Bitcoin 101: The Complete Beginners Guide to Cryptocurrencies
Bitcoin is a Cryptocurrency, which, like money, can act both as a store of value and a medium of exchange. But Cryptocurrencies are not physical things. There is no actual coin or bill, only a representation in the form of a digital address stored on a digital ledger called the Blockchain. The Blockchain ledger is stored on a huge network of computers worldwide. An exact copy of it is kept on all these computers (nodes) simultaneously, which record and store all the Cryptocurrency transactions and balances of that particular currency.
Because there are many different Cryptocurrencies, there are many different Blockchains. Bitcoin, for example, runs on its own dedicated Blockchain, while Ehtereum allows other currencies run on its Blockchain. Blockchains have their own cryptographic algorithms that record the transactions and create new blocks. This activity is called Mining and a Hash is a cryptographic representation of a transaction created during Mining. Cryptocurrencies use a peer to peer network, meaning transactions are conducted directly between individuals without middlemen, other than exchanges. No banks, no brokers, no authorities involved. This is one of the beauties of Cryptocurrencies. Transactions are also immutable, meaning once they are added to the Blockchain, they cannot be changed. And the network is decentralized, meaning there is no single authority. Everyone knows what everyone else is doing, so the dishonest folks can’t get away with being bad guys – too many eyes watching. Being public, not private makes it almost tamperproof. This all began in 2008 when an unidentified developer named Satoshi Nakamoto wrote a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” and “mined” the first Bitcoin block as a result. Bitcoins could barely pay for a pizza then, and are worth a small fortune today. Let’s assume this all makes some kind of sense the first time you read it. Read it again 3 more times. You will still not understand it completely, but it will make more sense in time.
Trading Bitcon vs Holding
Assuming that you want to get involved in the Bitcoin markets, you have to decide what exactly you would like to do. Do you want to trade on a daily basis and try to make profits like that or would you like to hold the coins for the long run.
Short Term Trading
If you want to trade the coins then you can consider using derivative instruments such as futures and CFDs. These instruments are not a purchase of the underlying asset but they will pay you out a profit if you are able to predict the direction of Bitcoin most appropriately. There are two types of derivative instruments that you can consider. These are futures and CFDs. The former are a promise to buy / sell Bitcoin sometime in the future. The latter is placing a bit on difference in spreads on the asset. There are a number of CFD brokers that you can use including Plus500, IG and E-torro. One of the best bitcoin CFD brokers that you can get is IQ option. They are regulated by CySec in Europe and have one of the most advanced trading platforms on the market. If you wanted more information then you could read this IQ Option platform review.
Long Term Holding
If you were more inclined to merely buy the Bitcoin and keep it stored for the long term price appreciation then you could consider buying the physical asset. This is different from trading on a daily basis as you will hold these in your portfolio and won’t make money on the derivative position. Now, let’s buy some Bitcoin, the most popular cryptocurrency and the easiest to acquire. The first step is to convert your USD to Bitcoin. This is done through a time consuming and frustrating process on a Cryptocurrency exchange. The best one to start with is Gemini. Here you will open an account, follow directions closely, link in your bank account, and voila – you will have Bitcoin. Be patient, the process will take several days the first time through. Now you own some Bitcoin. You can save some (a wise choice), spend some (have some fun) or trade other Cryptocurrencies (try your luck and have some more fun). Regardless, you have to store it someplace . You can store it on the exchange itself, like Coinbase (somewhat secure), a digital (“hot”) wallet on your computer or browser, like Jaxx (also somewhat secure) or on a hardware (“cold”) wallet like Ledger Nano S (most secure). A hardware wallet stores you Bitcoin off-line, is about the size of a thumb drive and you can carry it with you or put it in a safe. All wallets store your public and private keys (digital addresses of your Bitcoin). There are many more wallets and most have both desktop and mobile applications. You always need to make certain your private keys are safe and only you have access to them. If you lose them, you will lose all of your Bitcoin – forever. If you decide to save and hold (HODL) some Bitcoin the safest place is a hardware or paper wallet. Let it be, and let it appreciate. If you decide to buy something with it, find a seller who accepts Bitcoin. More and more large and small businesses accept Cryptocurrencies. You will send your Bitcoin to their public address in exchange for goods or services. Bitcoins are divisible into very small amounts, so it is easy to pay in any increments necessary.
Hedging Your Risk
While you may want to have the full exposure to Bitcoin in order to make the most gains over the investment horizon, these assets are still incredibly risky. They can swing several hundred points in a day and you should never invest more than you are willing to lose. Hence, in order to protect your position you could consider option type instruments that will give you an asymmetric payout. These instruments are best able to protect you from adverse movements in the price. They also allow you to still benefit from the potential for upside improvement in the price of Bitcoin. If you were looking for the best place to purchase these, there are a number of Bitcoin option brokers that you can create an account with. You just have to make sure that you are choosing one that is well regulated and is available in your jurisdiction.
Bitcoin is one of the most revolutionary pieces of technological advancement since the early days of the internet. It has paved the way for the complete transformation of financial services from centralised banking bodies to the “internet of money”. Bitcoin technology has also been used by a number of other cryptocurrency projects that have now been launched. Each of these projects offer their own unique benefits and are positioned to disrupt their respective fields. These include coins such as Ripple, Cardano, Monero and Stellar Lumens. So go ahead and join the revolution. Create your own Bitcoin account and buy some coins. You can either trade them on a daily basis or you can invest them for the long term. The most important thing when doing so is to remember that these are still an investment. They are volatile and they can also decrease in price. Make sure that you only ever invest a reasonable amount and that you have the adequate safeguards in place.