Bitcoin, the world’s first decentralized digital currency, was created in 2009 by an anonymous person or group under the pseudonym Satoshi Nakamoto. Unlike traditional currencies, Bitcoin operates on a decentralized network, meaning a central authority, such as a government or financial institution, does not control it. Instead, Bitcoin transactions are validated and recorded on a public ledger called the blockchain.
One of the key benefits of Bitcoin is its ability to provide users with a high level of anonymity and privacy. When you make a Bitcoin transaction, your identity is not revealed, only your wallet address. This level of privacy is not possible with traditional financial systems, where banks and financial institutions typically require personal identification to open an account.
If you’re new to Bitcoin investing, knowing where to start can be overwhelming and confusing. Fortunately, there are several steps you can take to begin your Bitcoin investment journey. In this article, we’ll provide a complete guide on how to invest in Bitcoin for beginners.
Why and how Bitcoin emerged: A brief history
Bitcoin is an open-source code written by a person or community presenting themselves as Satoshi Nakamoto. Satoshi published a whitepaper for bitcoin and its operating principles in 2008. Since then, the currency development has been in the hands of the users and operators that comprise the sector. The real identity of Satoshi remains unknown and has caused much speculation. However, since even Bitcoin’s creator can not manipulate the system, it is safe to use regardless of who created it.
What is Bitcoin & how does it work?
Bitcoin is a decentralized digital money system developed by an open community that uses it. Bitcoin’s operations are based on a distributed database known as the blockchain. We can also call it bitcoin’s accounting book or ledger. This public ledger contains information on all the bitcoins in the world and bitcoin transfers executed in the network. The system is open and transparent, meaning all existing bitcoins and bitcoin transactions are public. Privacy is based on the fact that the ownership of the bitcoin addresses is not public.
The price and supply of bitcoin
The BTC price, on the one hand, works similarly to the price of other assets. On the other, bitcoin has a set of its own rules. Let’s cover one of them here — the supply of bitcoins.
The frequency of creating new bitcoins is defined in a formula from the whitepaper. Currently, miners generate around 6.25 bitcoins every 10 minutes. Every four years, the number of new emerging bitcoins automatically halves, slowing down their flow on the markets and further increasing the scarcity. So far, halving events have taken place in 2012, 2016, and 2020.
One of the unique features of Bitcoin is that it is designed to resist inflation and economic instability. Unlike traditional fiat currencies, which are subject to the control and manipulation of central banks, Bitcoin has a fixed supply limit of 21 million bitcoins. This means that as Bitcoin demand grows, each bitcoin’s value may increase.
Ultimately all bitcoins — 21 million — should be in circulation in 2141. Henceforth, miners receive rewards as commission fees from transactions.
As of April 2023, over 19 million bitcoins are in circulation out of a total supply of 21 million. This means that around 90% of all bitcoins have already been mined. Besides, we presume an estimated half of all existing bitcoins were lost, meaning their owners died or lost access to their private keys. While these coins continue to exist in the blockchain, nobody can obtain them. This makes the actual supply of bitcoins even lower.
All bitcoin transactions are in the same public ledger.
What is Bitcoin mining?
The bitcoins are added to circulation through a process called mining. The total number of bitcoins that will ever exist is finite. This makes it different from the euro and the dollar, which central banks can create without limits. Limiting the maximum amount makes bitcoin a scarce resource. Due to its scarcity, the increase in value is a natural consequence of the growing popularity and use of bitcoin.
Users’ computers across the world maintain the Bitcoin blockchain. Network operations work with the help of users who donate computing power (hash rate) to the network. As a reward, users — miners — receive bitcoins that the network creates in the process. Miners process all the transactions in the bitcoin network. To process a transaction, the performing miner must solve a demanding mathematical equation. In addition, mining consumes a lot of energy which leads to the debate whether bitcoin is bad for the environment.
Because of the limited supply and the increase in value, we use smaller units of bitcoin. A thousandth of bitcoin is called mBTC. There’s another common acronym for a hundred millionth of a bitcoin, the smallest unit — a satoshi. It’s common practice to buy a fraction of bitcoin at a time, as big as one can afford.
How does the bitcoin value react to world events and economy
Throughout most of its history, bitcoin has been uncorrelated or even negatively correlated with traditional assets, meaning it either maintains its value or goes up when other assets drop. In March 2020, the COVID-19 pandemic led to a market panic, during which bitcoin’s price crashed 30% in one day. This marked the first time bitcoin has ever correlated with the broader economy during its entire ten-year existence. However, BTC quickly recovered and strengthened its case as a durable safe haven and store of value.
Bitcoin’s independence from banks or centralized entities also makes it very independent of social changes. People use it in many countries where social turbulence and corruption are prevalent. For example, the Greek banking crisis at the beginning of 2010 greatly increased the use of bitcoin within the country. Bitcoin wasn’t affected by the banking crisis. It was a safe and functional alternative to maintaining and transferring money for the Greeks dissatisfied with their banks. We have seen a similar development in other countries like Venezuela. The hyperinflation has left the national currency practically worthless while bitcoin use has literally saved lives.
What are bitcoins’ benefits compared to fiat?
Bitcoin’s limited supply is one of its defining features that sets it apart from traditional fiat currencies. While governments can print more money to meet their economic needs, the supply of Bitcoin is fixed at 21 million bitcoins. This scarcity has led to a sharp rise in demand for Bitcoin, increasing value significantly over the years.
Bitcoin’s value has often been compared to gold, which is also a scarce commodity with a finite supply. Like gold, Bitcoin’s value is not subject to the same inflationary pressures as fiat currencies. Instead, it is primarily determined by supply and demand in the market, making it an attractive investment option for those looking to diversify their portfolios and hedge against inflation.
In recent years, there has been a surge in awareness and use of Bitcoin, increasing its value. This trend is expected to continue as more people adopt Bitcoin as a means of payment and as a store of value. As a result, Bitcoin has seen significant growth in value over the years, doubling its value during 2009-2013, 2015-2017, and 2019.
The most recent bull run of 2021 saw Bitcoin reach new heights, surpassing $60,000 in value. While the value of Bitcoin can be highly volatile and subject to fluctuations, many investors believe that its long-term growth potential is significant, making it an attractive investment opportunity for those looking to diversify their portfolios and reap substantial rewards.
How to invest in bitcoin: Can I use it to pay?
People widely use bitcoin in international money transfers and e-commerce platforms. Bitcoin transfers are processed at the same rate regardless of where the sender and recipient are located. Typically transactions take less than an hour. As the network develops further, the transaction speed can drop to minutes or seconds in the near future. Fast and affordable transactions make bitcoin an attractive option for international transfers, typically slow and expensive.
People can use bitcoin to pay in an increasing number of stores and web stores. There are already tens of thousands of merchants internationally who accept bitcoins as a payment method. Paying with Bitcoins in stores typically takes place via the merchant’s QR code. The client reads the code with a bitcoin wallet app on their phone.
Where to safely store your bitcoin
If you want to invest in bitcoins, you need to set up a wallet to store your coins safely. A Bitcoin wallet is similar to a cash wallet or a bank account. Once you’ve created it, you can buy bitcoins to deposit to this wallet. You find your personal wallet address or public key in your wallet, which acts like a bank account number. Anyone with the wallet address can transfer bitcoins into the wallet. Be careful not to share your private key since it is equal to a password and can be used to access your funds.
If you are researching how to invest in bitcoins long-term, secure storage like Coinmotion is a good option. If you have a significant amount of bitcoins, you might also want to try managing the funds yourself, in which case a cold storage wallet (e.g., Ledger Nano S or X) is an option to consider.
It is also possible to buy bitcoins with cash from Bitcoin ATMs. These machines allow you to deposit or withdraw cash when you want to buy or sell BTC. In Finland, Coinmotion maintains the largest Bitcoin ATM network Bittimaatti.
Invest in bitcoin on Coinmotion
Coinmotion is one of the leading bitcoin investment platforms in the Nordics. You can buy, sell and store bitcoins and eight other virtual currencies safely. After signing up, you get a free account and Bitcoin wallet that works in your browser or mobile app. You also get separate wallets for other virtual currencies — and you can exchange them for bitcoin (and the other way around) to save on fees.
For those who want to invest at least 10,000 euros in bitcoin, Coinmotion offers Coinmotion Wealth services. Our team helps you manage your crypto portfolio and provides regular market insights.
Investing in bitcoin and storing it in a secure vault
When bitcoins are a long-term investment, we recommend paying attention to security issues. The biggest risk is that someone hacks into your account and withdraws the bitcoins. Most bitcoin thefts happen like that.
Coinmotion provides extra security against such threats with the Vault service. You can protect Bitcoin transfers with a timelock that can be set from 12 hours to one month. So if someone hacked your account and tried to withdraw funds, you would receive a text message or email immediately. You could then cancel the withdrawal by contacting our support during the time window.
Understanding the associated risks
Storing bitcoins has become safer over time while the most trusted service providers developed their security standards. Especially in the early days of Bitcoin’s existence, some significant bitcoin exchanges were misused or used illegally, and users lost their bitcoins. Investigating the background of the service you use is still highly recommended.
If you invest in bitcoin and use physical storage, take care of the safe storage of the coins themselves. A safe at home or a bank are both excellent options. For virtual services, it is vital to make sure that your password is secure. High-quality service providers enable two-factor authentication, which increases security.
With bitcoin’s increasing value and human mortality in mind, it is good to remember that even a tiny amount could one day amount to a substantial inheritance. Therefore it is recommended that bitcoin investors make testament arrangements to ensure that their funds won’t be lost and can be legally inherited by family members or other trusted parties.
Timing is everything
There are different types of risks involved with investing in Bitcoin. The volatility of Bitcoin prices is higher than the volatility of many other currencies or some traditional investment instruments. Even though the volatility has decreased during the last few years, you should consider bitcoin a high-risk investment. Bitcoin’s value has been increasing strongly during the last years, but there have been significant downtrends as well.
You should pay attention to the price fluctuation, especially if you plan to make a short-term investment. As a long-term investment, bitcoin has historically performed well. Therefore a long-term investment strategy is the recommended way of investing in bitcoin. Due to the price fluctuation, it can be wise to divide bitcoin investments over a longer time period.
If you wonder how to invest in bitcoin and when one option is automated monthly purchases.
Bitcoin’s price & future
If bitcoin truly breaks through in the following years, it could become a global currency that can be used as a payment method worldwide. While exact numbers are impossible to count, it is estimated that there are currently around 100 million bitcoin users amounting to roughly 1% of the world population. If the growth continues and the amount of bitcoin users multiplies further, the value can skyrocket.
Some financial experts expect this to be the case. A Harvard professor forecasted that bitcoin would reach $100,000 by February 2021 (in reality, the BTC price was $35,524.43 on February 1, 2021). Top analyst Kay Van-Petersen, in turn, predicted $100,000 by 2027.
Even though bitcoin price predictions don’t always come true, such optimistic forecasts are a good sign for a crypto investor.
For sure, some analysts are pessimistic. Many critical forecasts come from people working in the banking sector. Obviously, the rise of bitcoin can decrease the power of banks, so these people have a reason to be cynical. Nonetheless, it is worth being cautious and weighing the pros and cons of Bitcoin before making an investment decision and diversifying your portfolio with it. Bitcoin certainly includes risks — but it also has enormous potential for brave investors.
Bitcoin has attracted growing numbers of investor funds during the past years. Currently, people most commonly use BTC as an investment tool and value retainer. The long-term value of the most widely used currencies globally, such as the US dollar and the euro, is constantly downward. The continuous increase in the amount of money leads to a decline in value. Due to the constant deterioration of value, it might not be convenient to keep large amounts of cash or low-interest accounts with these currencies.
When investing in Bitcoin, it is essential to remember that its value can be highly volatile and subject to fluctuations. It is crucial to invest only what you can afford to lose and to have a long-term investment strategy in place.
Overall, investing in Bitcoin can be an attractive option for those looking to diversify their portfolios and potentially reap significant returns.
However, it is essential to research, choose a reputable and secure wallet and exchange, and have a long-term investment strategy to maximize your chances of success.
Invest in Bitcoin in five simple steps
- Join a secure bitcoin trading platform
- Decide where to store your bitcoin safely and securely
- Link your wallet to your bank account and deposit fiat money
- Make your bitcoin purchase
- Maintain control over your bitcoin investments
Read next: How to buy bitcoins safely on Coinmotion
Invest in Bitcoin — F.A.Q
Bitcoin is a decentralized digital currency that operates on a peer-to-peer network without a central authority or intermediaries.
Bitcoin offers several advantages over traditional currencies, including lower transaction fees, faster and more secure transactions, and greater privacy.
Bitcoin is generally considered safe to use, but it comes with risks like any currency or investment. Storing Bitcoin securely and being cautious of scams and fraud is essential.
The current price of Bitcoin constantly fluctuates due to market demand and supply. You can check the current price on cryptocurrency exchanges like Coinmotion or market data websites.
The future of Bitcoin is uncertain, but many experts believe that it has the potential to revolutionize the financial industry and become a widely accepted form of currency.
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