In the past years, Bitcoin has garnered a lot of popularity among investors. During that same time, debate has ensued about Bitcoin and other cryptocurrencies with discussions revolving around its viability as an investment option. The digital currency’s supporters argue that it is the future of currency and investing while its critics argue that it is a risky investment option that does not guarantee substantial returns.
Understanding the dynamics of Bitcoin price and its impact on the market is therefore crucial for investors seeking to navigate this evolving landscape. To better understand Bitcoin’s value in the market, it is important that you start with the basics. So if you are a novice looking to start investing in Bitcoin, this guide is for you.
What Is Bitcoin?
Bitcoin is a form of digital currency that aims to eliminate the need for centralized figures like governments or banks. Instead, it makes use of blockchain technology to support peer-to-peer transactions between users on a decentralized network. The digital currency made its debut in 2009 and has ever since remained the most valuable cryptocurrency.
How Does Bitcoin Work?
Each Bitcoin is a digital asset that you can store in a cryptocurrency exchange or digital wallet. Every coin is a representation of the value of Bitcoin’s current price, but it is also possible to own partial shares of each coin. A Bitcoin’s smallest denomination is called a Satoshi (it shares the name of Bitcoin’s creator), and it is equivalent to a hundred millionth of one Bitcoin, so owning partial shares of Bitcoin is a common occurrence. Here are some terms you will come across:
- Blockchain: This is the technology behind Bitcoin. It is an open-source code that creates a shared history of transactions grouped into ‘blocks’ that are ‘chained’ together to avoid tampering. Its aim is to create a permanent record of every transaction, making alterations almost impossible.
- Private and Public Keys: A Bitcoin wallet has both a private and public key that works in unison to allow the owner to initiate and sign transactions digitally. This ensures that Bitcoin transactions are secure.
- Bitcoin Mining: Bitcoin network users verify transactions via a process called mining. The process ensures that there is consistency between new transactions and the preceding ones.
How to Use Bitcoin
Upon purchasing Bitcoin, you can use the currency in online transactions in places they are accepted. Like cash currency, it is normal for the value of Bitcoin to fluctuate. This is the reason investors are excited whenever there is a surge in the market. Today, more people are developing an interest in the digital currency and this growing interest directly translates into more value for Bitcoin.
What You Need to Invest in Bitcoin
All you need to invest in Bitcoin is your personal identification documents, bank account information, and a secure and reliable internet connection. Worth remembering is the fact that if you intend to buy your coins through a stockbroker, there will not be the need to give out your financial or personal information as your stockbroker will have them on record.
How to Start Investing in Bitcoin
Ready to embark on your journey of financial freedom courtesy of Bitcoin?
The first thing you need to do is join a Bitcoin exchange. Exchanges are the intermediaries of cryptocurrency investment, and some popular options include Binance, Coinbase, and Kraken. Next, get a Bitcoin wallet which is where you will be storing your crypto. When it comes to wallets, there are two options to select from: cold or hot wallets. The former is an actual piece of hardware and the safest storage option for your coins, while the latter is a software-based digital wallet connected to the internet that typically comes in the form of an app.
The third step is linking your wallet to a bank account. Doing so enables you to buy and sell coins conveniently. With your bank account all set, it is now time to place your Bitcoin order. This is where you ask yourself how much Bitcoin you are willing to buy. While some coins cost thousands of dollars, exchanges allow initial investments of as low as $10. One thing to remember here is that Bitcoin investments are risky, so it is crucial that you carefully determine your risk tolerance and go over your investment strategy before proceeding. Finally, after purchasing Bitcoin, you can opt to use the coins for online transactions or hold them for some time so that they appreciate. Alternatively, you can choose to use them to perform day trading.