Things You Should Know Before Buying Bitcoin
If you’re just getting into Bitcoin, there are a few things you should know before you invest. It’s important with any investment that you do some research and try and understand as much as you can about it.
Bitcoin is a platform of trust. It allows people to send value to each other without the need for any third party. The bitcoins never actually leave the blockchain, which is the underlying technology, but you can ‘kind of’ store them in a wallet.
Because Bitcoin is open source anybody can basically copy paste the program, and create their own version of Bitcoin. This has been done a few times, and some of them have called their coin: Bitcoin ‘Something’.
So, it’s important to note, that these are not Bitcoin. If ever you want to buy Bitcoin, make sure you buy the BTC, and never leave your BTC on the exchange you buy it from.
A Hardware Wallet is The Best Way To Secure Your Bitcoin
As with everyday life, most people keep their money in a wallet or a purse. Well, Bitcoin is kind of no different. I say kind of, because as I said, bitcoins never actually leave the blockchain.
However, people say store bitcoin in a wallet for safety, etcetera. What they actually mean is get a secure platform that will interface your private and public Bitcoin address to your computer.
There are hardware and software wallets, and personally I prefer to use hardware wallets. Software wallets are free to download and are quite safe, but they are more susceptible to phishing and hacking attempts. Hardware wallets, never actually connect to the Internet and all your transactions are done offline.
A Bitcoin hardware wallet, such as a Trezor, will handle all the private keys for you, and you will be given a back seed phrase. This is basically the master key. You should write this down and keep it safe in at least two or three different locations.
Bitcoin Price is Volatile
The price of a BTC is volatile. It’s not uncommon for BTC to rise or fall 10-15% in a day, and 5% swings are very normal.
The market cap is tiny for an asset class, and this is what makes the price so volatile. Therefore, if you can’t stomach what seems like big swings, especially compared with bonds and stocks, then maybe you’re better off only investing a little.
Like any investment, don’t invest more than you can afford to lose. I’m not saying I think you will lose it, but if you invest your life savings, and you see a decent sized crash of say -15%, it might keep you up at night.
Bitcoin is a new asset class and it should be treated as a high-risk asset. That said, it is the best performing asset over the last decade, and many people are confident in its continued growth, but still: never invest more than you’re willing to lose.
Bitcoin Is Not Anonymous
Many people believe Bitcoin is a great way for criminals to send money to each other. ‘It’s anonymous and great for buying illegal stuff on the darkweb’ etcetera. Well, nothing could be further from the truth.
Bitcoin is an open ledger, and anybody can go on there and look for any transaction activity. All addresses are made up of a string of numbers and letters, and each one is individual. There are no names to any account, and this ensures privacy.
However, the identity behind any address can be revealed when that same address makes a purchase and uses his/her name.
Many criminals have fallen foul to this belief, including an FBI Agent working on a Bitcoin money laundering case, in which he stole many BTC from. Of course, he is now in prison for his own stupidity.
Bitcoin Payments are Irreversible
Unlike fiat currency, a Bitcoin transaction cannot be reversed. Once it has been sent and verified, it cannot be reversed.
It’s imperative, therefore, that you triple check the address you’re sending it to. If you send it to the wrong address, then somebody who you likely don’t know will be getting the BTC you sent.
The Bitcoin protocol can detect typos and usually won’t let you send BTC to an invalid address by mistake, but it’s always good practice to triple check the address, that you’re sending BTC to a BTC address. It’s not difficult to get used to sending BTC, but it is very easy to make a mistake so always be careful.
Bitcoin is Programmable Money
Programmable Money is one of Bitcoin’s most exciting use cases. For money to fulfill its functions, it needs to be durable, portable, divisible, uniform/fungible, resistant to forgery, and widely accepted.
Bitcoin fullfills all of this, and unlike fiat currency, other programs can be built on top of it. It is slow at the moment, but Lightning Network is being built on top, which will ease up transaction space and bring down the cost of making a BTC down incredibly.
Industries will be able to be built on Bitcoin and because the money application of Bitcoin is so secure, value transactions will be executed at incredible speeds, minimal costs and no need for any verification. It will transform industries.
Btcoin is an exciting innovation. It’s decentralized, it’s trustless and it allows people to send value to each other without permission of any third party.
However, it’s also completely different from standard money. It is critical to understand that if you make a mistake while sending, you might lose your BTC forever.
It’s also important to note that it is not anonymous, and is probably the worst thing for criminals to use, but at the same time is the best thing for industries.
Bitcoin is going to disrupt so many industries, and they will have to evolve. Remember what the Internet did to newspapers and post offices etc. Well Bitcoin will do the same to industries that leave it too late.
But if you are interested in it, remember that the price has much more volatile swings than compared with stocks, and also unlike stocks, you will custody BTC yourself, so make sure you buy a good secure hardware wallet.
Author: Tommy Limpitlaw