’s online reserves, you will only lose about ten percent of your bitcoins.
How can you buy bitcoins?
Buying bitcoins at an online exchange is the easiest way to acquire the cryptocurrency. There are three major bitcoin exchanges, each with their own unique properties and fee structure. They are Bitstamp.net, Coinbase.com, and Btc-E.com.
Aside from online bitcoin exchanges, you can also buy bitcoins on Ebay and similar auction sites. However, you must note that bitcoins sell for a premium on Ebay due to the possibility for chargebacks and fraud.
Face-to-face meetups are another safe way to buy bitcoins. Use your local online forums to find bitcoin sellers in your locality and arrange with them on how you will buy the virtual currency.