How Should One Go About Buying Cryptocurrency?
Are you thinking about investing in cryptocurrency?
Cryptocurrencies have been extremely volatile since their inception, but this volatility can create opportunities for profit if you're looking to trade these digital assets. If you want my opinion on how to get started with cryptocurrency investing, I'd say, "If you want to start buying cryptocurrency, I feel the best approach to begin is to first remove your thoughts of wanting to own cryptocurrencies and think of Bitcoin."
Bitcoin is a good place to start if you're just getting started. Disclaimer: If you want to get started, I'd recommend speaking with a financial expert about Bitcoin.
First things first:
What is Cryptocurrency?
Cryptocurrency is a type of digital money that is decentralized and based on blockchain technology. Although you may be familiar with the most popular cryptocurrencies, Bitcoin and Ethereum, there are over 19,000 different cryptocurrencies in circulation.
How Do Cryptocurrencies Work?
A cryptocurrency is a decentralized, digital, encrypted medium of exchange. A cryptocurrency, unlike the US dollar or the Euro, has no central authority that manages and maintains its value. Instead, these tasks are distributed widely among cryptocurrency users via the internet.
You can use cryptocurrency to buy everyday goods and services, but most people invest in cryptocurrencies in the same way they would in stocks or precious metals. While cryptocurrency is a novel and exciting asset class, investing in it can be risky because you must conduct extensive research to fully understand how each system works.
Satoshi Nakamoto proposed Bitcoin as the first cryptocurrency in a 2008 paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System." The project was described by Nakamoto as "an electronic payment system based on cryptographic proof rather than trust."
Transactions that are verified and recorded on a blockchain serve as cryptographic proof.
How Can Cryptocurrency Be Used?
Bitcoin, the most well-known crypto, is considered as the safest of the cryptocurrencies decentralized currency that has evolved into a gold-like store of value. Some people even refer to it as "digital gold."
How Does the Value of Cryptocurrency Increase?
Let's take a look at the ultimate crypto bellwether: Bitcoin, to see how some cryptos can appreciate in value.
Bitcoin nearly quadrupled in value in 2020, finishing the year above $28,900. By April 2021, the price of BTC had more than doubled from the start of the year, but by July, all of those gains had been erased. Then BTC more than doubled again, reaching an intraday high of more than $68,990 on November 10, 2021—before falling to around $46,000 by the end of 2021. Bitcoin is currently worth slightly more than $31,000 per coin as of early June 2022.
Bitcoin is not only the first cryptocurrency, but it is also the most well-known of the over 5,000 cryptocurrencies in existence today.
What Exactly Is Bitcoin?
Bitcoin is a decentralized digital currency that can be bought, sold, and exchanged without the use of an intermediary such as a bank. Satoshi Nakamoto, the creator of Bitcoin, originally described the need for "an electronic payment system based on cryptographic proof rather than trust."
Every Bitcoin transaction ever made is recorded on a public ledger that is accessible to everyone, making transactions difficult to reverse and difficult to forge. This is by design: Bitcoins are not backed by the government or any issuing institution, and there is nothing to guarantee their value other than the proof baked into the system's heart.
It is worth money simply because we, as people, determined it to be valuable—the same as gold.
Bitcoin's value has skyrocketed since its initial public offering. Although it once sold for less than $150 USD per coin, one Bitcoin now sells for nearly $29,462.55 as of May 2022. Because its supply is limited to 21 million coins, many expect its price to rise over time, especially as larger, institutional investors begin to treat it as a kind of digital gold to hedge against market volatility and inflation.
Depending on your objectives, Bitcoin can serve as:
- a vehicle for investment
- a value store comparable to gold
- a method of transferring value around the world
- or even as a means to test the waters of a new technological frontier
Bitcoin is the native currency of the Internet.
Unlike government-issued currencies like the dollar or euro, Bitcoin allows for online transfers without the use of a middleman like a bank or payment processor. The removal of those gatekeepers opens up a world of new possibilities, including the ability for money to move more quickly and cheaply across the global internet, as well as giving individuals complete control over their own assets.
Bitcoin is legal to use, own, and trade, and it can be used for anything from travel to charitable donations. Businesses such as Microsoft and Expedia accept it as payment.
Who Accepts Bitcoins in 2023? Read here.
Is Bitcoin real money?
It has served as a medium of exchange, a store of value, and a unit of account—all of which are characteristics of money. Meanwhile, it is only available digitally; there is no physical version.
How Bitcoin Works:
Bitcoin, unlike credit card networks such as Visa and payment processors such as Paypal, is not owned by an individual or a company. Bitcoin is the world's first completely open payment network, and anyone with an internet connection can join. Bitcoin was created for use on the internet and does not rely on banks or private companies to process transactions.
The blockchain, which tracks who owns what in the same way that a bank tracks assets, is one of the most important aspects of Bitcoin. The Bitcoin blockchain differs from a bank's ledger in that it is decentralized, which means that anyone can access it and no single entity controls it.
What Gives Bitcoin its Value?
Essentially in the same way that traditional currency does - because it has proven to be a viable and convenient way to store value, allowing it to be easily traded for goods, services, or other assets. It is scarce, secure, portable (in comparison to gold), and easily divisible, allowing for transactions of all sizes.
Where Does Bitcoin Come From?
Bitcoin is "mined" by a huge, decentralized (also known as "peer-to-peer") network of computers that are continually checking and safeguarding the blockchain's accuracy. On this ledger, every single bitcoin transaction is recorded, with new information regularly compiled into a "block" and added to all previous blocks.
How to Get Bitcoin?
The easiest way to buy bitcoin is to purchase it through an online exchange. You can buy, sell, send, receive, and store bitcoin without needing to hold it yourself using something called public and private keys.
However, if you choose to buy and store bitcoin outside of an online exchange, here’s how that works:
1. When a person joins the bitcoin network, they are given a public key, which is a long string of letters and numbers similar to an email address, and a private key, which is similar to a password.
2. When you buy bitcoin—or send/receive it—you receive a public key, which is analogous to a key that unlocks a virtual vault and grants you access to your money.
3. Anyone can send you bitcoin using your public key, but only the holder of the private key can access the bitcoin once it's been sent.
4. There are numerous methods for storing bitcoin, both online and offline. A virtual wallet is the most basic solution.
5. If you want to move money from your wallet to your bank account after selling your bitcoin. Exchanges, like traditional bank transfers or ATM withdrawals, have a daily limit and can take anywhere from a few days to a week to complete.
What distinguishes Bitcoin as a novel form of money?
Bitcoin is a global currency.
It is as simple to send across the globe as it is to pay with cash in the physical world. It is not closed on weekends, does not charge a fee to access your funds, and has no arbitrary limits.
- Bitcoin is unchangeable. Bitcoin is similar to cash in that transactions cannot be reversed by the sender. Credit cards, traditional online payment systems, and banking transactions, on the other hand, can be reversed after the payment has been made—sometimes months later—due to the centralized intermediaries that complete the transactions. This increases the risk of fraud for merchants, which may result in higher credit card fees.
- Bitcoin is a private currency. When using bitcoin, there is no need to provide the merchant with any unnecessary personal information. Other than the bitcoin addresses and amounts involved, bitcoin transactions contain no identifying information.
- Bitcoin is safe. Bitcoin payments are fundamentally more secure than standard debit/credit card transactions due to the cryptographic nature of the Bitcoin network. No sensitive information is required to be sent over the internet when making a bitcoin payment. There is a very low chance that your financial information will be compromised or your identity will be stolen.
- Bitcoin is now available. Without exception, every transaction on the Bitcoin network is made public. This means that there is no room for transaction manipulation (except in the case of a highly unlikely 51% attack scenario) or changing the supply of bitcoin. The software at the heart of Bitcoin is free and open-source, allowing anyone to examine the code.
- Bitcoin is secure. The bitcoin network has never been successfully hacked in its more than ten years of existence. Because the system is permission less and open-source, countless computer scientists and cryptographers have been able to investigate all aspects of the network's security.
How to Make a Bitcoin Investment:
Bitcoin, like stocks, can be purchased and held as an investment. You can invest in a Bitcoin ETF if you don't want to invest in Bitcoin directly but want to profit from its volatility.
People's approaches to investing in Bitcoin differ depending on where they keep it: Some people buy and hold for the long term, while others buy with the intention of selling after a price rally, and still others bet on the price falling. Bitcoin's price has fluctuated dramatically over time.
I believe that people are using Bitcoin to pay for things in some places, but the truth is that it is an asset that appears to be increasing in value relatively quickly for some time. So why would you sell something that will be worth far more next year than it is now? The vast majority of those who own it are long-term investors.
However, while crypto-based funds may add diversification to crypto holdings and reduce risk slightly, they still carry significantly more risk and charge significantly higher fees than broad-based index funds with a track record of consistent returns. Investors seeking consistent wealth growth may prefer index-based mutual and exchange-traded funds (ETFs).
If you want to buy cryptocurrency, I'd recommend learning as much as you can about the market before settling on Bitcoin. Since Bitcoin is a currency, it attracts buyers and investors while many other cryptocurrencies struggle to explain the problem they solve. If you're just beginning, you might want to think about Bitcoin because it has a proven market and excellent money is valuable. This system is not only the most distributed and decentralized but also entirely autonomous. Therefore, if you're serious about getting started, you should consult a financial counselor before making any significant choices.
I hope this information was helpful. If you have any questions, feel free to reach out. I’d be happy to chat with you.
About the Author
As a Wealth Advisor and Partner at Vincere Wealth, Isaiah is on a mission to help #dentists and #veterinarians increase their net worth through education and guidance. Isaiah takes great pride in guiding clients through the complexities of bitcoin, investing, and financial planning for veterinary medicine, and dentistry. Having someone guide you today in making sound financial decisions can have a substantial impact on your future financial well-being.
If you're interested in an investment advisory or financial planning relationship, please consider Vincere Wealth Management.
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