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What is Bitcoin and should you buy cryptocurrency?
A lot of investors are asking this very question as they keep hearing about Bitcoin.
So what is Bitcoin? Is Bitcoin a scam? Or is it a legitimate way to make money?
In this post, I will walk you through Bitcoin basics and answer some common questions.
I’ll also show you how you can buy and win Bitcoin if you decide it is worth your time and money.
Table of Contents
Bitcoin Basics | Your Complete Guide
What Is Bitcoin
Bitcoin began back in 2008 by a software developer as a peer-to-peer electronic payment system.
Instead of using paper currency like all nations do, Bitcoin is 100% digital currency.
- Related: Learn about KaratBank Coin and what makes it different
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This means there is no physical money, like a $20 dollar bill or a quarter, to hold.
The allure of Bitcoins is that they are free from central authority.
In the United States, we have the Federal Reserve overseeing the money supply.
With Bitcoins, you don’t have this authority.
It was pre-programmed that the total number of Bitcoins will never exceed 21,000,000.
Every year, fewer and fewer Bitcoins are released to the public.
By roughly 2040, no more Bitcoins will be produced.
The entire process of creating Bitcoins is very technical and I will not be going into the details in this post.
If you want to a deeper dive into the technical nature of it, click here.
What Can You Do With Bitcoin?
Now that you know what Bitcoin is, what can you do with the digital currency?
You can use them to buy things.
Back when the cryptocurrency first started, you were hard pressed to find places that accepted Bitcoin.
But today, more and more places accept Bitcoin.
And of course, if you are making a deal with another person, say at a yard sale for example, you could pay for the item in Bitcoin, assuming the seller is interested in accepting them.
Today, many people are simply speculating in the digital currency.
They are buying in the hope they can sell Bitcoin in the future for more than they are worth today.
The problem though is that some of these same people are putting all of their money into Bitcoin.
What they should be doing is investing in a more traditional way and investing in Bitcoin with money they can stand to lose.
The reason I say this is because Bitcoin is extremely risky to tie all your wealth into, as you will see as you read further through this post.
How To Get Bitcoins
There are various ways to invest in Bitcoins.
For starters, you can go online to a Bitcoin exchange.
This works just like a currency exchange does.
You hand over money and will receive virtual Bitcoins in your online wallet.
This isn’t the only way to invest in Bitcoin.
Here are a few more ways.
- Accept them for goods and services
- Find someone to trade with in a private transaction
- Mine for Bitcoins
- Invest in stocks and exchange traded funds
The biggest issue with accepting them for goods and services or trading with someone else is you have to do the math.
You need to figure out the current value of Bitcoin versus the US Dollar and do the math.
This is why when it comes to purchasing Bitcoin, I like to simply use and online exchange.
When it comes to Bitcoin mining, this involves solving mathematical equations and earning Bitcoins as a reward.
The good news is you manually don’t have to do the math to solve the equations.
You use your computer.
But these equations are fairly complex and as a result, “pools” have developed where multiple people join forces to solve the equations and then split the Bitcoins.
Understand that this means you need to have a powerful computer that is running day and night to mine Bitcoin.
Not only do you run up your electric bill doing this, but you need to spend the money on a high end computer as well.
And even while this sounds interesting, know that for the average person, this is not an ideal solution.
Finally there is the investment side of Bitcoin.
I get into this more in a later section, but you can invest in securities that are involved with the digital currency as well.
What Can I Use Bitcoins For?
You can use a Bitcoin for just about anything, assuming the buyer accepts them.
There have been stories of people buying illegal drugs with Bitcoins.
Because of this, many people think that Bitcoin is illegal when in fact it is perfectly legal to own Bitcoin.
But for the most part, people are saving Bitcoin in the hopes that it will increase in value in the coming years.
Should You Join In?
Before you jump into the Bitcoin craze, understand that the prices are extremely volatile.
At one point in 2011 they were trading at $1 BTC to $260 USD.
Then in September 2018, the price hit $8,000.
Four months later and it was valued at $15,000.
And before you think the price only goes up, since 2018 the price dropped down to $5,000 before slowly recovering.
As of this writing, the value of one Bitcoin is nearing $20,000.
I do give credit to the creator of Bitcoin as it clearly states on the site that Bitcoins should not be used for savings.
Because of the volatility of the cryptocurrency and the unregulated nature of it, you don’t want to have a large percent of your savings in Bitcoin.
Finally, as far as this being a scam, I do not buy into that idea.
You can buy and sell the digital currency and you can purchase goods and pay for services with it.
However, since it is unregulated, you have to take more safety measures than you would with currency that is recognized by a government.
How To Get Started With Bitcoin
If you decide you want to buy Bitcoin, you need to join an exchange.
This is completely free to join, but you do have to pay in order to buy Bitcoin.
You can use link your bank account to buy crypto, as well as your debit card.
Of course, need to pay attention to fees, as many companies will charge you fees when buying cryptocurrency.
The best exchange I have found is Coinbase.
They offer a free Bitcoin wallet to store your purchased Bitcoins in.
They also offer you access to other digital currencies as well, such as Bitcoin Cash and Ethereum.
Yes, there are other digital currencies out there too.
To open your free account with Coinbase, click the link below.
Of course in addition to buying Bitcoin, you can win the digital currency.
There are many games and apps that allow you to win fractions of Bitcoin.
I’ve tried many and most paid for a little while before going under.
The best one that I use is the app Free Bitcoin.
Now, before you think you are going to become a millionaire going this route, you need to push the brakes.
It is going to take a lot of work to earn just a half of one Bitcoin.
So don’t think this is a get rich quick scheme.
If you understand this and still want to play games to earn some fractions of a Bitcoin, then by all means, sign up.
Here is a little more detail about Free Bitcoin.
Every hour you tap on an icon to open a faucet to earn free bitcoin.
This is essentially spinning a wheel and getting a random number.
The odds have you typically win around 0.00000007 Bitcoin. If you get lucky however, you can win more.
But as you can see, it is going to take you time to really make money by using the raffle.
Luckily, there are other options with this app.
There is a lottery you can enter into to win more Bitcoin.
Alternatively, you can play a hi-lo game.
This is where the real money is at.
As you play this game, you can really make some Bitcoin.
But again, you aren’t getting rich overnight, though it is a simple way to earn free Bitcoin.
You can join this free app by clicking the link below.
Bitcoin Stocks To Own
Finally, if you don’t want to directly buy or own Bitcoin, you can passively invest in it through investments in the stock market.
But first a disclaimer.
There are no exchange traded funds out there that allow you to invest passively in Bitcoin.
So don’t waste your time searching for Bitcoin ETF.
The Securities and Exchange Commission hopes to one day approve of a Bitcoin ETF, but as of now, there are none.
Your best option is to invest in a handful of Bitcoin stocks.
Here are a few to look into.
Grayscale Bitcoin Trust (OTCMKTS: GBTC)
This is the closest investment vehicle you will get to an exchange traded fund to invest in Bitcoin.
The issue is that you need to be an accredited investor and have $50,000 to start investing in this open ended trust.
Marathon Patent (NASDAQ: MARA)
This company is a digital asset technology company.
In simpler terms, they mine cryptocurrencies.
You can invest in this company and as the value of the digital currencies they mine for increases in value, so too will the value of this company.
RIOT Blockchain (NASDAQ: RIOT)
RIOT is just like Marathon Patent, the only difference is that they focus solely on Bitcoin.
They do not mine for other cryptocurrencies.
They are in the process of upgrading all of their hardware so they can mine more and at a lower cost.
The Biggest Issue With Bitcoin
The biggest issue with Bitcoin is the fact that there is a finite supply of them.
If we reflect back on basic economics of supply and demand, we know that as supply decreases, demand increases.
This will apply exactly to Bitcoin.
As the years pass and less and less Bitcoins are produced, and eventually production stops, demand for them will increase.
Because of the increase in value, many people will choose to hold onto the coins instead of spending them.
This will lead to people hoarding the coins which will drive the price up even higher.
Then at one point, because the value is so high, no one new will enter into the system to buy Bitcoins.
The holders won’t spend them because of their value. The result is deflation or a crash of the entire system.
Of course, this is all in theory.
But it could play out.
Or the complete opposite could happen and it becomes a widely accepted form of currency.
It’s just that no one knows what is going to happen in the future.
For example, many people think Bitcoin is a scam and the bubble is about to burst.
But think about this.
Around 11% of Americans are involved with Bitcoin at the moment. There are 300 billion people on the planet.
So while the price looks high now, it could be a fraction of the value in 10 years assuming more people begin to use it a viable currency.
Frequently Asked Questions
I get asked a lot of questions about Bitcoin.
Here is a quick FAQ section that covers the most common questions.
This section is great if you are short on time as well.
Is Bitcoin legitimate?
Bitcoin is legit.
And Bitcoin is legal.
Many people think that it isn’t legal because they’ve heard stories of people using Bitcoin to pay for illegal things, like drugs.
While this does happen, it does not make Bitcoin illegal.
Anyone can invest in Bitcoin. Just make sure you purchase them from a trusted exchange.
Are Bitcoins real?
While it is not physical currency, Bitcoin is real.
Think of it like using your credit card or debit card to make purchases.
There is no physical money that exchanges hands, but it is understood that swiping your credit card pays for goods or services.
Many more places are starting to accept Bitcoin for payment and many more will start as time passes.
Is Bitcoin a stock?
Bitcoin is not a stock.
It is a digital currency.
You cannot invest in Bitcoin directly on the stock market, but you can invest in businesses that work with Bitcoin.
Should I buy Bitcoin?
This is a personal decision based on your financial goals.
It is not right for everyone, but could be a smart way to diversify your investments.
Just understand that the price of Bitcoin is volatile and can swing by thousands of dollars in as little as a few days.
Is Bitcoin a good investment?
Again, this depends on your personal financial goals.
Over the long term, it could be a good investment, but like all investments, nothing is guaranteed.
As a result, I recommend you invest in Bitcoin and other cryptocurrency with money you can afford to lose, and not make it part of your retirement planning.
What is a Bitcoin worth?
The price of a Bitcoin changes all the time.
The easiest way to find the current price of Bitcoin is to do a search for Bitcoin Liquid Index.
This will show you the current value of one Bitcoin in US Dollars.
Can you buy part of a Bitcoin?
Most exchanges allow you to make transactions in fractions of Bitcoin.
So if the value of one is $1,000 and you invest $100, you will own 10% of a Bitcoin.
In fact, I recommend you dollar cost average Bitcoin.
This means you buy a set amount every month. This can be as little as $25 a month.
What is the best way to buy Bitcoin?
There are a lot of exchanges to buy Bitcoin.
But my favorite is Coinbase.
They take security seriously and require two factor authentication when you log in and make you register your computer.
This means if you, or someone else, tries to log into your account from another computer, you need to confirm it before access is granted to your account.
They also make it easy to buy Bitcoin and other cryptocurrencies on an automatic investment plan.
You can open a free account by clicking the link below.
Can I buy Bitcoins with credit card?
Yes.
Many exchanges allow you to buy Bitcoin with a credit card.
However, some limit or do not accept credit cards to buy.
Before you sign up with any exchange, make sure the one you select accepts credit cards if that is how you plan to buy.
Where do you store Bitcoin?
Most exchanges where you buy Bitcoin offer a wallet for you to safely store your cryptocurrency in.
But there are a lot of other Bitcoin wallets out there as well.
Each has its own pros and cons, so make sure you do a detailed comparison as you are storing money with these companies.
What is the best Bitcoin investment strategy?
The strategy I use and recommend is dollar cost averaging.
Figure out how much money you have that you would be OK with losing every month.
Then invest this amount to buy Bitcoin.
For me, it’s $25. I am OK with investing this amount every month.
To me, if Bitcoin increases in value, I have a nice little windfall to use.
But it if crashes and the price drops to zero, I am OK with the lost money.
Wrapping Up
Bitcoins are an interesting concept in the electronic payment system world.
Up until now, no real alternative currency has taken root, simply because of the barriers of entry and the regulations.
Where will Bitcoin be and what value will it have in the future?
No one has any idea.
It could end up being the next big thing, a complete dud, or something in between.
If I had to put my money on it, I would say it will be something in between.
I think it will become more mainstream and have a steady value.
As a result, I am buying Bitcoin in very small amounts every month.
While I don’t plan to be a Bitcoin millionaire, I’d like to have some skin in the game, as I think it does have a future.
I’m really enjoying seeing the Bitcoin community spring up and more information being published. I think it is important that people are educated about crypto-currencies. As much as we see the headlines online (and occasionally on the news) there are a lot of people totally oblivious to Bitcoin.
I’d say it’s on each of us to help spread the word. You’re doing your part. Thank you for a great article!