What Is Bitcoin?
Bitcoin (BTC) is a cryptocurrency, or virtual currency, that is not controlled by any one individual, organization, or group. It is intended to function as money and a mode of payment, eliminating the requirement that financial transactions involve a reliable third party, such as a bank or mint.
Under the alias Satoshi Nakamoto, a mysterious developer or group of developers unveiled Bitcoin in 2009. Since then, it has become the biggest and most well-known cryptocurrency worldwide. Numerous additional cryptocurrencies have been developed as a result of their popularity.
How to Buy Bitcoin
Step 1: Select a Crypto Trading Platform or Service
Because they provide a wide range of functions and additional cryptocurrencies for trade, exchanges are a practical choice. Additionally, exchanges let consumers move cryptocurrency to their online wallets for storage and let investors buy, sell, and retain cryptocurrency.
Although there are several cryptocurrency exchanges, they can be divided into two categories: decentralized and centralized. Decentralized exchanges typically don't need personal information and let users stay pseudo-anonymous. Decentralized exchanges provide access to the global economy for some groups, such as refugees or those residing in nations with minimal or nonexistent banking or credit infrastructure.
Step 2: Attach a Payment Option to Your Exchange
You may be asked to provide personal identification, such as a photo of your driver's license or Social Security card, along with details about your employer and financial source, depending on the transaction. Setting up a standard brokerage account is much the same procedure.
You can link your bank account to a debit or credit card or straight to your bank account at the majority of centralized exchanges. Even though you can buy cryptocurrency using a credit card, the volatility of cryptocurrency prices mixed with the interest charges on a credit card could make the total cost of buying a token excessive. Although Bitcoin is legal in the United States, many banks may refuse deposits to cryptocurrency-related websites or exchanges without a customer's knowledge.
Deposits made with a bank account, debit card, or credit card incur different costs, and exchanges impose fees for each transaction.
Step 3: Place an Order
Exchanges for cryptocurrencies have developed to currently resemble their traditional brokerage equivalents in terms of functionalities. Crypto exchanges provide a variety of order types and trading and investment options. Market and limit orders are available on almost all cryptocurrency exchanges, and some additionally offer stop-loss orders.
Market, limit, stop-loss, stop-limit, take-profit, and take-profit limit orders are among the order types that Kraken offers the most.
Step 4: Safe Storage
Digital asset keys are kept in cryptocurrency wallets. Users are guaranteed ownership over their crypto keys when they are stored in a cold wallet, which is separate from an exchange. Although using the wallets provided by exchanges is permitted, it is not advised for long-term or substantial bitcoin holdings.
Bitcoin Safety
There have been around a dozen cryptocurrency exchange breaches since 2010. Hundreds of millions of dollars are lost. However, at the same period, traditional banking and financial institutions have lost billions of dollars to cybercriminals. Cryptocurrency communities and programmers are putting a lot of effort into locating and fixing the weaknesses in their blockchain networks. The job of sovereign central banks may actually be overshadowed by advanced computer algorithms if Bitcoin is accepted by actual merchants.
Before accessing bank data and doing transactions, Bitcoin investors should personally have adequate internet security in place.
Risks of Investing in Bitcoin
The following are some hazards associated with trading or investing in bitcoin:
1. Regulatory risk:
Longevity and liquidity are unknown because of the ongoing conflict between regulators and cryptocurrency-related initiatives. Authorities do not currently view Bitcoin as a security as of May 2024, but this could change in the future.
2. Security risk
The majority of Bitcoin users and owners did not obtain their coins through mining activities. Instead, people use well-known cryptocurrency exchanges to acquire and sell Bitcoin and other digital currencies. Because they are completely digital, these transactions are vulnerable to viruses, hackers, and technical issues.
3. Insurance risk:
The Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC) do not provide insurance for Bitcoin or other cryptocurrencies. Nonetheless, some exchanges use third companies to offer insurance. Gemini and Coinbase, for example, provide bitcoin insurance, but only in the event of system malfunctions or cybersecurity attacks. You may be qualified for "pass-through" FDIC coverage for any cash deposits you have made at either exchange.
4. Market risk:
Bitcoin values are subject to change, just like any other investment. In fact, over its brief history, the value of the money has fluctuated wildly. It is extremely sensitive to any noteworthy occurrences and is subject to huge volume buying and selling on exchanges.
The Value of Bitcoin
The allocated trade value of one Bitcoin was close to $5,000 at the end of August 2017. At the time, gold was worth roughly $1,300, but this was significantly more than that. However, the value of Bitcoin fell to roughly $3,000 within two weeks of the digital currency's high watermark. Anyone who put real money into Bitcoin in the middle of August and didn't exit the market before the price collapse lost around 40% of their money.
Like the acclaimed stock markets of Wall Street, London, and Japan, the Bitcoin community has established itself as a standard in its own right due to its position as the most widely used digital currency globally. As a result, Bitcoin's value declined along with other digital currency marketplaces. In the case of Bitcoin's sharp decline in value at the end of August 2017, this happened because other cryptocurrencies that had grown at an alarming rate in China during 2017 lost the backing of the Chinese government.
The rise of massive and intricate pyramid schemes centered on cryptocurrency exchanges with their own digital tokens that resembled Bitcoin alarmed the Chinese government. The government consequently mandated that exchanges such as Huobi, OKcoin, and BTCC shut down by the end of September 2017. Global cryptocurrency exchanges were rocked by this decree, and the resulting panic caused Bitcoin to plummet in value.
It seems unlikely that Bitcoin will soon become a global currency standard because it has been demonstrated to be more volatile than both the gold standard and other currencies.
The Bottom Line
Originally designed to be used as a payment method outside of legal cash, Bitcoin was the first cryptocurrency to be made available to the general public. Since its launch in 2009, bitcoin's use on the blockchain has grown, as has its popularity.
Investing in Bitcoin is easier than creating it, despite the latter's complexity. Bitcoin can be bought and sold on cryptocurrency exchanges by investors and speculators. As with any investment, investors should carefully assess if Bitcoin is the correct investment for them, especially one as young and volatile as Bitcoin.