5 Things To Know Before Investing In Bitcoin
Bitcoin is the world’s first cryptocurrency. A cryptocurrency is a digital currency that uses various encryption algorithms to verify transactions and generate new units. Ever since Bitcoin’s inception in 2009, it has taken the world by a storm. With supremely lofty goals assigned to it by its advocates, Bitcoin may hold the power to rid the world of the cyclical problems that exist in the financial industry. Bitcoin is without a doubt, an interesting new phenomenon. Due to its extremely high returns for long-term investors, it has been a go-to investment for many. However, it is very important to know the following things before you invest in Bitcoin.
- Bitcoin is highly divisible:
You might have stumbled across Bitcoin somewhere on the internet and might want to invest in it. After seeing the price of one Bitcoin you might feel that it is too much for you to invest in. However, one of the key factors of Bitcoin is that it is highly divisible. The currency can be divided up to 8 decimal places. This means that you need not buy an entire Bitcoin; you can buy smaller units of Bitcoin and accumulate it over time.
- The price of Bitcoin is highly volatile:
You might have previously invested in the stock market and might now be thinking about the crypto market. However, these two markets do not behave the same way. In the stock market a price swing of 2-4% is usually considered big. However, Bitcoin experiences that much price swing every hour. On a daily basis, the price of Bitcoin can even vary in double-digit percentages.
- It is not always an uptrend:
If you got into Bitcoin after reading about the rags to riches stories, then you probably should be careful. Bitcoin is an asset not for the uneducated. You should do your own research before you start investing in Bitcoin. Like mentioned earlier, the price of Bitcoin is very volatile. This volatility is not always good for green investors. Sometimes the price of Bitcoin is on a downtrend for months all-together. If you don’t believe in the technology and the use-case of Bitcoin, then you are better off staying away from it.
- It is decentralized and not managed by any authority:
Bitcoin is a decentralized asset that uses blockchain technology. This means that as a user there is no single authority controlling the network. As a Bitcoin user, you store your currency in your Bitcoin wallet. It is therefore your responsibility to keep your wallet safe. If for some reason the funds are lost, then there is no one to complain to in order to get the funds back. When funds are in your wallet you have full control over it. However, as soon as it leaves your wallet, you are taking some risks that various exchanges could be hacked.
- It is dangerous to store your Bitcoin on Exchanges:
This is the most important thing that you should consider when investing in Bitcoin. You can buy Bitcoin on a variety of exchanges such as Coinbase and Binance, however, storing Bitcoin on these exchanges isn’t advisable. These exchanges do not give you the access to your private keys. This means that you still do not have full control over your funds. In the case of a huge downtrend, their servers are usually unable to handle the selling volume which requires that they stop selling during such times. The most secure way to store Bitcoin is by using hardware wallets such as Ledger. The hardware wallets make sure that no one gets access to your wallet; and, even if they do, they will need your secret pin, which you get while setting up a hardware wallet.
The world of Bitcoin and crypto, in general, is a speculative one. The price of Bitcoin is highly influenced by the news in media as it is not regulated by any authority. This is why it is very important to understand how Bitcoin works before investing. Once you buy your Bitcoin, it is highly advisable to store it on a secure hardware wallet.