The Definitive Guide To Investing In The World’s Most Popular Cryptocurrency
- What Is Bitcoin?
- What Is The Blockchain?
- Why Bitcoin Is Valuable And Can Be Used As Money
- Where Can I Find Bitcoin?
- Why Do I Need A Cold Storage Wallet?
- Getting Started With A Coinbase Wallet
- Selling Your Bitcoins
- Best Bitcoin Exchanges
- How to Store Your Bitcoin In A Cryptographically Secure Wallet
- Hot Wallet vs Cold Wallet
- When is the Right Time to Invest in Bitcoin?
- What is Bitcoin Worth?
- Investing Bitcoins in an IRA or 401K
- What you need to know before Investing in Bitcoin
- What’s Next For Bitcoin?
Bitcoin has come a long way. Once upon a time, it was trading at only $0.10. On February 2011, the digital currency surpassed the historic milestone of $1, hitting record highs over the years to reach $19,000 in December 2107. You know what this means? Well, if you invested $1,000 in 2011 you would have been $19 million richer in 2017. Crazy money, right?
If you are thinking about investing in Bitcoin this year and don’t know where to start, have no fear because we are going to guide you on how to join the lucrative cryptoasset market. Before we get to the investment tips, perhaps its best we start by learning a few things about Bitcoin.
For more ideas on bitcoin investing here are some great resources:
What Is Bitcoin?
In simple words, Bitcoin is the world’s first fully decentralized cryptocurrency and worldwide payment system that allows parties to transact without necessarily involving a third party. It was invented in 2009 by Satoshi Nakamoto, and is the first decentralized digital currency that functions without a central bank or administrator.
Bitcoin transactions between peers are direct and based on blockchain technology. When a transaction is initiated, it’s broadcasted on the blockchain network and stored on a public ledger, which helps to ensure transparency and integrity of the digital currency. Not only does Bitcoin have utility value, but also it has great speculative value as a long term asset.
You might ask yourself, how are new bitcoins generated? You see, with fiat currency, a government makes the decision of printing and distributing its paper currency. Bitcoin isn’t controlled by any government or central bank, so new bitcoins are generated through mining. This is a process through which transactions/blocks in a network are validated. Miners on the network contribute their computer power to solve complex algorithms and are rewarded with new bitcoins.
Mining bitcoins is costly as it involves expensive hardware and incredibly high electricity costs. During the first days of bitcoin, one could easily use their laptop or PC to mine the digital currency, but with time it has become more difficult, requiring a lot of energy and resources to mine. Considering everything involved, people no longer see bitcoin mining as a profitable venture, unless you intend to do it on a large scale, are based on a country where electricity cost is low, or have a huge budget to purchase and set up the hardware.
Interesting Facts About Bitcoin
- Bitcoin introduced the Blockchain and is the first cryptocurrency in existence
- It is a payment solution just like PayPal or Payza but eliminates the huge fees associated with typical bank transfers
- Bitcoin is limited to just 21 million coins
- Bitcoin transactions can be traced on the blockchain network as they are fully transparent
- The digital currency is fully decentralized, meaning that it’s not controlled by any central authority like it’s the case with fiat currency. No government or central bank influence!
What Is The Blockchain?
The Blockchain ensures every transaction within a digital ledger is cryptographically verified. The Bitcoin Blockchain utilizes a proof-of-work mining algorithm which entails a distributed, cryptographic, and immutable database.
Overall, a Blockchain can be used by the private sector of the financial services industries as a means to update IT architecture. While anyone with the right hardware and software can connect to a public Blockchain system like Bitcoin. Here at Smart Bitcoin Investments, our focus is on public Blockchains and their native assets, also known as cryptoassets.
Why Bitcoin Is Valuable And Can Be Used As Money
Bitcoin is the world’s first digital currency that is cryptographically backed by the blockchain. Its main purpose is to serve as a store of value and introduce Blockchain as a technology to the rest of the world. A great number of people flock to Bitcoin because it serves a simple purpose as a store value and functionality to be able to send and receive it as “money”. Depending on the current price of Bitcoin, it can be used as a store of value if held for a long period of time.
With the block size decreasing every 4 years, miners have a difficult time keeping up with the latest advancements in mining Bitcoin. Not only do these miners cryptographically verify each new Bitcoin and append it to the Blockchain, but also their importance will increase over time as transaction fees get tighter and Bitcoin matures. The strong community of legitimate Bitcoin miners around the world increases the value, trust and ownership of bitcoin as each individual transaction is personally verified by these computers.
Where Can I Find Bitcoin?
Bitcoin is obtainable in three vastly different ways: (1) Mining, receiving BTC as a reward for solving certain mathematical formulas within the Bitcoin blockchain (2) Purchasing, from a registered Bitcoin exchange and (3) Trading, from local Bitcoin buyers and sellers in your area.
In this guide, we will be focused on purchasing and trading for Bitcoin and learning how to store it securely within a cold storage wallet.
Why Do I Need A Cold Storage Wallet?
A cold storage wallet prevents loss or theft of your bitcoins in the case of an Internet outage, electrical meltdown, environmental disaster, or hack. There have been instances in which certain exchanges have been confiscated by hackers and millions of cryptoassets were stolen such as the case with Mt. Gox in 2014.
We recommend putting your Bitcoins only into a cold storage wallet. There are multiple types of cold storage wallets. A few examples are paper, cloud and hardware wallets.
A paper wallet is as secure as any cold wallet however it is not as versatile or user-friendly as a cloud or hardware wallet. A cloud wallet will put you at risk of the software developers security methods. If you hold most of your cryptoassets within a cloud wallet or exchange, always remember to diversify or put it into a hardware wallet.
Keeping a hardware wallet can be compared to putting your cryptoassets in the protection of a vault, so we recommend going this route to ensure maximum protection of your Bitcoins. See our recommendations on the best bitcoin wallets.
It is also possible to protect your Bitcoin investment further by insuring it within an IRA. Learn more on how to invest bitcoin in an IRA or 401k.
How To Invest In Bitcoin: Buying, Selling and And Safely Securing Your Bitcoin
First things first – you need to set up a wallet to store your bitcoins!
As a beginner, it is highly recommended that you start with an online bitcoin wallet that is easy to access. Most exchanges function as a wallet in which you can purchase and sell bitcoins from. Even if Coinbase is venture-backed and insured by FDIC, as previously mentioned, it is not safe to store your bitcoin on an exchange for an extended period of time. Make sure to continue reading our guide to learn how to find a good cold storage wallet and safely secure your bitcoin.
For this example, we are going to help you get started with a Coinbase wallet which is multi-functional and gives investors the ability to track prices, create alerts and add hundreds of more cryptocurrencies. Users can create and name their own wallets. You can learn about Coinbase in detail here.
Getting Started With A Coinbase Wallet
Setting up an account with Coinbase couldn’t be easier. Here’s how to go about it:
Step 1: Go to the Coinbase official website and click the tab written: “Get Started.”
Step 2: Fill in the details as required. Write down your first names, an email address, and a password. Ensure that the password is strong enough and includes both letters and digits for security purposes.
Step 3: Coinbase will send you an email containing a link for verification. Click on the link and make sure that you verify your account. You might be asked to fill in your phone number for 2FA verification, so ensure you use a working line.
Your Coinbase wallet is all set up and ready to use. But hey, you don’t have the bitcoins yet, do you? It’s now time to purchase the digital currency through the same platform. Coinbase accepts credit card, debit card, and bank transfer when purchasing cryptocurrencies, and bank transfer and PayPal when selling the same. If you intend to use a credit card or debit card, one of the most popular payment options, here is the next step to get started:
Step 4: Navigate to the Account settings page and click on the Payment Methods tab. You will be given the three payment options we mentioned earlier, so you need to proceed and select the Credit/Debit card option.
Step 5: You will be redirected to a page, where you’ll be required to enter your card information, which includes card name, card number, expiry date, CVC number, and zip code. A confirmation will appear which now lets you proceed with your purchase.
Note: You will be asked to provide photo ID verification by uploading selfies of yourself holding the credit card. You need to remember that this payment option only allows you to purchase up to $250 worth of bitcoins daily.
Step 6: When you hit the “Buy Bitcoin” tab, you will be taken to a page where you are to fill out information as to how many bitcoins you intend to buy, the payment method, and the wallet where the bitcoins will be deposited (choose My Wallet). Click “Buy Bitcoin Instantly” and viola – you bitcoins will reflect in your wallet! Pretty easy, right?
Congratulations! You now own bitcoin within your Coinbase wallet. You can use the Coinbase wallet as an exchange and transfer between USD or any other cryptocurrency on a whim. At this point, it is possible to quickly transfer your BTC to any exchange, marketplace or wallet with the given private keys.
Selling Your Bitcoins
Hopefully, the price of Bitcoin has skyrocketed and you’ve made some profits on your investment. It’s now time to cash out, converting the bitcoins in your Coinbase account to fiat currency. You can sell the bitcoins in two ways:
- Using an online marketplace such as Coinbase – Coinbase allows you to sell your bitcoins instantly, and the process for doing this is as simple as buying. All you need to do is navigate to the Sell page, enter the number of bitcoins you intend to sell, choose your wallet (typically your bitcoin wallet), choose the account you want the money to be deposited (bank account or PayPal), and confirm the order. On Coinbase, one can purchase and sell Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. If you want to read more about Coinbase check out our full review.
- Selling bitcoins person to person – There are various platforms that allow you to connect with buyers and sell your bitcoins using your preferred payment method. One of the most popular sites is Localbitcoins. You can either advertise as a bitcoin seller, waiting for interested parties to contact you, or just go for people willing to buy. It’s best that you first register an account with Localbitcoins so that you can benefit from the site’s escrow services when making your transactions. And yes, the general safety rules also apply when transacting with strangers on the internet.
Best Bitcoin Exchanges
It’s not always easy to locate the best bitcoin and cryptocurrency exchanges to purchase bitcoins and altcoins quickly and efficiently. We have narrowed down our official list of exchanges to a select few to make it easier for those just getting started with a bitcoin exchange.
Headquarters: Helsinki, Finland
CEO: Nicholas Kangas
Pros: Extremely diverse selection of buyers and sellers. Available worldwide.
Cons: Lack of cryptocurrency diversity.
Overall rating: 9.3
LocalBitcoins is a person-to-person bitcoin trading platform which specializes in connecting buyers and sellers. With over 100+ payment options, no matter where you are in the globe, it is simple to get access to someone who wants to buy or sell bitcoin. As a seller, you are given full autonomy over how you want to create your listing, accept payment, and attract reviews. Overall, LocalBitcoins is one of the best places to get started with buying and selling bitcoins. Read our full review here.
On LocalBitcoins registering, buying, and selling Bitcoin is completely free. Users who create advertisements are charged a 1% fee for every completed trade.
Headquarters: Wilmington, Delaware
CEO: Ray Youssef
Pros: Low fees. Diverse funding options.
Cons: Clunky user interface.
Overall rating: 9.5
As the world’s largest Peer-to-Peer Bitcoin marketplace, Paxful gives customers an enormous selection of payment options to choose from to purchase BTC. They offer over 300+ ways to transfer money including credit cards, debit cards, bank transfers, bank wires, iTunes gift cards, Amazon gift cards, Starbucks gift cards, PayPal transfers, Western Union, and many, many more. With the Paxful platform, you essentially have your pick at how you want to redeem your money for Bitcoin. Read our full review here.
Sellers are charged a 1% fee on Paxful. Buyers are not charged any fees whatsoever for bitcoin purchases.
Headquarters: New York, New York
CEO: Cameron Winklevoss, Tyler Winklevoss
Pros: Ability to set real-time market limit orders. Great interface.
Cons: Exclusive to United States citizens.
Overall rating: 9.8
Gemini is one of our favorite exchanges for buying and selling Bitcoin with market limit orders. Not only do they have a clean interface but also security is one of the tightest in the industry. The Winklevoss twins have created a cryptocurrency exchange that is easy to use for financial traders, investors, and beginners to crypto assets.
Gemini boasts low fees and one of the cleanest user interfaces out of all the exchanges. The dashboard makes it easy for investors to view a snapshot of their holdings upon login. The platform allows you to purchase and sell Bitcoin, Ethereum, Litecoin, Zcash, and (soon) Bitcoin Cash with real-time market limit buy and sell orders. With Gemini, you have the computing power of Forex trading software with a simple, easy to use interface.
Transferring funds into Gemini is as simple as linking your bank account. Bank transfers and bank wires are completely free, although your bank may charge you a fee to wire money into your Gemini account. In order to get started, you will need to be verified and accepted onto the platform. Apply now.
How to Store Your Bitcoin In A Cryptographically Secure Wallet
Exchanges provide a great platform to purchase bitcoins and exchange them for other cryptoassets but are definitely not the best places to store them. In the past, we have experienced massive hacks on cryptocurrency exchanges, with the most recent being Coincheck, where hackers made away with more than $400 million worth of cryptocurrencies. If your exchange ever suffered such an attack or experienced an account suspension, all your investment would go down the drain. A good strategy is to open a bitcoin wallet and send everything thereafter purchase.
A wallet can either be online based (hot wallet) or offline based (cold storage wallet). Each of these wallets has their pros and cons, and your choice depends on whether you want to get quick access to your cryptoassets regularly and the number of bitcoins you wish to store.
Hot Wallet vs Cold Wallet
A hot wallet is connected to the Internet. A hot wallet can be compared to a checking account, which is liquid in function. People who carry cryptoassets keep a small amount in their hot wallet to purchase things.
A cold wallet is offline. A cold storage wallet can be compared to a savings account, which is protected by vault security. Investors with large amounts of cryptoassets normally keep the vast majority of their assets within a cold storage wallet. Hackers cannot steal digital assets that are kept inside of a cold wallet.
Online Wallets (Hot Wallet)
Most online wallets come with an easy-to-use interface and provide a quicker access to your bitcoins. However, their connection to the internet makes them attractive to hackers, which is why you shouldn’t store large amounts of bitcoins on such.
If you are just getting started with bitcoin and want to begin with small amounts, there’s no need to go for an offline wallet. Start with a web-based wallet, such as blockchain.info or Coinbase itself. If you are going to use Coinbase, make sure you consider its multi-signature wallet or Coinbase vault for utmost security.
Consider desktop wallets. Yes, they are online based at first, because they involve downloading software, but storing the bitcoins is completely offline. They are fairly easy to use, but access is limited to a specific computer or laptop where the software is installed. Good examples of desktop wallets include Exodus and Armory.
There are also mobile wallets, which by definition are online based. These provide a wide range of features to improve security and usability. The best thing about these wallets is that you can access your bitcoins whenever and wherever using your mobile device. To protect your digital assets, ensure that you use 2FA when accessing the wallets. The danger about mobile wallets is that your cryptoassets can be at a security risk if you happen to lose your device or it’s attacked by a malware, keyloggers or viruses. Good examples of mobile wallets include Jaxx, BRD Wallet, and Mycelium.
Offline Wallets (Cold Storage Wallet)
Offline wallets are certainly the most secure, and best for those looking to store a large number of bitcoins for long-term. Keeping your digital assets offline means that they can’t be accessed by hackers or compromised by keyloggers and the likes.
Another kind of offline cold storage wallet is a hardware wallet. This is the most secure way to store a large number of bitcoins. Here’s it works: you purchase an external storage device specifically created for storing bitcoins. Three great examples are Ledger Nano S, Trezor and KeepKey. You connect it to your PC and transfer all your bitcoins to the device. Some of them might come with a small screen to make the operation easier. The downside about these wallets is that they are cumbersome for new users. The hardware is also hard to come by because they are often sold out, so when you get a chance to purchase one, don’t hesitate.
If a personal hardware wallet doesn’t cut it for you consider grabbing a Wirex VISA payment card or the Cryptopay prepaid card. They function as both payment cards and cold storage hardware wallets and might be even more convenient if you plan on spending some of your hard-earned bitcoins at the supermarket or while on vacation.
Another offline wallet that matches the security of its hardware counterpart is the paper wallet. It’s basically a document with information about your bitcoin’s private keys. It’s hacker-proof and no viruses or phishing attacks would compromise the security of your digital assets. You can get one from BitAddress.org.
Note: Whatever option you will go for, keep your private key PRIVATE! Do not disclose it to anyone whether online or offline. Think of it as your banking pin. Most phishing attacks target the private key so that the people behind them can try and access your wallet.
When is the Right Time to Invest in Bitcoin?
Investing in bitcoin can be quite tricky, especially when identifying the right time to get in. You see, the cryptocurrency market can be volatile, with prices moving up and down on daily basis. Frankly, there isn’t the “best” time to buy the digital currency. But as it is with any other similar market, it’s best to buy bitcoin when there’s a dip. A cryptocurrency investing app such as Snowball can help you time your movements. Remember that, though bitcoin is expected to grow in value, the prices are purely based on speculation. If your investment goals are for long-term, it’s best to get in early enough.
What is Bitcoin Worth?
Bitcoin is an intricate asset. It is digital so it can be easily converted into dollars, gold, ethereum, stocks, pizzas and thousands of other commodities of your choosing. It is a borderless currency and its data is immutable. Bitcoin is only about 10 years old however it has shown tremendous potential as a blockchain application functioning as a store of value which is used as money. Many services and companies are utilizing either Bitcoin or the blockchain within their business practices.
Depending on the current rate of bitcoin, this makes Bitcoin a great investment as more applications and services are built. New blockchain applications require skill and time for executives and programmers to design, test and implement ideas. It is likely that Bitcoin will be accepted as a transaction method within most businesses so the potential outlook of Bitcoin and blockchain backed applications is overly optimistic.
Investing Bitcoins in an IRA or 401K
The Internal Revenue Service (IRS) ruled that bitcoin and other digital currencies have an equivalent value in real currencies, which means that they can be used for services or purchasing goods. So this prompts a major question – can you fund your 401K or IRA with bitcoins?
Well, the IRS is yet to specify rules when it comes to bitcoin retirement plans, but since it ruled that digital currencies have an equivalent value in real currencies, it’s safe to have a 401K or IRA bitcoin investment.
As bitcoin continues to gain greater acceptance across the world, there’s a good chance that its value will continue to grow. This makes it a great option to fund your 401K or IRA. In fact, having a bitcoin 401K or IRA means that you are invested in non-collateral assets.
As it’s the case with other investments, no one can accurately predict the actual value of bitcoin in the future – it’s purely speculative. But under the circumstances we are in today, your 401K or IRA bitcoin investment could be very profitable in the long-term, especially factoring in tax savings.
Here’s how it works:
A bitcoin 401K or IRA works pretty much like the traditional IRAs. You roll over your securities and use the funds to buy Bitcoins. You have two options when it comes to this kind of investment: one, you can go for a Roth IRA with after-taxed assets (if you are under 70 1/2 years), or a traditional IRA with pre-taxed assets.
Just like 401Ks or IRAs in collectibles or precious metals, bitcoin IRAs are handled through certain custodians. As a plan participant, it’s your choice to pick the investment vehicle that suits you best. But ensure you only go with accredited providers who will make your investment dreams in a reality. Learn more about investing in Bitcoin through a Roth IRA or 401k retirement account in our in-depth guide.
Our suggestion is to go with an IRA custodian that can provide you with not only cryptocurrency IRA services but also precious metals to complement the portfolio. This makes for a good “all-weather” portfolio in which you can protect yourself from every kind of financial situation. A good example of one is the Regal IRA from Regal Assets.
What you need to know before Investing in Bitcoin
Investing in bitcoin can be a lucrative venture, but there are some risks involved. Before you can invest your hard-earned dollars in the cryptocurrency, here are some pointers to keep in mind.
1. Invest within your means
Just as mentioned earlier, the prices of bitcoin are purely based on speculation, so it’s only wise to invest the way you can afford to lose. Being the risky investment it is you shouldn’t invest your life savings with guarantees that you will make good money in a certain period. Have a clear investment strategy and commit some percentage of your earnings to it. Chances are that things will go to your favor, but if they don’t, you won’t end up financially depressed.
2. Think long-term, not short-term
Investing in bitcoin is not for the faint-hearted. The prices of the cryptocurrency can be $1,000 today and $700 tomorrow. It has happened before. If you are looking at bitcoin as an investment tool, it’s best to think long-term rather than short-term. Holding your coins for longer might yield better returns than just cashing out when prices spike.
3. Buy your bitcoins using dollar-cost-averaging
Assuming that you are looking to invest in for the long term, don’t buy a huge number of bitcoins in one trade. As mentioned earlier, the prices of this digital currency are extremely volatile, so spreading out your purchases over days or weeks could be helpful. If anything were to go wrong, you wouldn’t lose all your investment. Learn how to read charts and analyze prices to predict just when the right time to buy is. You can view our live real-time Bitcoin price chart here.
4. Don’t fall for seller scams
There are lots of scams around that re involved with bitcoin. The fact transactions use QR codes and users are anonymous, many dodgy people have come up to take advantage of unsuspecting investors. Don’t just buy your bitcoins anywhere – use a reputable exchange such as Paxful, Coinmama, CEX.IO, Changelly, Coinbase, Localbitcoins or any other of the hundreds of exchanges available.
What’s Next For Bitcoin?
Whether Bitcoin is bullish or bearish, the outlook seems bright from here on out. The inception of the Blockchain, which enabled Bitcoin to be the worlds-first digital currency, occurred over 10 years ago. The blockchain is giving power to financial institutions, educational institutions, governments, and more with the ability to secure data with immutability and transparency inside of private blockchains. In effect, blockchain technology is going to disrupt many industries while Bitcoin is a first mover as a public crypto asset. As more services and apps get built on top of Bitcoin, its value and number of users will inevitably go up.
Since its inception, Bitcoin has been a blessing to many investors. In 2009, it was just a budding idea and those who took the bold move to commit some money to it were rewarded handsomely. The price of bitcoin is expected to grow over time, especially now that it is receiving the much-needed mainstream attention. If you are looking to join the bandwagon and invest in the cryptocurrency, it’s never too late. However, as a beginner, you need to be very careful as the bitcoin market is extremely volatile. While bitcoin is no longer profitable and trading requires you to learn all the ins and outs of the bitcoin market, you can buy the digital currency and hold it in a secure wallet, hoping that the prices go to your favor. Think of it as a long-term investment and only use reputable platforms for your dealings. Who knows, this could be the best decision you will make in 2018!
P.S. Are you looking for more useful resources to help you get started with Bitcoin investing? Check out our resources page for more helpful info.