How To Invest in Bitcoin – A Primer

Invest in bitcoin

Had you mentioned Bitcoin as a potential investment as recently as a decade ago, people would have a puzzled expression, “Crypto currency, what’s that?”. 

Bitcoin is a product of technology, released to the public in 2009; it is a software based currency designed by Satoshi Nakamoto.   It is decentralized, meaning e no central banks have control.  Since its introduction, the price has soared, making unsuspecting millionaires of those who had bought Bitcoin merely as a curiosity.

The venture capitalist is still betting on bitcoin to reach new highs in the years ahead.  From 2011 to 2012, the cryptocurrency increased in value 300%, rising still higher to 400% before leveling off.

Betting on the Future

It’s sometimes said we can predict the future by looking at the past.  And while that may or may not be true, here are a few statistics worth considering:

In the first half of 2014, venture capital firms made significant investments, the first for $73 million, the second for $57 million.  This marked an increase of 50% from the previous year, which could be a significant trend.  Of note is the fact that in 2012, Bitcoin firms struggled to raise  $2.2 Million.  This is an interesting trend since, even though the crypto has leveled somewhat, both users and merchants who accepted Bitcoin increased.  Is it possible for you to be part of the action?  Certainly, here’s how.

How John Q. Public can Invest in Bitcoin

The simplest way to get involved with Bitcoin is to simply buy and hold, or buy and speculate for a price movement.   For investors in the USA, we recommend Coinbase, who will sell Bitcoin (BTC) at approximately 1% over market.  Coinbase does not hold a monopoly on the buying and selling of Bitcoin, it is a global currency, and there are multiple vendors.

CAUTION:  As this article is written, Bitcoin is at an all time high and has been compared to the tech bubble.  While this could be a perfect time to ride the wave toward greater highs, do your due diligence and be aware that should  the bubble burst, the price could fall radically.

For US Citizens, Coinbase allows you to link your bank account to your account.  This allows much easier transactions.  They also have an option to auto-buy Bitcoin on predetermined days.  For instance, you could purchase a selected amount of Bitcoin, once a week, or once a month, determined by your cash flow.  It should be noted that Coinbase is not a Bitcoin marketplace, they act more as a middleman.  This means they have to acquire the BTC from others before adding it to your account.  In most instances, this isn’t a factor, however, if you are speculating and the market is moving fast, this should be a consideration.  Additionally, realize that if you set an automatic purchase, for a particular date, your contract will be executed without regard to the current price of Bitcoin.

If you’re considering trading (speculating) on the price of Bitcoin, and intend to buy and sell on a regular basis, you might consider Bitstamp, which is designed, somewhat like a stock exchange, to quickly buy and sell the cryptocurrency.  Fees are reasonable ranging from0.5% to as low as 0.2%, depending on the activity of your account.

Other Ways To Own Bitcoin

It’s also possible to buy and sell Bitcoin locally, perhaps in your home town.  The natural question would be, how would I find someone who is interested?  The website Local Bitcoin was created to bring buyers and sellers together.  They act as a middleman, allowing the seller to place an amount of Bitcoin in escrow, then release the escrow once the transaction is complete.  Both parties are protected this way, however, when meeting someone you don’t know with the plan to exchange currency, even cryptocurrency, it is always wise to exercise caution, meet in a public place and possibly bring a friend.

The Bitcoin Bottom Line

There are those who say Bitcoin is here to stay and it’s only direction is up.  Others say it may have reached the top of its run and is destined to fall hard.  We can’t predict the market; we can only offer advice if you decide to buy Bitcoin.  If you’re in the USA, Coinbase, Bitstamp, and Local Bitcoins are your best options.  If you live outside the USA, carefully study your online options, join Bitcoin forums and ask for recommendations.

The Security of Bitcoin

If you’ve read to this point, it’s likely you’re considering the purchase of  Bitcoin, but may be concerned about its security.  After all, computers are hacked, credit card numbers are stolen, and hackers regularly attack financial institutions.  The fact that Bitcoin is not centralized by any one entity makes fraud and theft extremely difficult if not impossible.

In the early days of Bitcoin, there was a breach, but it was quickly found, the transaction erased and the hole secured.

Here’s a brief history of the cryptocurrency, it should help those interested in better understanding how and why Bitcoin has risen in, both in use and popularity.

BitCoin – A Brief History

Finance and the exchange of something of value for goods or services is a constantly evolving process.  In earlier times it may have been the exchange of food for livestock, or crops for supplies.  As times changed, precious metals like gold and silver became the currency of choice.  Today, in the 21st century, Bitcoin represents a new, possibly better method of exchange.

Bitcoin and crypto currency didn’t appear magically; it was developed, improved and tested over the last decade by the some of the best minds in technology.  While the name  Satoshi Nakamoto, is associated with the creation of Bitcoin, this is not a real person and may have been a collective of developers.

Bitcoin was created to foster privacy, so the anonymity of its creator can be understood.  There is no bank, country or political regime that controls Bitcoin, its value is determined by those who use it and it is held in an extremely secure digital form.

Mathematics is the machine that powers the universe, but it can also be used to power a new form of money called Cryptocurrency.  Throughout recent history, US dollars were back by gold and silver, and until inflation forced the US government to abandon the gold standard, the paper currency could be exchanged for gold or silver.  Bitcoin ushered in a new era, an era where the currency is based on complex mathematical equations.

How Did Bitcoin Come To Be?

Bitcoin isn’t based on the economy of a government, or the whims of the Federal Reserve, it is based on a complex set of mathematical formulas that run on computers.  The network shares a public ledger using a technology called blockchain.  Transactions are recorded and validated providing an unpatrolled means of security and fraud protection.

The Beginning

Not every question can be answered, and that is certainly true with Bitcoin.  In particular, the question of who is the person who invented it?  It’s possible that may never be satisfactorily answered, as the name associated with its creation,  Satoshi Nakamoto has disappeared, and speculations are the name was simply a pseudonym for the development team.  Case in point is the fact the account of Satoshi Nakamoto has never been used, and the Bitcoin contained, remains untouched.

The Facts of Bitcoin

On Halloween of 2008 a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was posted to a mailing list of cryptography enthusiasts.  The name on the paper was “Satoshi Nakamoto”.   The white paper outlined how the peer-to-peer would function and that, in effect, was the beginning of Bitcoin.

On January 8th, 2009, the first version of the software was announced, and Bitcoin mining began.

What Can Bitcoin Be Used For?

Currency must hold value to others, or it is worthless.  It would do no one any good to own a million dollars worth of currency from a failed regime.  Currency is valuable, based solely on the fact it can be used for exchange, and Bitcoin can.  Since its introduction, not only has it increased in value, but more and more retailers are accepting it as a form of payment.

One retailer who has led the pack is  Dell, being among the first to accept Bitcoin in exchange for its inventory internationally.  While currently Bitcoin only represents a fraction of Dell’s total sales, being a forward thinking company, they recognize the value of the cryptocurrency in the years ahead.

FACT:  Dell reported earnings of $59 billion in 2015.  Traditional transactions fees range in the 2 to 3 percent range; Bitcoin is far less expensive.  With that thought, retailers can achieve substantial savings by using Bitcoin.

While Dell was among the first, it is certainly not the last major corporation to accept Bitcoin as a recognized form of payment.

Bitcoin’s time has come.  Anyone seriously thinking about their future and the future of finance, should take a long and serious look at Bitcoin the currency of the future.