The Bitcoin Comic: A Guide To Investing

Bitcoin is a cryptocurrency that has become increasingly popular among investors in recent years. It was created to solve some of the flaws in the cryptocurrency market, such as fraudulently duplicated coins. It uses blockchain technology, which disperses a single code over thousands of different computers, making it harder for hackers to access the code.

There are several ways to invest in Bitcoin, including through a company that utilizes Bitcoin technology, by participating in Bitcoin mining, or by purchasing standalone Bitcoin. When investing in Bitcoin, it is important to understand your risk tolerance, diversify your portfolio, and start with small investments.

What is Bitcoin?

Bitcoin is a form of digital currency that uses blockchain technology to support transactions between users on a decentralized network. It was the first of its kind when it launched in 2009, and it remains the most valuable cryptocurrency. Bitcoin can be used as a currency or an investment.

Bitcoin is a peer-to-peer (P2P) digital currency system, which means it allows direct P2P payments without third-party intermediaries like banks or payment processors. This is why Bitcoin is often regarded as a decentralized currency. It is entirely computerized and doesn't exist in a physical form. Bitcoin can be sent quickly and securely from anywhere in the world, and you only need an internet connection. Its price is determined by the free market, subject to supply and demand.

Bitcoin uses blockchain technology, which is a shared public history of transactions organized into "blocks" that are "chained" together to prevent tampering. This technology creates a permanent record of each transaction, and it provides a way for every Bitcoin user to operate with the same understanding of who owns what. Transactions are authenticated through Bitcoin's proof-of-work consensus mechanism, which rewards cryptocurrency miners for validating transactions.

Bitcoin is also known as "digital gold" due to its limited supply. As of March 2023, there were 19 million BTC in circulation out of a total supply of 21 million. This scarcity is why Bitcoin is often considered a valuable store of value.

Bitcoin is an internet-native currency that has several characteristics that differentiate it from non-digital money. It is decentralized by design, meaning it is not owned or controlled by anyone. It is open, public, and functionally uncensorable. Anyone can use Bitcoin and contribute to the collaborative development of its software. Over 10,000 machines worldwide (called nodes) run the Bitcoin software that provides the network with its essential functions. Operating across such a vast base makes Bitcoin geographically decentralized, making it extremely difficult to shut down.

How to buy Bitcoin

There are several ways to buy Bitcoin, including through cryptocurrency exchanges, traditional stockbrokers, Bitcoin ATMs, and peer-to-peer money transfer apps. Here is a step-by-step guide on how to get started:

Step 1: Choose a Platform

Firstly, you need to select a platform or service that offers Bitcoin. Popular cryptocurrency exchanges include Gemini, Kraken, Coinbase, and Crypto.com. Alternatively, you can use a traditional stockbroker like Robinhood, Webull, TradeStation, or Fidelity. You could also use a peer-to-peer money transfer app like PayPal, Venmo, or Cash App.

Step 2: Set Up an Account

Once you've chosen a platform, you'll need to create an account. This typically involves providing personal information, such as your name, email address, and sometimes even a picture of your ID or Social Security card. Make sure to use a strong password and enable two-factor authentication for added security.

Step 3: Connect a Payment Method

To buy Bitcoin, you'll need to connect a payment method to your account. This could be your bank account, debit card, or credit card. Keep in mind that using a credit card may incur additional processing fees and interest charges.

Step 4: Place Your Order

After setting up your account and connecting a payment method, you can place your order for Bitcoin. You can specify the amount you want to buy, and the platform will show you the corresponding price. Remember that the price of Bitcoin can fluctuate, so be sure to check the current rate before placing your order.

Step 5: Store Your Bitcoin in a Wallet

Once you've purchased Bitcoin, you'll need to store it in a secure wallet. You can choose between a hot wallet, which is connected to the internet, or a cold wallet, which is offline and considered more secure. Hot wallets are typically provided by the exchange or platform where you purchased the Bitcoin, while cold wallets are usually hardware devices that you can store in a safe place.

Things to Keep in Mind:

• Fees: Different platforms and payment methods may have varying fees associated with buying Bitcoin. Be sure to review the fees before proceeding.
• Volatility: The price of Bitcoin can fluctuate significantly, so be aware of the risks involved before investing.
• Security: As with any online transaction, ensure that you are using a secure and private internet connection when purchasing Bitcoin. Additionally, enable two-factor authentication and use strong passwords to protect your accounts.
• Taxes and Regulations: Be sure to understand the legal, regulatory, and tax implications of purchasing Bitcoin in your country or region.

Bitcoin wallets

A Bitcoin wallet is an application that functions as a wallet for your cryptocurrency. It is called a wallet because it is used similarly to a physical wallet that holds cash and cards. Instead of holding these physical items, it stores the passkeys you use to sign for your cryptocurrency transactions and provides the interface that lets you access your crypto.

There are two main types of Bitcoin wallets: hot wallets and cold wallets. A hot wallet is connected to the internet or to a device that has an internet connection, while a cold wallet has no connection.

Hot wallets are generally free and easy to use. Transactions are faster with hot wallets because they are stored by a trusted exchange or provider in the cloud and can be accessed through an app or computer browser. However, hot wallets are an attractive target for hackers.

Cold wallets, on the other hand, often incorporate extra security steps that help keep your assets safe. They are small, encrypted portable devices that allow you to download and carry your Bitcoin. Cold wallets are considered much more secure than hot wallets but make transactions take longer. Cold wallets can cost anywhere from $30 to $200.

There are also custodial and non-custodial wallets. Custodial wallets are hosted by a third party, such as a company that provides enterprise-level data security systems, that stores your keys for you. Non-custodial wallets are wallets in which you take responsibility for securing your keys.

It is advantageous to use multiple wallets for different purposes, such as a hardware wallet for saving and a mobile wallet for regular spending.

Bitcoin ATMs

To use a Bitcoin ATM, customers need a cryptocurrency wallet to store their Bitcoin. They can then insert cash or a debit card into the ATM to exchange their traditional currency for Bitcoin. The Bitcoin is transferred directly into their digital wallet. Some Bitcoin ATMs also offer bidirectional functionality, allowing users to sell Bitcoin and receive cash.

There are tens of thousands of Bitcoin ATMs worldwide, with the majority located in the United States. The two largest Bitcoin ATM networks are Coinhub and Coinme. Bitcoin ATM providers are companies that manufacture, deploy, and sometimes operate these kiosks, ensuring they are secure, user-friendly, and compliant with local regulations.

While Bitcoin ATMs offer ease of access and privacy, there are some risks associated with them. They are a frequent target for scams, and the lack of federal government regulation means that Bitcoin added to a digital wallet is not insured against theft or loss of funds. Additionally, Bitcoin ATMs have been criticised for charging high transaction fees, with some reports suggesting fees of up to 20%.

Overall, Bitcoin ATMs provide a convenient way to buy and, in some cases, sell Bitcoin, but users should be cautious and informed before using them.

Risks of buying Bitcoin

Bitcoin may be the future of monetary exchange, but it's not without its risks. Here are some of the dangers you should be aware of before investing in Bitcoin:

Volatility and Fluctuation

The price of Bitcoin is constantly changing and is extremely volatile. This makes it difficult to predict whether you will get a return on your investment. For example, on November 6, 2018, one bitcoin was worth $6,461.01. Just over a week later, on November 14, 2018, the price had dropped to $5,619.68. With such unpredictable fluctuations, there's a chance you could lose money on your investment.

Cyberattacks and Fraud

Bitcoin is vulnerable to cyberattacks and hacking due to its technology-dependent nature. There is no way to retrieve lost or stolen bitcoins, and many buyers have lost their investments through exchanges and mining losses. Additionally, there is a risk of fraud in the Bitcoin market, with fake exchanges duping unsuspecting investors out of their money.

Little to No Regulation

The Bitcoin market currently operates with little to no major regulations from governments or central banks. The lack of taxation and government stance on cryptocurrency creates uncertainty about its future and potential competition for government currency.

Technology Reliance and Human Error

As Bitcoin is a 100% technology-based currency, it is susceptible to cyber threats, online fraud, and system shutdowns. It is also dependent on human input, which can lead to technical glitches and human error.

Block Withholding and Mining Pools

Bitcoin mining involves solving mathematical equations called "blocks." However, mining pools can use computational power to mine a block and hide it from honest miners, allowing a select few to benefit while others lose out. This can lead to an unequal distribution of Bitcoin and impact its value.

Loss of Private Key

Technically, you don't physically possess Bitcoins. Instead, a private key gives you the ability to spend or transfer them. If you lose your private key or it is stolen, you may lose access to your Bitcoins with no way to recover them.

Dilution and Forks

Cryptocurrencies are based on protocols that govern peer-to-peer interactions between users. Disagreements between users can result in a "fork," creating two separate networks and versions of the currency, which can impact its value.

Regulatory and Security Risks

The battle between cryptocurrency projects and regulators creates uncertainty about the longevity and liquidity of Bitcoin. Additionally, trading platforms and exchanges are vulnerable to hacking, malware, and operational glitches, posing security risks to investors.

Insurance Risk

Bitcoin and other cryptocurrencies are generally not insured by financial protection organizations like the Securities Investor Protection Corporation (SIPC) or the Federal Deposit Insurance Corporation (FDIC). While some exchanges offer insurance, it often has limitations and may not cover all types of losses.

Market Risk

Like any investment, Bitcoin values can fluctuate, and the currency's value has seen wild price swings. It is highly sensitive to news and newsworthy events, which can trigger significant price changes.

Frequently asked questions