Unless you have been in the cave for the past few months, Bitcoin has become a hot topic in the world of investing. While we are not up to date on the latest cryptocurrency, everyone has heard of Bitcoin. It is the most popular cryptocurrency out there. So you should know about it. And should you invest in Bitcoins?
What is Bitcoin? Is it safe? In this article, we will explain how cryptocurrencies, such as Bitcoin, work and the risks you take when you buy, use, trade, or invest in Bitcoin. As of this writing, there are more than 800 now.
Full disclosure: As I am not a financial advisor, I will not answer yes or no to the question posed in the title of this article. You should arrive at your own conclusion after reading this article.
Bitcoin, what is it?
Bitcoin, in simple terms, is a digital currency or electronic money, meaning that it does not physically exists as coins or paper money. A Bitcoin can be used as a form of payment but only if another person is willing to accept it as such.
The value of a Bitcoin can fluctuate significantly; it may not be accepted in many places and it’s not guaranteed by any banks.
How does Bitcoin work?
You can buy or sell cryptocurrencies such as Bitcoin on an exchange platform using traditional money such U.S. Dollars or Japanese Yen, etc. They can be bought or sold for cash through special ATMs.
If you are in the U.S. and want to quickly buy Bitcoin, Ether or Litecoin (two other cryptocurrencies), Coinbase is the most popular and easiest to use option.
Cryptocurrencies are kept in a digital wallet or wallet app. So you will need a wallet app for each type of cryptocurrency. The wallet app can be used to pay for actual goods and services from anyone willing to accept them as payment.
Should you invest in Bitcoins? What are the risks?
If in 2013, you bought Bitcoins where its price was about $300, you would have made a lot of money right now as its price rose above $10,000 this week. That is a very good reason to invest in Bitcoins. You would be a very rich person right now.
However, there are several risks involved in buying, trading, or investing in cryptocurrencies such as bitcoin. First, cryptocurrencies are less safe.
The exchange platforms on which you buy and sell cryptocurrencies are not regulated or controlled by a central authority such as a government or a bank, meaning that if the platform is hacked, you are not protected. You can therefore lose significant amount of money.
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Second, the value of cryptocurrencies fluctuates. Bitcoin is based on its popularity, which means that the value can go significantly down if fewer people use the currency or trade it.
Third, the digital wallet on which your Bitcoin is kept can be stolen. You digital wallet has a private key like a password or a PIN. If hackers steal your digital wallet, you have little hope of getting it back.
Whether you should invest in Bitcoins or whether you should buy Bitcoins depends on your knowledge of it, your tolerance for risk, etc. Bitcoin is complex and it’s not something beginners should dabble in.