Things you should know before investing in bitcoins
The year 2017 has seen bitcoin price chart in an upward direction with no signs of slowing down. Within a year, bitcoin prices have surged to almost SGD 20,000. The increasing price and the profits that it may allow investors to reap have attracted the attention of investment enthusiasts from across the world. But, it has also generated warnings from various regulatory authorities. As a result, one question arises – Should I invest in bitcoins?
For those who are new to bitcoins, bitcoin is a digital currency. Bitcoin is traded using blockchain technology. There’s no doubt that the cryptocurrency has been gaining wide fame. But, the decision of whether or not to invest in bitcoins needs careful consideration. While it is a currency, the mechanism behind bitcoin is different than that of paper currency.
If bitcoin has been on your mind recently, don’t just make an impulsive decision to invest in bitcoins. Read on these essential things about the cryptocurrency to make an informed choice.
Bitcoin is a decentralised currency
You must have heard that bitcoin is not controlled by any governmental authority. This is because the currency is based on a decentralised technology called blockchain. As the name suggests, blockchain is a technology signified by a chain of information blocks. Whenever you transact using bitcoins, blocks get added to the chain of events. It is like an open ledger that keeps re-updating itself as and when bitcoin transactions are carried out. The ledger can be accessed by anyone from anywhere and is not regulated by any authority.
You can invest in bitcoins through exchanges
Now, investing in bitcoin is not quite equivalent to day trading and buying company stocks. The most common form of investing in bitcoin is buying the currency and holding it in the hope that its value will appreciate. And, how do you buy bitcoins? You can buy bitcoins through decentralised bitcoin exchanges. Singapore has various exchanges that facilitate buying and selling of bitcoins. Some of them are Coinbase, CoinHako, and Luno. You can buy bitcoins through these exchanges using your cards or through bank transfer. If you are a beginner, make sure you only invest the amount you are ready to lose.
It is vital to secure your bitcoins
Bitcoin is based on technology and technology is prone to the risks of hacking. Once bitcoins are bought, they are stored in online wallets offered by exchanges. Although there is nothing wrong with leaving your bitcoins with reputed exchanges, it is still prone to the risk of hacking. Picture a scenario where you have stock up bitcoins worth thousands of dollars and the online wallet where you stored them got hacked. To avoid such disastrous situations, it is imperative that you move them into your personal wallet. Using hardware and paper wallets are highly recommend for a safe bitcoin investment experience.
Learn about trading in bitcoin
Trading in bitcoin essentially means that you are actively buying bitcoins at low prices and selling them at high prices. Bitcoin trading is similar to trading in the stock markets. However, since the mechanisms are different, you need to have thorough knowledge before trading this currency. One of the best ways to invest or trade in bitcoins is by using the dollar cost averaging method. By implementing this strategy, you invest small, fixed amount of money at time intervals to evade the risks of price shifts. It is recommended you understand bitcoins well before trading in them.
Bitcoins are mined
Have you ever wondered from where do bitcoins come? Like our paper currency is printed by the regulatory authority, bitcoins are mined. Bitcoin miners use special software and sophisticated machines to solve complex mathematical algorithms and receive bitcoins in exchange. This not only creates the currency but also provides incentives to enthusiasts to mine bitcoins. While one can use traditional computers, for an efficient process, you need sophisticated machines and a substantial amount of electrical energy. Since not everyone can afford these, there are various cloud mining and mining pool options available for enthusiasts.
Bitcoin transactions cannot be cancelled
As mentioned above, bitcoin is based on the blockchain technology. Blockchain is an open ledger that stores a chain of events accessible to all. If you want to go back and check a historical transaction, then you can do so from anywhere at any time. However, the technology does not allow you to undo or cancel any transaction. Once the currency leaves your wallet, it is gone, and the process cannot be cancelled. Hence, it is vital to double check the transaction to ensure it is the right one. This quality of bitcoins helps prevents frauds as the parties involved in a transaction has no chance of backing out.
Bitcoin is scarce and highly volatile
Unlike paper currency, whose supply is unlimited, bitcoins are scarce. Only 21 million bitcoins can be release in 100 years. Plus, the currency is quite volatile. If you must have seen the price chart, you will see violent fluctuations in the currency’s value. Currently, bitcoin is at a nascent stage, and a number of market factors influence it. For instance, take the classic supply and demand. If more and more people are willing to buy bitcoin, its value will increase. Conversely, if many people sell their bitcoins, then prices will dip. Because bitcoin prices are unpredictable, it makes it a risky investment. Instead of seeing it as a quick money-making scheme, research well before making a decision, or else you may have to face huge losses.
Understanding bitcoins and the technology behind it helps you make a wise choice of whether or not to invest in bitcoins. Research well or consult a professional if needed before investing in bitcoins.
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