Property, precious metals, stocks, shares….Bitcoin? The 2009-born crypto-currency has been stealthily gaining traction as an investment option for a few years now, to the point where it’s beginning to pique the interest of even the most bearish of investors. Where and how do you start with bitcoin investment? We take a walk through the basics here…
What is Bitcoin?
In case you’ve been living under a rock, Bitcoin is a counter currency created by an unknown person under the alias Satoshi Nakamoto. Transactions are made online without reference to institutions such as banks – there’s no transaction fees and no identification, which has made it the payment of choice for the more nefarious areas of the dark web. But Bitcoin is beginning to emerge into the mainstream as more and more above board retailers start accepting them as payment. And in recent years, they are becoming seen as a high-risk but potentially high-stakes investment option too. Largely unregulated, Bitcoin has been under the radar for some years but is increasingly coming under Governmental focus due to a lack of both control and taxation.
How do I buy them?
Bitcoin exchanges allow people to trade, buy and sell, like a proto-Stock Exchange. There are several, but Mt. Gox is the most well-known. They can also be transferred between individuals using mobile apps or computer software, and finally, they are also ‘mined’ online. People compete to solve complex mathematical puzzles, which is how new bitcoin is created. They are stored in a digital wallet, which lives either in the cloud server or on a user’s computer – which makes them vulnerable to hackers or even accidental deletion. Increasingly, there is the option to invest in funds that have themselves invested in Bitcoin. There are now some ATMs where you can get Bitcoin, subject to a percentage fee as if buying a foreign currency – this website lists Bitcoin ATMs in 56 countries.
Is there any value in them?
As a completely digital and uninsured currency, Bitcoin has zero intrinsic value, but if you are looking to add some riskier speculation to a balanced portfolio, they can be worth a look. All the factors are in place for a bubble – a finite supply with a completely fluid value has led to some very high-profile profits. With no Government backing, the risks are sky-high – but with more and more buzz around them, short-term returns can be made -if you’re prepared to swallow the risk. In the medium to longer term, they may become more regulated, which would likely have the effect of flattening off the market. The Bitcoin gold rush is on.
Are there any alternatives?
Bitcoin isn’t the only crypto-currency out there – alternatives include Litecoin, and Ethereum, which is backed by an alliance that includes global companies including BP, Microsoft, Credit Suisse and Banco Santander. Some of these could prove to be a worthier gamble than their better-known cousin – you can compare virtual currencies at CyrptoCompare to see what you think.
Can’t I just mine them?
The early days of straightforward mining are over as more and more people become aware of the possibilities and try to join in the extraction. Now, you need to use specific hardware and enter a ‘mining pool’ working with others and sharing any profit. And as you don’t know what the Bitcoins will be worth when you start mining them, the risks involved are clear.
How do I keep secure?
Safeguarding against all security risks online is nearly impossible, so when using crypto-currencies, the only route to minimising risk is to transfer the value out of that format as soon as possible. Make sure you pick a ‘wallet’ carefully. There are many different Bitcoin wallet providers from “hot” ones held on smartphones to “cold” storage held offline on memory cards (the 21st century equivalent of keeping cash in a hole in the mattress). But you need excellent randomised password software to dial down the hacking risk and making a backup is vital – if your phone gets stolen, or you delete the app, and you haven’t made a backup – it’s irrecoverable. Similarly, anyone that can access your wallet can spend your funds – so make it as secure as possible.
What are the benefits?
There is only 21 million BitCoin, so their limited amounts give them a value. This is coupled with a monetary policy that allows you to see when new ones are created and how many are currently in circulation. No bank can block payments, as there is no ‘middle man’ and it’s easy to work across global currencies – which also lifts it above any single country’s financial scenario. The currency itself does see fluctuations in value akin to the traditional stock market.
Ultimately, Bitcoin is still a new and relatively unknown quantity – that comes with specific risks. However, as a part of a more balanced overall investment strategy, it’s becoming more and more of a viable option.
Conclusion about Bitcoin
Understanding Bitcoin is simple. It is a digital technology that allows to reproduce in electronic payments the efficiency of the payment with cash. Payments with bitcoins are fast, cheap and without intermediaries. In addition, they can be made for anyone who is anywhere on the planet with no minimum or maximum value limit.
The need for these “ritual ballots” had already been discussed since the very creation of e-commerce and materialized with Bitcoin, created in 2009, by an anonymous one.
Technology has been gaining many supporters worldwide. Recently Bill Gates in an interview with TV channel Bloomberg said that “Bitcoin is exciting because it is cheap.”
Today it is possible to donate in bitcoins to global institutions such as Greenpeace or Wikipedia, or buy airline tickets on Expedia, or check in for an apartment at Tecnica, all using bitcoins.
We believe it to be the most relevant technology being produced on the internet today. And it’s just the beginning.
Some more sources to understand Bitcoins and cryptocoins: