Bitcoin has become a hot topic in investment circles as the coin surges to over $5,000 in value per coin. This amazing growth has led to tremendous interest in this new digital asset. The value has risen from a few cents five years ago to thousands of dollars today. It is used to pay bills, government fees, online goods and other products. However, it is primarily being used as a store of value at this point (similar digital gold bars). For those that are interested in getting in on this growing movement, there are a few ways to invest in Bitcoins.
Bitcoin was born in 2009 when the initial code was released to the world. The creator or creators goes by the pseudonym Satoshi Nakamoto. However, no person has claimed to be the original creator. This mystery adds to the risk around investing in the coin. At this point, a majority of the coins are still held by a close network of anonymous people or institutions that were part of the founding.
Bitcoins utilized a revolutionary technology of the blockchain to form a new form of exchange. The blockchain is a so-called digital ledger that automatically records and stores every transaction in online. This ledger allows the exchange of value between two unrelated parties (or strangers) using a digital “key” that represents each party.
The upshot is that the transactions are 100% transparent and reliable. A bitcoin cannot be fraudulently transacted unless the seller is providing an incorrect key. However, the transactions are 100% secure based on this new cryptographic technology.
Based on this idea, Bitcoin was born as a secure mode of exchange. The primary benefits are that the rules and regulations of the currency are completely transparent and based on math.
Bitcoins are a peer to peer means of trading currency that are not based on any government or authority. They are completely controlled by the network rather than any one individual. The maximum number of Bitcoins will be 21 million which will be in 2033. The coins are created in predictable way over time. No government can print a billion new Bitcoins the way they do in their home currencies. This means that the value will tend to go up rather than down as the Dollar, Yen, Euro, Yuan and other currencies do over time from inflation. Some analysts are predicting the coins will grow in value from $5,000 today to $100,000 in a few years time based on these principles.
The first way to invest in Bitcoins is to create them or “mine” these goods. This is the far more complex way to invest in the digital currency but it may also be the most profitable way to do so. In the original code to create bitcoin, Satoshi Nakamoto allowed for new bitcoins to be released to the world over standard interval periods.
The way to obtain these coins is through a complex process of exploring trillions of possible combinations with powerful computers. The computers determine the algorithm by trial and error. They require a tremendous amount of power and technical knowledge.
The key to mining is to acquire the server space and power by investing considerable funds. Then apply a program available freely at the Bitcoin network online to mine the coins. Over time, with enough effort you will generate these coins. Current minors need to invest a couple thousand dollars of energy and computing power per Bitcoin they mine, however these coins are worth over $5,000 so it is a profitable investment currently.
Investing Through Trading Accounts
However, the vast majority of people actually invest in trading accounts similar to stock brokerage accounts. These are held at credible and less than credible exchanges. These exchanges may focus exclusively on Bitcoin or they may also offer other major currencies such as Ethereum and Ripple. Some exchanges provide access to thousands of so-called Initial Coin Offerings (ICOs) as well which have lesser quality and volume than Bitcoins.
Picking an exchange is crucial. In the past, there have been a number of breeches and failures of exchanges. For example, Mt. Gox was one of the largest Bitcoin exchanges in 2013. This Japan based firm monitored 70% of all Bitcoin transactions. However, the firm hit rough times and declared bankruptcy in 2014. The CEO was eventually arrested for embezzlement when over $300 million of Bitcoin disappeared.
Some of the top Bitcoin exchanges in the US include Bitfinex, Coinbase and BTC-e. However, each investor should do their own research. These are well monitored and currently have significant volume of Bitcoin each day.
Sign up for these accounts and go through a standard know your customer (KYC) check. After that, you will be provided an account number and instructions to upload funds. You can generally wire the funds, use a credit card or money order. After payment, the funds will be credited to your account.
At this point, simply buy Bitcoins at the market price using the navigation tools on the brokerage site. Each site has enough volume that if you place a market order to buy 1 Bitcoin it will be filled within a few seconds. Buying a larger quantity of Bitcoins may take a longer time to fill.
After you fill an order you may want to transfer your Bitcoin to a Bitcoin wallet. These are special sites, like FileCoin, they specialize in 100% secure storage of Bitcoin. Sign-up for a Bitcoin wallet account and then simply use the navigation features in your brokerage account to make the transfer. Once that is completed, you will have all your Bitcoin in one secure location. Now that your Bitcoin are purchase and secured, you can wait until the optimal time based on your beliefs in the currency to sell.