Bitcoin: Currency Or Investment?

Bitcoin is a form of digital currency that uses blockchain technology to support transactions between users on a decentralised network. It was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto. Bitcoin can be used as a currency or an investment.

Bitcoin investors need a cryptocurrency exchange account, personal identification documents, a secure internet connection, a method of payment, and a personal digital wallet outside the exchange account.

There are many pros and cons to consider when deciding whether to invest in Bitcoin. This includes the potential for cost-efficient transactions and fast speeds, as well as the privacy and decentralisation of the currency. On the other hand, there are risks of fraud, security threats, and high energy consumption.

How to buy and store Bitcoin

There are several ways to buy Bitcoin, including through a crypto exchange, a trading app, an online broker, or even a traditional stockbroker. Here is a step-by-step guide to buying and storing Bitcoin:

Step 1: Choose a crypto trading platform

The easiest way to buy Bitcoin is through a crypto exchange such as Kraken, Binance.US, or Coinbase. Online stockbrokers like Robinhood also offer Bitcoin trading. Remember that you will need a crypto wallet to store your coins, and a cold wallet is generally more secure than an exchange account.

Step 2: Set up an account

Most crypto exchanges will require you to authenticate your identity and register a payment method. While some decentralized exchanges allow users to remain anonymous, most popular exchanges will require identifying documentation. You may be asked to provide a government-issued ID, Social Security number, proof-of-address documents, and ID photo or video confirmation.

Step 3: Place an order

When you're ready to buy, crypto exchanges offer various order types, including market orders, limit orders, and stop-limit orders. Decide on the amount of Bitcoin you want to purchase, keeping in mind that the price is volatile and can fluctuate widely.

Step 4: Store your Bitcoin

There are two popular methods for storing Bitcoin: hot wallets and cold wallets. Hot wallets store Bitcoin on an online wallet or exchange account, which are convenient and easily accessible but are more vulnerable to hacks and cyberattacks. Cold wallets, on the other hand, are small, encrypted portable devices (sometimes resembling a USB drive) that are considered more secure because they are offline and cannot be hacked through traditional means.

Bitcoin's blockchain technology

Bitcoin is a cryptocurrency that relies on blockchain technology to be secure. Blockchain is a decentralised, immutable, and distributed ledger that duplicates and distributes transactions across a network of computers.

A blockchain consists of blocks that contain a set of data. Each block contains a header, a data section, and a hash. The header contains metadata such as a timestamp and the previous block's hash. The data section contains the main information, such as transactions and smart contracts. The hash is a unique cryptographic value that represents the entire block and is used for verification purposes.

The blocks are linked together using cryptographic techniques and form a chronological chain of information. This structure ensures the security of the data through a consensus mechanism, where a network of nodes agrees on the validity of transactions before adding them to the blockchain.

Bitcoin's blockchain is a public ledger that anyone can view and use to track transactions. Each transaction is authorised by the digital signature of the owner, which authenticates and safeguards it from tampering. This makes the information highly secure and transparent.

The Bitcoin blockchain was first introduced in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto. It has since become the most well-known and largest cryptocurrency globally, inspiring the development of many other cryptocurrencies.

The process of generating bitcoin is complex, but investing in it is more straightforward. Investors can buy and sell bitcoin on crypto exchanges, where portions of one bitcoin can be purchased with fiat currency.

Risks of investing in Bitcoin

Bitcoin is a cryptocurrency, a virtual currency designed to act as a medium of exchange outside the control of any central authority. Bitcoin is mined by solving mathematical equations called "blocks", and these blocks are then added to the blockchain, which is a shared database of information. Bitcoin has become the most successful currency today, but with any new frontier, there are bound to be some obstacles. Here are some of the risks involved in investing in Bitcoin:

• Market Risk: The price of Bitcoin is constantly changing and is unpredictable, making it difficult to determine if you will get a return on your investment.
• Security Risk: Bitcoin is technology-based and is susceptible to cyberattacks and hacking. There is also a risk of fraud in the Bitcoin market, with fake exchanges duping investors out of their bitcoins.
• Regulatory Risk: The government's stance on cryptocurrency is unclear, and it is not currently taxed. This lack of regulation could lead to problems if Bitcoin competes with government currency.
• Insurance Risk: Bitcoin is not insured by the Securities Investor Protection Corporation (SIPC) or the Federal Deposit Insurance Corporation (FDIC). While some exchanges provide insurance, it is limited to failures in their systems or cybersecurity breaches.
• Fraud Risk: Despite the security measures within a blockchain, there are still opportunities for fraudulent activity.
• Technology Reliance: Bitcoin is entirely reliant on technology, and without it, it is worthless. Being 100% technology-based, Bitcoin owners are more vulnerable to cyber threats and online fraud.

It is important to approach investing in Bitcoin with caution and to be aware of the risks involved. Due to the newness and volatility of the cryptocurrency market, it is recommended to make small investments and take a long-term view.

Bitcoin's price history and future outlook

Bitcoin's price history has been characterised by sharp rises followed by corrections, reflecting the volatile nature of the cryptocurrency market. However, it has also experienced periods of stability, indicating growing acceptance and use. Bitcoin started with a value of almost nothing and has grown to be one of the most valuable assets in the world.

On 14 March 2024, Bitcoin reached its highest price of $73,794. This particular price hike was connected to the approval of Bitcoin ETFs in the United States. Previous hikes in 2021 were due to events involving Tesla and Coinbase. For instance, Tesla's announcement in March 2021 that it had acquired $1.5 billion in Bitcoin.

Bitcoin's price has also been influenced by macroeconomic factors, such as the Terra Luna crash, the FTX decline, and Binance's legal issues. Additionally, the crypto exchange FTX filing for bankruptcy resulted in Bitcoin prices reaching roughly $61,415 as of 2 August 2024.

The current price of Bitcoin (as of 6 August 2024) is $64,690, with a 24-hour increase of $1,277.79. Over the last 30 days, Bitcoin has had 16/30 (53%) green days and 6.80% price volatility.

Looking ahead, crypto analysts have made various predictions about Bitcoin's future price. Predictions for the end of 2024 range from a minimum of $58,716 to a potential high of $120,000. By 2025, some analysts predict that Bitcoin could reach up to $140,449, with a low of $61,357. Others speculate that Bitcoin could reach $1 million by 2025.

By 2026, the BTC price is expected to be between $82,522 and $188,216, with an average of $159,578. Predictions for 2027 put the minimum price at $152,837 and the maximum at $266,207, with an average of $236,397.

Looking even further ahead, Bitcoin's price is predicted to continue rising. By 2028, the average price is expected to be $336,887, and by 2029, the average price could be around $466,247. Finally, in 2030, Bitcoin is projected to reach a new all-time high, with an average price of $670,833.

How to invest in Bitcoin

Investing in Bitcoin is similar to investing in stocks, except it is far more volatile due to the daily swings in BTC value. Here is a step-by-step guide on how to invest in Bitcoin:

Open a brokerage account

You will need to open an account with an exchange that facilitates Bitcoin transactions. Some of the most popular options include Coinbase, Binance, Kraken, Gemini, and Bitfinex. It is worth noting that Bitfinex does not currently accept US customers.

Get a Bitcoin wallet

When you purchase Bitcoin, it is stored in a "wallet". There are two types of wallets: a "hot wallet" or a "cold wallet". A hot wallet is operated by either your cryptocurrency exchange or a third-party provider. Notable hot wallet providers include Electrum and Mycelium. However, hot wallets are not the most secure form of coin storage. A cold wallet, on the other hand, is a physical device, similar to a flash drive, that stores your coins. Cold wallets typically cost between $60 and $100 and offer greater security.

Connect your wallet to a bank account

Once you have obtained your wallet, you will need to link it to your bank account. This will enable you to purchase and sell coins. Alternatively, you can link your bank account directly to your cryptocurrency exchange account.

Place your Bitcoin order

When placing your Bitcoin order, keep in mind that some coins cost thousands of dollars. However, exchanges often allow you to buy fractions of a single coin, so your initial investment could be as low as $25. It is important to carefully assess your risk tolerance and review your investment strategy before purchasing any Bitcoin.

Manage your Bitcoin investments

After you have purchased Bitcoin, you can use your coins to make online transactions, hold them for the long term in the hopes that their value will increase, or perform day trading by buying and selling coins with other Bitcoin owners, usually facilitated by the cryptocurrency exchange.

Tips for investing in Bitcoin:

• Understand your risk tolerance: Bitcoin is a high-risk investment, so carefully assess your risk tolerance before investing.
• Diversify your portfolio: Protect yourself from investment losses by diversifying your portfolio. Your primary investments should be low-risk, followed by medium-risk, and then high-risk investments.
• Start small: If you are unsure, start with a small investment, such as $10 per week. This way, you can test the waters without risking a significant amount of money.

Frequently asked questions