Welcome to Step 1 of the “investing in Bitcoins” course. In this chapter you will learn how to invest in Bitcoins. Aside from discussing the traditional way of trading in bitcoins, a new popular investment method will be covered that has some interesting benefits.
1.1 What are bitcoins?
Bitcoins are a form of electronic money. They can be stored on a computer and sent to anyone with a bitcoin address via the internet. Cryptography is as security system used to provide the necessary safety so that bitcoins can only be distributed by the person who owns them. As a result, bitcoins can only be sent once by the same person.
1.2 Trading in bitcoins
You can also trade on Bitcoins online. Trading online requires you to speculate on the value of the bitcoin price. Traditional trading involves owning bitcoins, which involves higher risks. The value of one bitcoin can easily fluctuate £200 in a day.
Figure 1: Investing in bitcoins – Bitcoin price.
Traditional trading has it’s pitfalls:
- It is expensive. One Bitcoin costs more than £2500. Especially for investors with small budgets, the margin to seriously invest in bitcoins is very high.
- It’s unsafe: Bitcoins are purchased, sold and distributed over all internet. If you own a bitcoin it’s vulnerable to hackers, cybercriminals or viruses
- You can only earn money when the value of bitcoin increases. If the price of bitcoin drops, you lose a part of the money you invest.
Recently, more and more people are discovering alternatives ways of earning money from Bitcoins without the disadvantages that come with traditional investing.
Speculating on the price of bitcoins has many advantages:
It is suitable for people with smaller budgets. You can trade from as little as £10
It’s safe. You do not own the bitcoins, so you are not at risk of theft. You only speculate on the market fluctuation
You have the potential to profit from both an increasing and decreasing Bitcoin rate.
You have opportunities to earn a profit daily
In the next chapter you will learn how to speculate on the price fluctuation of Bitcoin.