You’ve probably seen the articles about the phenomenal growth in the value of Bitcoin. And you may have seen the ads on Facebook and via SMS, encouraging you to buy into the currency that’s taking the world by storm. So, should you invest in Bitcoin? Before you decide, here’s a beginner’s guide to buying Bitcoin - what it is, how to invest in it, and what you need to know about the risks involved.
The price goes up and down, and it can be very nerve-racking for early investors.
1. What is Bitcoin? Bitcoin is money that exists only on the internet. Some websites and countries accept this currency in exchange for goods or services, but most people buy and sell Bitcoin as an investment.
Because this currency exists only in the virtual space, a network of computers around the world keep a record of every Bitcoin transaction. The network uses a high level of encryption that makes it the most secure storage system for transactions in human history.
If you are technically savvy, you can create your own Bitcoin “wallet”, which is a web address where Bitcoins are stored, and from which you can make payments or sell your Bitcoins. Starter investors probably aren’t confident enough to do this for themselves, so they can buy Bitcoins through an exchange.
2. This all sounds very technical, so how do I invest in Bitcoin? One Bitcoin is worth around R60 000 today (at the time of going to press, one Bitcoin was worth $4250/R57 857), but you don’t have to buy a whole Bitcoin. A Bitcoin can be split into a million parts, like a rand into 100 cents. These parts are called satoshis. You can start investing in Bitcoins with as little as R50.
Technically proficient people can create and manage their own wallets, but the easiest way is to buy Bitcoins is from a reputable exchange that has reputable investors, external auditors and good security measures and regulatory processes. Luno, is user friendly, has good customer support, and is well regulated. Ice3x is another reputable exchange operating in South Africa. You simply give these exchanges your credit card details and click the option to purchase Bitcoins and they will store them in a virtual wallet that they create for you.
3. Bitcoin has shown enormous growth. What is the risk? Should I get involved?This blog post is not offering advice on whether to buy Bitcoins or not. It’s up to any potential investor to do their own research and make their own decision.
The price of Bitcoin is volatile. It’s the early days of a new technology and it isn’t yet known how widely it’s going to be adopted, or what the value will be. The price goes up and down, and it can be very nerve-racking for early investors to watch the value go from $1 000 down to $400, and then back up again. Some analysts are predicting that it will probably drop back down from current price to around $1 500, but then bounce back up to $5 000.
While anyone can invest in Bitcoin, it is certainly not advisable as your only or first investment, as it is currently too volatile for anyone to call the level of risk or project returns. As with any risky investment, only invest money you are willing to lose. Don’t bank your life savings in Bitcoin.
That’s investing in Bitcoin, in a nutshell The Bitcoin market is the Wild West of investment right now. It’s certainly true that some people have made massive returns on Bitcoin in the past. But that’s not to say that we will see these sort of returns in the future. You could make a killing, or you could lose. Do your research and decide for yourself whether you’re ready to embark on a journey into the brave new world of Bitcoin investment.