Things You Should Know Before Buying Bitcoin
Bitcoin is a technical subject if you try to understand the inner workings of it. And because its a network of value, there’s a few things you should know before buying Bitcoin.
Most people don’t understand the backend of the Internet, but everyone uses it. Whether its for YouTube, Twitter or online banking, people of all generations use the Internet, and don’t even think about how it works.
Bitcoin is different. Bitcoin is value. And Bitcoin is intriguing, and there are things you should know about it before you buy it. After all, you never got the opportunity to invest in the Internet.
So, before you buy BTC, like any investment, you should do some research and try and understand as much as you can about it.
A Few Basic Things You Should Know About Bitcoin
One of the fundamental things you should know about Bitcoin is that it’s a platform of trust. It allows people to send value to each other without the need for any third party.
Everything about Bitcoin is decentralized. That means the protocol is downloaded on thousands of nodes, and probably over a million mining devices.
The miners and nodes are the ones that control the network and verify transactions. They are basically computers that hash all transactions onto the latest block. And they all have to be in agreement that every new block is ok for it to be added to the blockchain.
The miners are paid for their work with the Bitcoin block reward, which is 6.25every block. This is paid out to the mining device that works out the difficult cryptography the Bitcoin protocol asks of it.
The bitcoins you buy or send never actually leave the blockchain, which is the underlying technology, but you can ‘kind of’ store them in a wallet. I’ll discuss these in greater detail further down.
The Bitcoin you own are all tied to a private key, which is as it says: PRIVATE. Don’t let anyone else know this private key as it’s basically the keys to your Bitcoin safe. Each private key generates public keys which are what you use to give someone wanting to send you some Bitcoin.
Bitcoin is open-source, which means 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 BTC.
A Few Things You Should Know About Bitcoin
A Secure Hardware Wallet Is The Best Way To Store 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 secure hardware wallets. Software wallets are free to download and are relatively safe, but they are more susceptible to phishing and hacking attempts.
Secure hardware wallets are much safer as they never actually connect to the Internet, and all your transactions are done offline.
A Bitcoin hardware wallet, such as a Trezor or the Ledger (see image above), will handle all the private keys for you, and you will instead be given a seed phrase. This is used as back up if you forget your PIN number or lose your hardware wallet.
So won’t I lose my Bitcoin if I lose my hardware wallet? I hear you ask. The answer to that is no, because remember, the Bitcoin never really leaves the blockchain.
If you do lose your hardware wallet, or it’s damaged simply get a new one, type in your seed phrase from your previous wallet, and your Bitcoin will show up.
Your seed phrase is basically the master key. You should write this down and keep it safe in at least two or three different locations. And make sure only somebody you really trust knows about it.
For full reviews of the best secure hardware wallets, check out these article…
Other Things You Should Know About Bitcon
Bitcoin Price is Volatile
One of the main things you should know about Bitcoin is he Bitcoin price is volatile. Or at least it can.
It’s not uncommon for BTC to rise or fall 10-15% in a day, and 5% swings are very normal. That said, this last few months the Bitcoin price has been less volatile than the Nasdaq. But that isn’t normal.
The market cap is tiny for an asset class, and this is what makes the Bitcoin price so volatile. Therefore, if you can’t stomach what seems like big swings, especially compared with traditional markets, 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%, you might not get to sleep that 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
One of the things people should know about Bitcoin is that it isn’t an anonymous way of sending value.
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 of this belief, including an FBI Agent working on the Silk Road Bitcoin money laundering case. The agent stole some Bitcoin and was duly caught and is now serving time in prison.
Bitcoin is not the ideal money for criminals and terrorists, cash is.
Bitcoin Payments are Irreversible
A very important thing you should know is that once a Bitcoin transaction has been made and is confirmed, it’s irreversible.
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 receive your Bitcoin and they’ll likely never be returned.
The Bitcoin protocol can detect typos and usually won’t let you send BTC to an invalid address by mistake. That said, it’s always good practice to triple check the address, and 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 fulfills all of this, and unlike fiat currency, other programs can be built on top of it.
Bitcoin is slow for now and isn’t exactly a peer-to-peer money yet. But layer two programs like Lightning Network are being built on Bitcoin.
Programs like Lightning Network will ease up space on the Bitcoin blockchain, and make it possible to send BTC in milliseconds and at a fraction of a penny.
Because of Bitcoin’s decentralized, trustless features built into a platform of value creates so many possibilities of innovation.
What will be built on Bitcoin as the protocol evolves is beyond our scope of imagination, but it’s expected to be the seed of so much innovation going forward.
Things You Should Know: Bitcoin is The Future
Btcoin is an exciting innovation. It’s decentralized, it’s trustless and it allows people to send value to each other without permission from any third party.
However, it’s also completely different from standard money. It is imperative to understand that if you make a mistake while sending, you might lose your BTC forever.
You should also know that Bitcoin is not anonymous, and is probably the worst thing for criminals to use.
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 Bitcoin price is usually far more volatile than traditional markets. But this is normal for new technologies, and shows that you are early to the Bitcoin space.
A Bitcoiner since 2017 and a Bitcoin Maximalist since 2018, Tommy is our main writer and editor at Bitcoin Maximalist. Other than researching and writing about Bitcoin, Tommy loves spending time with his family and supporting his beloved Leeds United.