Bitcoin, the first cryptocurrency ever, has been released in 2009. Satoshi Nakamoto created in and started the blockchain phenomenon. Blockchain stayed under the radar for years, but it’s now one of the hottest topics on the Internet. Everyone is curious about crypto, but few understand what it is and how it works. If you’ve ever asked yourself, “Should I invest in bitcoin?”, you need to think hard first. Investing in bitcoin is a volatile but also profitable activity. If done right, that is.
Doing it right is the hard part.
The truth is that the crypto scene is new and nobody knows how its markets work precisely. Stock investors can draw from decades, even centuries, of experience and know-how.
There is nothing like that if you’re looking to make a bitcoin investment. The potential payoff if you invest in bitcoin and succeed is immense, so it’s worth to at least consider it, though.
In this tutorial, we will tell you what you need to know to start investing in bitcoin or decide if it’s for you at all.
Table of Contents
- 1 What is Bitcoin?
- 2 What Is Investing?
- 3 I’m going for it! What do I do now?
- 4 Lambo, Here I Come?
What is Bitcoin?
Bitcoin is the blockchain and corresponding cryptocurrency. It’s aimed at liberating humanity from banks and other traditional financial institutions.
Bitcoin tries to do that by allowing people to trade bitcoins and pay for stuff anonymously.
This founding principle survived the test of time because we still don’t know who Satoshi Nakamoto is. Not for lack of trying to find out by journalists and Bitcoin enthusiasts, though.
Satoshi Nakamoto may not even be a single person.
History of Bitcoin
The official birthday of the Bitcoin blockchain could be January 3, 2009. This is the day when Satoshi Nakamoto mined the first Bitcoin block, starting the financial revolution that has the potential to change the world.
It took a while for Bitcoin to truly start making its impact.
For a long time after launch, bitcoins weren’t valuable at all. One guy spent 10,000 bitcoins to buy a couple of pizzas.
In the beginning, people used bitcoins to pay for black market goods on websites like Silk Road. As their price rose, more and more people became interested in trading them as an investment.
In 2013, the Bitcoin blockchain had its first great year. The price started at $13.30 per bitcoin and rose to $770 throughout the year.
On December 17, 2017, the price of bitcoins reached its all-time high of $19,666. When China banned bitcoin trading, it experienced a massive drop and never recovered.
How do bitcoins work?
Everyone knows that your privacy when transferring bitcoins is absolute. But why is that?
You don’t use your real name to transfer bitcoins. Instead, you have a unique address. Your address is made up of numbers and letters, both upper-case and lower-case.
It’s straightforward and quick to create your unique bitcoin address. You pick a random private key and encrypt it with a click of a button, using a wide variety of free tools.
You can make this address public. It’s almost impossible to reverse engineer your private key. Why? It’s heavily encrypted.
The Bitcoin Blockchain
The whole Bitcoin system depends on its blockchain. But what is it? The Bitcoin blockchain is a public ledger of all transactions made using bitcoins.
Every computer running the Bitcoin software keeps its copy of the full record of transactions saved in blocks. As transactions come in, the system creates a new block.
This gets a bit complicated, so bear with us.
To keep the blockchain up-to-date and secure, someone needs to do upkeep work. This is what bitcoin miners do.
As new transactions come in, miners check if the sender has enough funds and then record the transaction in the ledger. The ledger block is not limitless, though.
When the block reaches its capacity, the system creates a new block. The encrypted record of all transactions from the beginning of the blockchain is held in this new block together with incoming new transactions. Then, the updated ledger is distributed to everyone on the blockchain.
Miners aren’t doing this service for free. Blockchain records are encrypted using incredibly difficult hashing algorithms. The first miner to successfully secure the previous block gets compensated in bitcoins.
The Massive Fails
The Bitcoin world is full of stories about mind-blowing success and crushing failure. If you are going after a Lambo by investing in bitcoin, you should avoid repeating these mistakes.
Stories like James Howells’ are a real cautionary tale. Howells is a Welshman, who started dabbling in bitcoins in 2009 when it wasn’t worth anything.
Later, he threw away the computer with all the bitcoins and lost the data. It would have made him rich in 2017 when the price of bitcoins was going through the roof.
If you have anything to do with bitcoins on your hard drive—protect it. You can never know if it’s going to be worth a fortune in the future.
Various cryptocurrency exchanges involved in money laundering is one more danger.
There have been multiple instances of people losing fortunes because they kept their coin stash on disreputable websites. Your bitcoins could merely be stolen or the owners arrested and your coins confiscated by the authorities.
What Is Investing?
While this tutorial is about investing in bitcoin, you need to know the old school principles of the stock exchange as well.
What’s short-term investing in bitcoin?
In business jargon, short-term investment is an investment that’s expected to be held for less than 12 months.
A lot can happen in a year in traditional finance. Cryptocurrencies are even more volatile.
On January 1, 2017, a bitcoin cost $998, reached $19,666 towards the end of that year, and then fell to $5,920 soon after China’s bitcoin trading ban.
Short-term investing in bitcoin involves buying up bitcoins when their price reaches a low point and then holding on to it, waiting for the price to go up enough to fit your investment strategy.
When the price is high enough, you sell the bitcoins and pocket the profits. You use that money to buy more bitcoins or some other cryptocurrency to flip (sell) when the time is right.
Cryptocurrency trading can be an extremely profitable activity because the market is volatile. It means that the coin price changes are quick and significant.
It’s not all sunshine and Lambos. You have to know a lot about the cryptocurrency market. Also, you must follow every piece of crypto news religiously. You have to be able to predict how relevant news will affect bitcoin price.
What’s long-term investing in bitcoin?
Investing in bitcoin for the long term would be similar but also different.
You have to hold on to bitcoins for more than a year before you sell for it to count as a long-term bitcoin investment. However, you still need to follow the news to invest in bitcoin for the long-term. There’s no need to do it too much, at least after deciding on the question of “Should I invest in bitcoin?” in the first place.
When you invest in bitcoin for the long-term, you are only interested in the long term. Years and decades instead of hours and days.
After investing in bitcoins long-term, you don’t have to sit at your computer tracking the price. You won’t be selling anyway, so what’s the point?
HODL is a slang term and a meme, which means that you hold on to your bitcoin no matter what happens. As a long-term bitcoin investor, that is what you’re doing.
What’s the life of a bitcoin investor like? Is it for me?
While this section could look a bit out of place, it’s one of the most important in this tutorial. Investing in bitcoins may seem like fun, it may look like a great way to make money, it may even look sexy.
Investing in bitcoin is hard, it’s difficult, it’s risky. You could eventually buy yourself a pink Lambo if you do it right. You could crash and burn, losing everything if you’re not careful.
If you intend to invest in bitcoin for flipping purposes, get ready to sit at your computer for hours. You will track minute price changes and calculate if it’s a good idea to sell your bitcoin immediately.
Then, you will scour the Internet for every bit of news that could influence your decisions & will have to make correct and instant decisions with harsh consequences.
It is a hard thing to do.
To be great at it, knowing everything there’s to know about Bitcoin isn’t enough.
You also have to have a particular personality. When you start investing in bitcoin, you bet on an outcome favorable to you.
Great poker players would make good candidates to invest in bitcoin. If they had the necessary knowledge, that is.
Both activities require disregard for money. You need the ability to disconnect from the real-life monetary value of your decisions.
Betting $5,000 on an Inside Straight Draw on the turn (you are betting that you will get 1 of 4 cards, an 8 percent chance at that point in the hand) is similar to spending $5,000 on bitcoin while its price is dropping.
But that’s what bitcoin traders do every day. There is no room for hesitation, nerves or emotion. It’s a hard but extremely profitable life when done well.
Long-term investing in bitcoin can be much more relaxing if you decide to make it so. You are not interested in flipping bitcoin daily. You don’t have to sit at your computer all day.
That doesn’t mean that it’s not just as dangerous.
Once you decide that investing in bitcoin is something you’d like to do after days and weeks of careful research, take a sum of money you would not miss if lost, finish reading this article and buy some bitcoins. Do not lose your account details!
Never take out a loan to invest in bitcoin because that is a great way to ruin your life. A bitcoin investment is best made with the extra cash you can lose.
You should consider the money you used to buy bitcoin lost to you from that point on. At least for a year.
If you no longer consider the money you used to make a bitcoin investment yours, you will be less likely to obsess over bitcoin price fluctuations.
By doing this, you will be much less likely to panic-sell your stock when the price drops by 50% or something ridiculous like that. It’s just the bitcoin market. The thing’s volatile as… fudge.
Do check on how your investment’s doing once in a while, though. It might be a great idea to cash in the profit portion of your investment to protect yourself from losing everything you spent in case the market crashes.
So, take a hard look at yourself and ask, “Should I invest in bitcoin?”
Knowledge and Skill vs. Guts and Luck
You can make enormous amounts of money investing in bitcoin. Both the careful and the gutsy approach can get you there. Making your first million because of a daring move that turned out in your favor would make for a better story than working diligently for years.
We do not recommend chasing a quick money high. The cryptocurrency market is volatile by itself; there is no reason to add to the problem by making bold moves.
If you want to buy that Lambo by investing in bitcoin, start small. Settle on the sum you can lose, buy a small fraction of a bitcoin and sit on it for a while.
After you learn more, try flipping sums you won’t miss, see how the whole thing works.
When you have knowledge and skill, the time for guts and luck will come. The better you are, the better you will become.
I’m going for it! What do I do now?
Okay, let’s do this!
What do I need to start?
The first step to start investing in bitcoin is to have a place to store your loot.
Bitcoins are stored in wallets. There are several types of them:
The safest way to store your bitcoins is in a top of the line hardware wallet.
Hardware wallets are small devices the size of a thumb drive.
When bitcoins need to be transferred, they connect to the Internet but are generally offline, which means that they aren’t usually hackable. Ledger Nano S is a favorite example of a Hardware cryptocurrency wallet.
The problem with hardware wallets is that they can be stolen or lost. If you decide to go with this option, store it in the safest place you can find!
The most unhackable way to store bitcoins is the paper wallet. Ironic, isn’t it? Of course, the paper is very easy to lose, and it burns. On the other hand, it’s effortless to get; you just type out your private key, public address, and print it out.
The other two options rely on the security measures of third parties, which makes them more susceptible to hacking. They are much more convenient, though.
If you’re serious about security, and you should be if you want that Lambo, get a good hardware wallet and rest easier. Just keep it in a safe place!
Okay, you know where to keep your bitcoins. Now, it’s time to get some.
The easiest way to buy bitcoins is to use a trusted exchange website like coinbase.com or any other if it looks trustworthy to you. Make sure you research it properly, check feedback on Reddit, google the hell out of it. It’s always better to be to skeptic than getting scammed.
Keep in mind that most bitcoin exchanges do not support credit cards because of the chargeback function they have.
Exchange websites worry that you will issue a chargeback request after getting the bitcoins. It would be almost impossible to tell who’s lying in that situation. Blockchain records are designed to hide the real identities of the people making the transactions.
Once you buy the number of bitcoins you want (or 0.00014th of a bitcoin, that’s fine too, the smallest amount you can buy is 1 Satoshi or 0.00000001 bitcoin), transfer it to your wallet and forget about it for a while, unless you want to try flipping.
In that case, may Lady Luck smile upon you?
Lambo, Here I Come?
Okay, you know what you need to get started investing in bitcoin, but a question remains: how to invest in bitcoin overall?
First, you should go and check prices and up to date thoughts on bitcoin investments on the Internet. While this article is a good starting point to help you decide if you want to start investing, the crypto market changes quickly.
Then, you need to get a hardware wallet and open an account on an exchange that looks the best to you. After that, decide on how to invest in bitcoin – short or long term.
We strongly recommend to hold off from short-term investing for now, at least until you get more experience in the cryptocurrencies market.
If you agree that this is the best way to go for you, follow the bitcoin price changes for a while. Read and watch content about it. When you think that the time is right, buy some actual bitcoins.
Minimize risk as much as possible. Don’t go buying whole bitcoins unless you’re willing to lose the money and can genuinely spare it. Start small. See how it goes.
Now, you should know everything you need on how to invest in bitcoin. If you decide to go for it and hit the big time, don’t forget to drive your Lambo past our offices.