As the world becomes more reliant on the internet, it is no surprise that Bitcoin, a secure, digital, currency, has claimed the interest of investors. Bitcoin is open to everyone and provides an exciting opportunity to delve into an entirely new asset class. Investing in bitcoin may seem scary, but know that it takes time and effort to understand how Bitcoin works.
In this guide we’re going to explain the basics of investing in bitcoin and why it needs to be taken seriously. We’ll also explain how to protect and properly secure your bitcoins if you do decide to invest.
Note: Bitcoin with a capital “B” references Bitcoin the network or Bitcoin the payment system; bitcoin with a lowercase “b” references bitcoin as a currency or bitcoin the currency unit.
It seems silly to some people that one bitcoin can be worth hundreds of dollars. What makes bitcoins valuable? Bitcoins are scarce and useful.
Let’s look to gold as an example currency. There is a limited amount of gold on earth. As new gold is mined, there is always less and less gold left and it becomes harder and more expensive to find and mine. The same is true with Bitcoin. There are only 21 million Bitcoin, and as time goes on, they become harder and harder to mine. Take a look at Bitcoin’s inflation rate and supply rate:
In addition to being scarce, bitcoins are useful. Bitcoin provides sound and predictable monetary policy that can be verified by anyone. Bitcoin’s sound monetary policy is one of its most important features. It’s possible to see when new bitcoins are created or how many bitcoins are in circulation. Bitcoins can be sent from anywhere in the world to anywhere else in the world. No bank can block payments or close your account. Bitcoin is censorship resistant money. Bitcoin makes cross border payments possible, and also provides an easy way for people to escape failed government monetary policy.
The internet made information global and easy to access. A sound, global currency like Bitcoin will have the same impact on finance and the global economy. If you understand the potential impact of Bitcoin, it won’t be hard to hard to understand why investing in bitcoin may be a good idea.
There is no official Bitcoin price. Bitcoin’s price is set by whatever people are willing to pay. CoinDesk’s price index is a good resource.
Bitcoin’s price is generally shown as the cost of one bitcoin. However, exchanges will let you buy any amount, and you can buy less than one bitcoin. Below is a chart showing Bitcoin’s entire price history:
As with any market, nothing is for sure. Throughout its history, Bitcoin has generally increased in value at a very fast pace, followed by a slow, steady downfall until it stabilizes. Use tools like Bitcoin Wisdom or Cryptowatch to analyze charts and understand Bitcoin’s price history.
Bitcoin is global and not affected by any single country’s financial situation or stability. For example, speculation about the Chinese Yuan devaluating has, in the past, caused more demand from China, which also pulled up the exchange rate on U.S. and Europe based exchanges.
Global chaos is generally seen as beneficial to Bitcoin’s price since Bitcoin is apolitical and sits outside the control or influence of any particulate government. When thinking about how economics and politics will affect Bitcoin’s price, it’s important to think on a global scale and not just about what’s happening in a single country.
The difficulty of buying bitcoins depends on your country. Developed countries have more options and more liquidity.
Coinbase is the world’s largest bitcoin broker and available in the United States, Canada, Singapore, and most of Europe. You can use our country index or our exchange finder tool to find a place to buy bitcoins in your country.
As with anything valuable, hackers, thieves, and scammers will all be after your bitcoins, so securing your bitcoins is necessary. If you’re serious about investing in bitcoin and see yourself buying a significant amount, we recommend using Bitcoin wallets that were built with security in mind.
Bitcoins should only be kept in wallets that you control. If you leave $5,000 worth of gold coins with a friend, your friend could easily run off with your coins and you might not see them again. Because Bitcoin is on the internet, they are even easier to steal and much harder to return and trace. Bitcoin itself is secure, but bitcoins are only as secure as the wallet storing them. Investing in bitcoin is no joke, and securing your investment should be your top priority.
The Bitcoin mining industry has grown at a rapid pace. Mining, which could once be done on the average home computer, is now only done profitably in specialized data centers. These datacenters are warehouses, filled with computers built for the sole purpose of mining Bitcoin. Today, it costs millions of dollars to even start a profitable mining operation.
Bitcoin miners are no longer a profitable investment for new Bitcoin users. If you want a small miner to play around with the network, go for it. But don’t treat your home mining operation as an investment or expect to get a return.
It’s important to understand how Bitcoin works before investing any money. Bitcoin is still new and it can take months to understand the true impact Bitcoin can have on the world. Take some time to understand Bitcoin, how it works, how to secure bitcoins, and about how Bitcoin differs from fiat money. Use our knowledge base to learn more.