Unless you’ve been living under a rock for the past few years, you’ve probably heard of Bitcoin already. It’s the digital currency no one can stop talking about.
But what is Bitcoin, exactly – and how do you invest in it?
It’s actually a lot simpler than you might think. This article will tell you everything you need to know about Bitcoin: where it comes from, how to use it, and how you can invest in it.
What is Bitcoin?
Let’s start with the basics. What is Bitcoin?
Bitcoin is the world’s first digitalized, decentralized cryptocurrency. That might sound complicated, but all it really means is that it’s a digital coin with no physical backing. There are no physical coins, and it isn’t tied to the value of gold or silver.
But that doesn’t mean Bitcoin doesn’t exist – it’s actually made up of hash, or a string of randomly generated numbers. Each coin is created, or “mined” by solving a complex algorithm. The more Bitcoins there are in circulation, the more difficult they are to mine, keeping the system fair for everyone who uses it.
Unlike other currencies, Bitcoin is not tied to a bank or regulated by a government. It’s exchanged electronically, from peer to peer, and holds the same value all over the world. You can trade in Bitcoin online, or exchange it for your national currency.
Why invest in it?
There are a few reasons someone might want to invest in Bitcoin.
The first reason is that the value of Bitcoin fluctuates. So, similar to investing in stock, you can buy Bitcoin at a certain dollar amount, then exchange it back to dollars when the value has gone up. It can be a really worthwhile investment and a fun addition to your portfolio – if you’re careful.
Unfortunately, the market value of Bitcoin is extremely unpredictable. It famously soared and then crashed in 2017, and since then has gone up and down at far more volatile rates than any stock or bond.
So, I wouldn’t recommend investing all your money in Bitcoin – most investment experts recommend no more than 10% of your total investment portfolio. That way, you could enjoy a high return, but you won’t be in too bad of shape if the value crashes.
You also might be interested in investing in Bitcoin if you want to keep your money outside of a bank. Bitcoin is stored in your digital wallet, and you can exchange it all over the world with no transaction fees or limits. You can also spend your Bitcoin, without exchanging it, at tons of mainstream retailers and stores.
How to invest in Bitcoin
Like the idea of investing in Bitcoin?
You’ll have to buy your Bitcoin through an online platform or stockbroker. Here are a few of the most popular places to invest in Bitcoin online:
1. Cryptocurrency exchanges
Cryptocurrency exchange sites make it easy to buy and sell your Bitcoin. Most of these sites charge a small percentage of your purchase as a fee (that’s what keeps them safe and secure).
Coinbase is one of the most popular cryptocurrency exchanges for investors in the U.S.. You can use the platform to buy, sell, and manage your Bitcoin. Like with a stockbroker, you can use the app to view and manage your portfolio, so you’ll always know the dollar value of your cryptocurrency investments.
Coinbase will also provide you with a free “hot” wallet to store your Bitcoin in the cloud.
Most other popular exchange platforms, like Gemini, Coinmama, and Binance, operate in pretty much the same way. They all allow you to store and manage your investment, and charge a minor fee (generally under 2%) for exchanges.
You can also use your traditional stockbroker or robo-advisor to invest in Bitcoin.
Robinhood was the first mainstream broker to offer cryptocurrency exchange. If you already use Robinhood to invest, you can easily install Robinhood Crypto to buy your Bitcoin in the same way.
Just like trading stocks with Robinhood, there are no fees for Bitcoin exchange through the platform.
These days, more brokers are jumping on the cryptocurrency train. TradeStation and eToro also allow Bitcoin trading through their online platforms.
3. Other ways to invest
If you just want to get your hands on some Bitcoin without using an online trading platform, you have a few other options.
Peer-to-peer exchange, or buying Bitcoin directly from owners, is one option – just be extremely cautious when buying directly from individuals, because it doesn’t come with the security of a facilitated exchange platform. I would only recommend buying Bitcoin from someone you know and trust.
Bitcoin ATMs are also available – they work just like regular ATMs, but are just for buying and selling Bitcoin. If you’re interested, you can find an ATM near you here.
Storing your Bitcoin
Remember, just because Bitcoin is entirely digital, doesn’t mean it doesn’t exist – you need to store the Bitcoin you’ve bought just like any other currency.
To do that, you have two options: a “hot” wallet, or a “cold” wallet.
Hot wallets are more common, and offered by most cryptocurrency exchange platforms. In a hot wallet, your Bitcoin is safely stored in the cloud, and you can view and access it through the exchange app or website. You can also buy a hot wallet from a third-party provider for extra security.
Cold wallets are encrypted portable devices that you can actually carry with you (around the size of a thumb drive). They generally cost about $100, but are widely considered the safest, most secure way to store your Bitcoin.
If you’re just starting out investing in Bitcoin as a way to diversify your portfolio, you shouldn’t worry about a cold wallet. The hot wallet provided by your exchange platform will be plenty safe.
The benefits of Bitcoin investment
If you’re like me, you probably thought the idea of investing in Bitcoin was a little silly when you first heard it. But if you take the time to learn about it, you’ll see there are actually tons of benefits to investing in Bitcoin.
Your investment could give you a great return. It’s a unique way to diversify your portfolio – and a lot more exciting than only buying stocks and bonds. You can also use your Bitcoin for online purchases, and at a lot of major retailers, with no banks, fees, or contracts involved.
In a lot of ways, Bitcoin is the currency of the future! If you’re ready to invest, now is a great time to pick your platform and get started.