Table of Contents
- 1 Introduction to Bitcoin as an Investment
- 2 Short-Term Investment or Long-Term Investment?
- 3 How to invest in Bitcoin
- 3.1 Let’s Talk Security
- 3.2 How to Invest in Bitcoin: Bitcoin Mining
- 3.3 How to Invest in Bitcoin: The Coinbase Method
- 3.4 How to Invest in Bitcoin: Anonymously
- 3.5 How to Invest In Bitcoin: ATMs
- 4 Final words
Introduction to Bitcoin as an Investment
Bitcoin — the subject of 2017 and now, of 2018. By the end of the year, everyone seemed to know what Bitcoin was. And everyone that didn’t know what it was, seemed to be asking about it. But, why?
Well, it’s simple.
The price of Bitcoin has grown at a huge rate over the past few years. In fact, it has grown so much that it makes other normal investments (stocks, bonds etc.) look pointless.
Let’s compare Bitcoin’s growth to the growth of Amazon (yes, the company). Amazon has seen huge growth over the past 5 years and has been one of the top performing companies in the world! If you bought a share of Amazon 5 years ago, it would have cost you $274. That same share would now be worth $1500.
Let’s compare that to Bitcoin. If you bought one Bitcoin 5 years ago, it would have cost you $45. Now (5 years later) that same Bitcoin would be worth $11,194. You can see what I mean about it making other investments look pointless now, right?
Anyway, that’s enough about Amazon. What you really want to know is whether now is a good time to invest in Bitcoin, and if so, what the best way to invest in Bitcoin is.
So, let’s get to that, shall we?
What Is Bitcoin and is Bitcoin a Good Investment?
To know whether Bitcoin is a good investment, you need to understand a little about what Bitcoin is. Investing in something you know nothing about is always a bad idea.
So, always do plenty of research and talk to a financial advisor before investing.
Let’s Talk Bitcoin (Quick Briefing)
Put simply, Bitcoin is a digital currency — it is money that is online. Just like the money we use every day, you can use Bitcoin to buy, sell and trade with other people. When you buy Bitcoin (which I will show you how to do the “How to invest in Bitcoin” section below), you store it in a digital wallet.
You can then send Bitcoin from your digital wallet to other people’s digital wallets, just like a bank transfer. This is called a Bitcoin transaction. All transactions are stored on the Bitcoin blockchain, which is a type of technology that keeps your Bitcoins safe from hackers.
The purpose of Bitcoin is to remove the need of a single company (banks, PayPal etc.) having control over your money. Instead, with Bitcoin, you have full control. All Bitcoin transactions are confirmed on a trustless shared network that isn’t owned by anyone.
The Bitcoin Investment
As I mentioned above, Bitcoin has proved to be one of the best investments in the past 10 years. Although many people have doubted Bitcoin, it has continued to rise year after year.
Let’s look at how Bitcoin has grown since its creation in 2009:
The Birth of Bitcoin: Bitcoin was first bought in 2010 at a price of around $0.06. Yes, that’s right! $0.06 — cheaper than a chocolate bar. So, if you had $20 to invest in Bitcoin in 2010, you could have bought 333 Bitcoins. Those 333 Bitcoins would now be worth over $3.7 Million! I bet you wish you knew how to invest in Bitcoin then, right?
2011: Bitcoin grew steadily in 2010 and started 2011 at a price of around $0.30. Towards the end of 2011, it was worth around $6.10. That’s a total increase of over 2000%! At this time, Bitcoin was being used to buy illegal things online through the “Dark Web”.
Note: Bitcoin transactions are anonymous. This allows people to be unknown when paying in Bitcoin. The most common website that was known for selling illegal things online for Bitcoin was “Silk Road”. As you can imagine, “Silk Road” ended badly for its creator.
2013: This was the year of “Bitcoin accepted here”. Businesses started to accept Bitcoin as a payment option and Bitcoin reached a total market cap of $1 billion. By the end of 2013, one Bitcoin was worth around $817!
Market Cap: Bitcoin’s market cap is the total price of all Bitcoins added together.
2014: As for the price of Bitcoin, 2014 wasn’t a great year. The price of Bitcoin had dropped to $300 by the end of the year. However, this was the year that Microsoft started to accept Bitcoin payments. You could now use Bitcoin to buy Xbox games, apps and videos from Microsoft. This was a huge step for Bitcoin.
2017: Without a doubt, 2017 was the year that Bitcoin exploded. Wall Street and large investment banks started to invest in Bitcoin. Lots and lots of people started following Bitcoin — it started to be on the news every day. The price of Bitcoin went really high, starting at around $985 and rising to heights of nearly $20,000!
So, as you can see, investing in Bitcoin has made a lot of people rich. Even though you may want to invest in Bitcoin now because it has made a lot of people rich, it is important that you understand the pros and cons of a Bitcoin investment. So, before we explain how to invest in Bitcoin, let’s look at the advantages and disadvantages.
Pros of Investing In Bitcoin
There Will Only Ever Be 21 Million Bitcoins Created
What does this mean to you? Well, think about it. The more popular Bitcoin becomes, the more people will want to buy it. If there can be no more Bitcoins created, then the demand will continue to rise for each Bitcoin, which increases the price.
Huge Returns on Investment
As you can see from the timeline above, Bitcoin can offer a return on your investment that you won’t find anywhere else.
Easy to Invest
Bitcoin is easy to invest in. You can buy it and sell it whenever you want to. You do not have to sign an agreement, and you can do it all by yourself!
There are lots of great uses for Bitcoin. Here is a list of reasons why some people would prefer to use Bitcoin over the traditional banking system:
- It allows people to easily send money to each other
- It is much quicker and cheaper to send international payments
- People have control over their money, instead of the banks having control
- Its anonymous transactions mean that people have privacy
Cons of Investing In Bitcoin
Volatile (The Price Is Always Changing In Huge Ways)
The price of Bitcoin changes all the time. However, these aren’t just small changes. For example, after Bitcoin hit its highest price of $19,839 on the 17th December 2017, it dropped to $12,015 on the 22nd December. That’s a total loss of $7,824 in just 5 days!
You might be wondering “But why?”. Well, Bitcoin’s anonymous transactions could cause a huge amount of problems for local governments. Bitcoin allows illegal activities to be paid for online without ID. Also, Bitcoin could be used as a way for people and businesses to avoid taxes.
Currently, Bitcoin can only handle 3 to 7 transactions per second. So, as Bitcoin becomes more popular, the time it takes for the Bitcoin network to verify a transaction becomes longer. If this problem isn’t fixed soon then the fees to send Bitcoins will increase, and so will the time it takes to send Bitcoins.
Unfortunately, it seems that the inventor of Bitcoin (Satoshi Nakamoto) didn’t think about this becoming a problem in the future.
Lack of Security
Because Bitcoin isn’t controlled by a single company, there is no help if you make an error. For example, if you forget the “password” to your Bitcoin wallet, there is no company to contact to reset your password. You might be asking “But what happens if I accidentally send my Bitcoins to the wrong place?” well, the simple answer is that your Bitcoins will be gone forever.
Now that we’ve covered that, you should have a better idea of the risks of investing in Bitcoin. It’s clear that Bitcoin can make you a lot of money, but it’s also clear that it can lose you a lot of money.
Short-Term Investment or Long-Term Investment?
So, should you invest in Bitcoin for the long term or the short term? Well, if you look at the growth of Bitcoin over the past 5 years, it’s clear that holding Bitcoin for the long term seems like the best option.
However, before you learn how to invest in Bitcoin, it’s important that you have a clear strategy in mind when it comes to your investment. Let’s help you get a better understanding of what will work best for you, shall we?
Short-term Investing — Minutes, Days, Weeks
Short term investing can require a lot of your time and can be very stressful when the prices don’t go your way (so you lose money). However, when things do go your way, you can make quick money and have fun doing it.
I would only recommend short-term investing for those who are prepared to spend a lot of time analyzing charts and doing market research. The price of Bitcoin moves up and down very quickly, so you must always be watching the charts carefully and have a solid plan!
I highly recommend that you do not start short-term investing without any training. Again, always talk to a financial advisor before investing.
Long-term Investing (or HODLing) — 1 year+
“HODL” — Hold On for Dear Life. This is a term that is used in the crypto world all the time. Put simply, it means hold on to your investments. Not only has long-term holding of Bitcoin been the best way to make a profit over the last 5 years, but it’s also the easiest!
So, instead of sitting at your computer all day analyzing charts — you can sit back, relax and wait for the price of Bitcoin to rise. But remember: never invest an amount that you cannot afford to lose. No investment is guaranteed!
By now, you should have a good idea of whether or not you want to invest. If your answer is “YES!”, then please read on — I’m going to show you how to invest in Bitcoin.
How to invest in Bitcoin
“How do I invest in Bitcoin?” – a newbie’s favorite question. I understand how difficult it can be to find the best option that works for you. But don’t panic! That’s why I’m here to help.
Let’s Talk Security
First things first, you need to set up a Bitcoin wallet. A Bitcoin wallet is like the wallet you store your local currency in, the only difference is that a Bitcoin wallet is digital.
There are different types of digital wallets, though. Here are some of the wallets that I recommend:
Online Wallets (Least Safe Option)
Online wallets should only be a temporary storage option for your Bitcoin. You should only leave your Bitcoin in these wallets if you must. Even though they are easy to use, they are the least secure. Leaving your Bitcoin in an online wallet means that you are putting your trust into the security of the website you are using.
Software Wallets (Safer Option)
Software wallets are like apps that you install on your computer or phone. They offer you a good amount of security and give you full access to your public and private keys. Also, they are free to use and simple to set up!
Hardware Wallets (The Safest Option!):
Hardware wallets are the option I recommend for storing your Bitcoin. They allow you to store your Bitcoins offline on a small piece of hardware. You plug the hardware wallet into your computer (with a USB) and transfer your Bitcoins on to it. This allows you to store your Bitcoin offline so that they can’t be hacked.
However, they do come at a cost. Most hardware wallets are priced at around $100, so I only recommend buying one if you are investing a lot of money.
Finally! Now you’re ready to learn how to invest in Bitcoin.
How to Invest in Bitcoin: Bitcoin Mining
“What is Bitcoin mining!?” It sounds confusing, doesn’t it? That’s because it is.
However, I’ll do our best to explain it in simple terms for you.
Bitcoin mining is a process that is performed using special computers. These are computers that are designed to verify transactions on the Bitcoin blockchain. To verify transactions, the computers must solve a mathematical problem. The first computer to solve the problem, is rewarded with Bitcoin. It’s just like gold miners being rewarded with gold! The computers are the miners!
Sounds easy, right? Well, it isn’t. There are thousands of computers trying to verify transactions. Which means one thing — there is lots of competition. So, if you want to mine Bitcoin by yourself, then you’re going to have to invest a lot of money into computers to beat your competition!
However, there are other options for mining Bitcoin. The most common option for small-time miners is to join a Bitcoin mining pool.
As the name suggests, a Bitcoin mining pool is a pool/group of computers that work together to verify Bitcoin transactions. All the computers in a mining pool combine their computing power to help verify transactions.
Let’s imagine that you have joined a Bitcoin mining pool and you provide 5% of that mining pool’s computing power. When your mining pool verifies a transaction, you will be rewarded with 5% of the Bitcoin.
I recommend that if you would like to start mining, you start by joining a Bitcoin mining pool.
Bitcoin mining isn’t always profitable though and requires around $2000 – $3000 to set up.
To learn more about Bitcoin mining, mining pools and the computers you need, read our guide on What Is Bitcoin Mining and How to Does It Work.
How to Invest in Bitcoin: The Coinbase Method
This is the best way to invest in Bitcoin for beginners.
Coinbase is one of the worlds largest exchanges when it comes to cryptocurrencies. It allows you to purchase Bitcoin by using your credit/debit card. The website is user-friendly, and they make it very easy for you to set up an account.
Coinbase doesn’t just allow you to buy Bitcoin though, you can also buy Ethereum, Litecoin and Bitcoin Cash.
I have a full guide on how to set up a Coinbase account — be sure to check it out: The Complete Guide on How to Buy Bitcoin and Where to Do It.
How to Invest in Bitcoin: Anonymously
One of the things people like most about Bitcoin is that it allows you to keep your information private! So, for those of you who want to stay extra private, buying your Bitcoin on a peer-to-peer trading platform might be the best option for you.
Another good thing about peer-to-peer platforms is that you don’t have a middleman to pay a fee to! That’s right — 0% fees!
However, you must be careful when using these websites. Some Bitcoin sellers might try to steal your money, so always check that the seller you use has 100% positive feedback on their account.
The peer-to-peer trading platform that I recommend is LocalBitcoins. By using LocalBitcoins, you can set up the terms and conditions of your Bitcoin purchase. Some sellers ask for ID, but others do not ask for ID.
LocalBitcoins gives you the option to:
- Find people who live local to you – then you can meet up with them and pay in cash
- Deposit your cash into a seller’s bank account — go to your local bank and send it to the bank account number that the seller gives to you
- Pay using bank transfer – send your money to the seller’s bank account using the bank account information they give to you
How to Invest In Bitcoin: ATMs
Just like you use an ATM for your local money (USD, EUR etc.), you can now use an ATM for Bitcoin! The only difference is, you cannot use Bitcoin ATMs to withdraw money. You can only use it to buy Bitcoin. The best thing about Bitcoin ATMs is that they are simple, easy to use and you can use cash/paper money.
Bitcoin ATMs are rare though, so you’ll need to check to see if one is near you first. You can find that out here: Bitcoin ATM Near Me. Some of the Bitcoin ATMs ask for ID, but most of them don’t need it.
I recommend that you take your Bitcoin wallet details with you, so you can send your Bitcoins straight to your Bitcoin wallet from the ATM machine. If you don’t, then the Bitcoin ATM has to make a new wallet for you — it prints out the public and private key on your receipt.
And there we have it!
You should now have a good idea of whether Bitcoin is the right investment option for you. And if so, then you know how to do it. You can thank us later.
Bitcoin has proven to be a great investment over the years, but who’s to say that the growth will continue? I guess the answer to that question depends on who you’re asking. There are so many different options about the future of Bitcoin.
If you are going to invest, then great! I welcome you to the crypto world (lots of exciting stuff happens here). Just remember, it is important that you only invest what you can afford to lose.
So, let us know: are you going to invest?
*Note: this article is a personal opinion. Before making any investment decisions you should consult with a professional.