Bitcoin 101: How to start investing in bitcoin?

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Bitcoin has been making a lot of noise since last year and along with it came the stream of curious individuals wondering how they could cash in on this too. Whether or not bitcoin will eventually turn out to be a good investment or just be a passing still remains to be seen.

A lot of people are drawn in to the promise of sudden riches –or sudden ruin—bitcoin offers and are wondering how a bitcoin investment actually works.

If you’re one of those people, then you came to the right place. We’ll be providing you with a step-by-step guide on how to start trading with bitcoin.

But first…

Should I Invest in Bitcoin?

 As with any speculative investment, it is very risky to buy bitcoin at sky-high valuations. If you want to know if investing in bitcoin is a “smart” move, you might want to consider what billionaire investor Mark Cuban has to say about bitcoin investment. According to him investing in bitcoin is “still very much a gamble”.

You need to understand that a bitcoin investment may lose you money. If you’re not ready to take that risk, bitcoin investment may not be for you.

In any case, you may also heed the simple yet blunt advice of Jack Bogle: “Avoid bitcoin speculation like the plague.” Bogle is the founder of the Vanguard Group, an US-registered investment advisor, so he most likely knows a thing or two about investments.

Another risk to consider when investing in bitcoin is the risk of a cyber attack or “hacking”.  Hackers have been attacking digital currency exchanges recently. An example would be the reported attack on digital currency exchange Bitfinex where the hackers made off with $70 million.

How to Invest in Bitcoin?

Now that you’re aware of the risks and are still willing to take the plunge, let’s start with knowing what cryptocurrencies are first.

Cryptocurrencies are unregulated and decentralized without involvement (or protection) of a central bank. This is part of what makes bitcoin appealing to a lot of people. Persons and entities can buy and/or sell cryptocurrency anonymously, and there aren’t a lot of middlemen taking a cut of transactions. This, however, also means that you simply can’t buy bitcoin by means of mainstream investing tools such as a brokerage account.

The good news is, you can purchase fractions up to the eight decimal place of a bitcoin. This means you don’t need to let go of almost $9,000 (as of this writing bitcoin is at $ 8,970.11) for a full bitcoin. Based Saturday’s prices, one ten thousand of a bitcoin is worth $0.90.

Digital Wallet

For most people, the best and simplest way to start a bitcoin investment starts with setting up a cryptocurrency wallet. There are a lot of companies you can try setting up an online wallet with but Coinbase ,Bitstamp and Bitfinex are the most popular.

Soon after you have established an account, connect it to your payment source –a bank account perhaps –via two-factor authentication.

Once you secured a purchase of a bitcoin (or a fraction of it), it stays in your digital wallet until you decide to trade it (by using at as money for online purchases, or by selling it or “trading” it for money).

If you have or are familiar with a brokerage account, then you can compare the bitcoin user experience with it. Just like a brokerage account, you’re also likely to pay a transaction fee every time you buy or sell. Therefore, day-trading bitcoin is probably not such a good idea because those transaction fees would eat up any profit you earn.

While bitcoin is technically anonymous, this doesn’t mean you’ll be able to escape the watchful eye of the IRS. Bitcoin, for tax purposes, is considered like a stock in that a trade can trigger a capital gains tax bill.

Conclusion

It’s extremely important to understand how bitcoin works before you start shelling out huge amounts of cash for investment.

Bitcoin is still new and it can take months or years to understand its true impact in the world. Take your time in understanding bitcoin, how it works, how to secure them and just what makes it different (or better) than fiat money.

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