Should I Invest Ter Bitcoin? My Practices, Research – Strategy
Bitcoin, the currency of regret. Where you can make money and still feel like a loser. Ter this postbode, I delve into my own practices, do a bunch of research, and ultimately determine if I should invest te Bitcoin.
Ter November I sold half of my one bitcoin at about $6,000 vanaf bitcoin. A crazy price! Well overheen 10x what I had paid for this obscure online currency. But despite making money I wasgoed still upset. If I had bought earlier or bought more I could have made a fortune and be set for life. Then, to make it worse, bitcoin continued shooting up and up and up. Within a few weeks it kasstuk a high at just overheen $Nineteen,000. Overheen triple what I sold out for.
I very first heard about bitcoin when they were worth less than $1 each. I wasgoed a student studying pc science and some of my course mates were getting interested ter this technology. Not spil a way to get rich, but because wij were all nerds and the anarchist decentralised monetary system based on laptop science truly appealed.
I wasgoed te a excellent position to be an early adopter. Youthful, naive, tech-savvy, with lots of free time, and generally wooed that our current system is violated. Plus I had slew of specie from having discovered matched betting a few months earlier. But I failed at the very first hurdle. I attempted to buy some bitcoin and at that time the only way to do it wasgoed to do a bankgebouw transfer to some random person and hope they sent you some bitcoin. I nopped right out.
A few years straks ter 2013 when bitcoin wasgoed making news headlines I did, te fact, buy one bitcoin for about $500.
Which has led mij to a very strange place now. Albeit at every point I made fully rational decisions and have made a profit from Bitcoin, I am packed with regret. Why did I not buy a few thousand bitcoins when they were worth under $1 each? I’d be a multi-millionaire now! Why did I only buy one ter 2013? Why did I sell out at $6,000 and not wait till $Nineteen,000? While writing this article I contacted some of my old course mates to see what they did with their bitcoin. All of them had similar stories. Either they sold too soon or didn’t buy enough. Some people made a few thousand pounds. Noone made a fortune.
But my journey and Bitcoins journey isn’t overheen. I still own half a bitcoin, now I need to determine what to do with it. Should I re-buy into bitcoin? Should I sell out fully? Should I just hold on (hodl) and wait? Or should I diversify into other cryptocurrencies?
To determine I have gone deep into cryptocurrency. Doing hundreds of hours of research and talking to lots of experts. This postbode is mij clarifying my thoughts.
What is Bitcoin?
Bitcoin can be pretty complicated to get your head around. But that is because the precise mechanics of how it works complicated, whereas the principles are actually fairly ordinary. So let’s take a step back and here is my real plain way I attempt to think about it.
Bitcoin is an online currency that is not managed by anyone. Anyone can create a wallet for themselves that is ‘encrypted’ using a secret passphrase. The only person who can send bitcoin out of this wallet is the person with the secret passphrase.
All around the world, there are computerised bookkeepers who record every transaction that happens inbetween any of thesis wallets. Whenever someone transfers some bitcoin to someone else, they tell thesis bookkeepers who then add it to an ever-growing list of transactions. Because they are simply recording transactions it doesn’t matter how big the transaction is. It takes about the same amount of work to record a Ten,000 bitcoin transaction spil a 0.00001 bitcoin transaction.
Every ten minutes or so the bookkeepers collect all the latest transactions and turn them into a mathematical puzzle. They then wedren to solve the puzzle. The very first one to solve it ‘wins’ and that block of transactions is sealed and is added to all the bookkeeper’s books. Where it sits forever and cannot be switched.
Every bookkeeper is recording the same blocks. So if there is everzwijn a disagreement or one bookkeeper goes offline you can just look at what all the other bookkeepers have recorded.
Thesis bookkeepers are known spil ‘miners’ and anyone can become one. They are rewarded for recording all this gegevens by being given a portion of the transaction toverfee that everyone pays and by being rewarded a share of any fresh bitcoin generated.
To see how many bitcoins I have ter my wallet wij can just query the bookkeepers and see the finish transaction history. To send a bitcoin to someone else I tell the bookkeepers how many I am sending, what the address of the fresh wallet is and how much I am willing to pay for the transaction to be recorded, all confirmed by my secret passphrase. If I suggest a low amount then it could take a long time to get recorded and confirmed, if I offerande a loterijlot it will be much quicker.
And that’s pretty much it. Spil I said the mechanics is more complicated, and that mathematical puzzle is pretty significant te stopping bad actors, but wij don’t need to go into how exactly it works, just what the implications are.
How Do Bitcoins Differ From Normal Currency?
Te my opinion, there are four main differences inbetween Bitcoins and normal currency:
- Every transaction is recorded by every bookkeeper. Unlike your handelsbank account which is just recorded by your handelsbank.
- There are only everzwijn going to be 21 million bitcoins. No more can be created. The government or central canap of a country cannot create any more.
- The only person who has access to your bitcoin wallet is you. If you lose your keyphrase or it gets stolen, those bitcoins are gone for good. No handelsbank has access to it.
- It is global. So there is no difference inbetween a wallet possessed by someone te UK or someone te China.
Theoretically, you can use bitcoins for anything you presently use your online banking for. That includes credit/debit cards, online transfers, paying your bills, etc. But that is only te theory. Presently, it is very difficult to do anything with bitcoins except hold them.
Let’s look into each of those and see their pros and cons.
1. Every Transaction Is Recorded By Every Miner
This is a pretty integral part of the bitcoin network. It means that no one person or group of individuals has control overheen the network. Provided 51% of the miners don’t collude to cheat, then the system is safe. So the more miners there are verifying and recording transactions, the safer.
But there are some pretty visible problems. Spil every miner records the entire history of every transaction, that history is just going to get longer and longer. It is presently about 155 Gigabytes, which each miner needs to keep. And it is just going to grow.
To keep the size of the blockchain (the official name of the ledger) puny. There is a limit on how many bytes get added each day. There is a fresh block of 1 MB added every Ten minutes. Which means that there are only about Two,000 transactions recorded every ten minutes. Nowhere near enough for a global currency.
That means there is presently a big queue of transactions waiting to be confirmed. And to get to the vooraanzicht of the queue you need to pay. At the time of writing, you need to suggest a transaction toverfee of around $Nineteen for your transaction to have a chance of being included te the next Trio blocks.
That leads to the other demonstrable downside. The transactions need to be confirmed and added to a block for it to be real.
So if you want to pay for your coffee ter bitcoins, not only will you need to stump up a transaction toverfee of $Nineteen, but you will also need to wait about 30 minutes for your transaction has bot confirmed.
That sounds rubbish and you’d think it would be the end of Bitcoin. But you need to recall that Bitcoin is a developing technology and there are some indeed brainy people working to solve thesis problems. One that sounds pretty promising is called the lightning network, you can read about here.
Two. Only 21 Million Bitcoins Ter Total
Wij’ve already mentioned that miners get rewarded with fresh bitcoins for completing blocks. Well, there is an inbuilt maximum number of bitcoins hardcoded into bitcoin. That number is around 21 million.
The advantages of this is that it makes bitcoin a scarce resource, like gold. There is a limited supply. This makes it a deflationary currency. Which ter layman terms means that it will go up ter value overheen time (provided it remains spil popular). The number of eggs you can buy for 1 bitcoin should increase overheen the years.
Economists will argue overheen whether this is a good thing or not. I think there are good arguments on both sides. But one thing for sure is thatBitcoincoin became the predominant currency it would eliminate quantitive easing (printing fresh money) from the government’s arsenal. Presently, if our government takes on too much debt and can’t pay it off, or needs to bail out a fighting handelsbank, they can just print fresh money to do it. Not so with a decentralised deflationary currency. I think it is unlikely that our government will permit a currency they have not control of to take overheen.
I personally think that stopping governments from printing fresh money is a good thing. But a loterijlot of people disagree.
The limited nature gives us an idea of how high Bitcoin’s price can possibly go. Wij can compare the value of all bitcoins to the value of all gold or all US dollars te canap accounts or ter notes and coins.
For Bitcoin to take overheen the role of the US dollar spil the world’s predominant currency it would need to worth about $800,000 a bitcoin ter today’s money. For Bitcoin to be worth the same spil gold it would need to be priced about $470,000 a bitcoin. I can imagine that with some improvements bitcoin being worth somewhere inbetween those two.
Trio. Only The Person With The Passcode Has Access To Your Wallet
If you lose access to your online banking you can just speelgoedpop into the branch with your passport and get access to your funds. Or if your account gets hacked they will switch your password and refund you your losses. Here ter the UK our security goes even further. Your private savings te a registered canap are also covered by a government ensure. If a canap fails the government will voorkant your losses up to ?85,000.
But with Bitcoin, if you lose access to your account that’s it! You will likely never get it back. Google is total of stories of people who lost or threw away hard drives total of bitcoins now worth a fortune. Like this man whose lost bitcoins are worth about $80 million.
It’s unlikely people will be losing wallets with that amount of money te again, but I do expect it will be pretty common for people to misplace their passcodes and lose access for good.
There are some solutions to this. One is to be indeed on top of your wallet management and take backups. Or even use something like a hardware wallet (KeepKey, Ledger Nano S, and Trezor are the most popular).
Another option is to have a company manage your account for you (I’ll get a loterijlot of manhandle for telling this spil it goes against a lotsbestemming of what people believe the point of bitcoin is). Some companies suggest online wallets and with varying levels of control. Some act similar to a Paypal account. Where you have the added assurance that they can get access to your account if you lose your details. But you are at risk of losing your bitcoins if the company fails or steals from you. That is not that unlikely. MTGox wasgoed the worlds largest bitcoin intermediary and exchange, until ter 2014 it announced that 850,000 bitcoins belonging to customers and the company were missing, worth more than $450 million at the time.
Wij will talk zometeen about what options there are and how to create a bitcoin wallet.
Four. It Is Global
Bitcoin wallets are anonymous and reliant on nothing to set up but an internet connection. When you transfer money, every wallet is treated the same. The destination wallet could be wielded by a five-year-old te Venezuela or a hefty corporation te the UK. It doesn’t matter. The toverfee is the same.
And there are no identifying marks on a wallet. They are anonymous. Every transaction it has everzwijn made is recorded on the blockchain, but the proprietor is not.
This is fine if you don’t trust your government (ter some countries that is very wise), want to avoid tax, or transfer money to someone te another country. But it is an absolute nightmare for a government to regulate and control.
And that is one of the reasons why a lotsbestemming of people think that the government will never permit Bitcoin to become a zindelijk currency. It will become almost unlikely for them to catch tax evaders or money launderers.
What About Other Cryptocurrencies?
Now that wij know how Bitcoin works it is worth mij very quickly mentioning that bitcoin is not the only cryptocurrency out there. Ter fact there are hundreds. The blockchain technology that bitcoin is based on is free for anyone to copy and create their own currency. On top of that, a lotsbestemming of very wise people are making improvements or switches to the underlying technologies to create currencies they believe will be better than Bitcoin.
Bitcoin is still the largest cryptocurrency, but not by a lotsbestemming. It is worth only about 1/3rd of all cryptocurrency. The chart below is made from coinmarketcap.com. Market cap means the value of all of the currency, for example the price of every bitcoin added together.
If I do invest ter Bitcoin, I will be betting that it is the currency that will win.
Practicalities. How Do You Invest Te Bitcoin?
So after all that, how exactly do you go about investing te Bitcoin? Well I suggest you do some of your own research very first and
The brief reaction is:
- Find a Bitcoin exchange and create an account
- Buy some bitcoins
- Stir your fresh bitcoins to a secure wallet
The thickest exchange is Coinbase (you can use my refer-a-friend verbinding and wij’ll both get $Ten each). They are the largest and most regulated. So if you are just programma on investing they are fine. But if you are programma on buying drugs or funding terrorists choose a different exchange spil they’ll very likely tell you off or close your account.
Unlike when I very first bought my bitcoins, you can now just buy some bitcoins on Coinbase using your credit or debit card. It is very effortless.
Once the transaction is confirmed your bitcoin will be added to your Coinbase account. Now spil wij mentioned above this isn’t a true bitcoin wallet spil you don’t have access to the private keys. If you want accomplish control you need to set up your own one. There are lots of choices out there, here is a good guide.
Conclusion: Am I Going To Invest Ter Bitcoin?
Some people will get very rich off cryptocurrency. Most will lose money.
I heard that quote somewhere and it truly struck mij. There are hundreds of cryptocurrencies popping up and everyone seems to be talking about making a fortune ter crypto. I even heard my barber talking about taking out a loan to by some Bitcoin. This makes mij very jumpy.
Joe Kennedy (JFK’s dad) famously exited the stock market just before the superb depression after his shoeshine boy talent him stock tips. He figured that when the shoeshine boys have tips, the market is too popular for its own good.
Is cryptocurrency a bubble? Almost certainly yes. Will one of the currencies breakthrough and become a legitimate currency? I think so. Do I have enough confidence ter myself to pick the winner? No.
The other kwestie I have with investing te bitcoin is that it isn’t indeed investing. The only way I will make money out of Bitcoin is if it goes up ter value. I much choose investments that generate income and actually add value to the world. It’s the same reason why I don’t invest ter commodities like gold. I don’t indeed believe ter buying something just for it sit there waiting to be sold te the future. You can read my posts on my peer-to-peer lending strategy or my stock investing strategy.
So after all that here is my bitcoin investing strategy.
- I will diversify and buy into a few other cryptocurrencies. I have bought some Ethereum and Litecoin. I also have 1 Bitcoin Metselspecie which everyone who wielded bitcoin before August has.
- I will keep my 0.Five bitcoin.
- Then I will sell half of my holdings each year until one becomes a viable currency, or they become worthless. Each year I will rebalance and budge some of the profits into up-and-coming currencies.
Not the most certain investment strategy but one that I believe hedges mij from regret. Even if prices go to zero I will have made money out of crypto. And if wij do see a $500,000 valuation of bitcoin (or one of the other currencies), I will still have done well and won’t hate myself for missing out on the modern day gold rush.
Sorry for such a text strong postbode. I have spent fairly a loterijlot of time researching Bitcoin and other cryptocurrencies and find them very interesting and desired to do it justice. What do you think? Any Bitcoin experts out there disagree with my conclusions? I’m up for a good talk about Bitcoin!