During the last few weeks, bitcoin, the most important and famous cryptocurrency in the world, has broken all sorts of records. This might sound like investing in it should be incredibly difficult, but the reality is that one does not have to be a millionaire to invest in bitcoin. An important thing to keep in mind is that no matter how high bitcoin prices are, you can buy a fraction of a bitcoin and still reap the benefits that its high interest rates are providing.
A big wave of interest in bitcoin rose at the end of 2017, when its price hiked to nearly twenty thousand dollars. After a short while, this cryptocurrency experienced a decline, from which it fully recovered during the recent weeks and months. The most interesting part is: the price of BTC has not only recovered, but for the first time in history, it has surpassed the USD 40,000 mark.
Because of this, you might be wondering how to get into the bitcoin market soon. For this, there are several considerations to consider. In the following sections, we will list some key concepts that you will need to familiarize yourself with in order to start trading with bitcoin.
Before you buy bitcoin, you need to think about where to store it. Bitcoin wallets are used for this purpose. As its name implies, a bitcoin wallet is the place where you store your assets, as well as the tool you can use to make payments with this currency. It is important to consider that many e-shops already accept payments with cryptocurrencies.
There are three types of bitcoin wallets
The first one is the online wallet, which is offered by some platforms. This option stores your assets in an online server, so it offers great flexibility by being accesible from any online device at the expense of being exposed to attacks from hackers.
The second option, which is slightly safer, is to use a mobile wallet (such as Coinomi). These wallets are applications which you can download to your computer or mobile phone. They store your assets in your device, and as long as that device has no access to the internet, it is impossible for hackers to access them.
The third and most secure option is a hardware wallet. This type of wallet resides in a physical device similar to a USB drive, and its only drawback compared to the other two is expense, since you have to buy the device itself.
Just like in the world of regular currencies, exchange offices are businesses that let you trade one cryptocurrency for another or a fiat currency (like the US dollar) for crypto. The main thing to keep in mind is the following: just as with classic exchange offices, bitcoin exchanges offer different rates from one another. Therefore, before you purchase any cryptocurrencies, it is advisable to compare rates and fees among different exchanges.
Some exchange offices even allow smaller transactions without registration. In addition, they often accept credit cards, so transactions take only a few moments.
The most well-known exchange offices include Coinbase an Coinmate. The first one is is mainly popular because of its ease of use and security features while the second one owes its popularity to the fact that it does not charge bank fees to the user.
OTC desks are another tool to exchange crypto assets. The difference between an OTC desk and an exchange is the fact that exchanges own the assets they have for sale or trade, while OTC desks don’t own cryptocurrencies, but look for other investors that are willing to make a trade and facilitate the transactions. Minimum amounts for OTC desk transactions are usually higher than on exchanges, averaging around USD 25K per trade. Due to the volume of the trades executed via these services, they regularly are able to offer lower fixed rates than exchange offices.
One of the most well-known exchanges is the already mentioned Coinmate, which, in addition to being an exchange office, also functions as an OTC desk. Another example is Binance, which also provides these services. A third option which is also very popular is Kraken.
Another option is to buy bitcoin in one of the special ATMs located throughout most major cities in the world. To use these machines, you will still need a bitcoin wallet. Once you locate a cryptocurrency ATM, you need to decide the amount of BTC you want to buy considering the limits established for that machine. Once you know the amount you want to purchase, you will need to enter your wallet address in the machine. Most machines let you scan a QR code in order to do this. After making the transaction, you will get a printed receipt as confirmation and your funds should be available immediately.
The main disadvantages of this kind of transaction are that ATM fees are regularly higher than in other methods and the fact that most ATM machines have lower per-transaction limits than exchanges and trading desks. The greatest advantage, though, is that the transaction is as anonymous as possible.
If your bitcoin trades are performed with a known party, such as friends or family, you can also make direct transfers avoiding fees and commissions. You can pay or receive cash from someone else and then transfer the equivalent amount in BTC to the other person’s wallet without going through a third party. You can also make direct transfers to strangers both in exchange for cash or as a payment for a product or service. In doing so, of course, you should be very careful to secure your assets and only make direct transfers if you trust the other party. Remember that all BTC transactions are irreversible.
What else should you watch out for?
The main rule in bitcoin investing is simple: only invest as much money as you can afford to lose. Many economists generally consider bitcoin and cryptocurrencies in general to be a bubble that has no coverage or intrinsic value. The volatility of this investment was seen, for example, in the aforementioned decline in 2017, when the return to the $ 20,000 mark lasted almost three years.
Financial start-ups (FinTechs) which trade in bitcoin can also encounter inconveniences. For example, some banks will not open accounts for these companies because they are not able to adequately assess the risks associated with their business.
Beware of the taxes
Last but not least, it is necessary to keep in mind that the profit from the sale of bitcoin and other cryptocurrencies is generally taxed even if the investor holds the assets for a long time. You will need to check your local tax laws, but in general, profit from the sale of bitcoin is taxed as any other income.
Conclusion on How to use Bitcoin
The bitcoin market is going through a great moment right now, but in order to participate in it and be successful, you need to understand the basic concepts and several common sense rules. There are great opportunities in cryptocurrencies right now, so keep yourself informed in order to invest responsibly.