I started buying Bitcoin after reading this Bitcoin article in the Guardian, where Bitcoin trader Huai Yang does indeed predict that one Bitcoin will be worth one house. Maybe not tomorrow but sometime in the future.
In fact, it is investments like these that fund my luxury travel habit. The question is, will investing on bitcoin pay for my next luxury holiday or your next house, or will it go down in a ball of flames? I am banking on Bitcoin paying for my next trip away, and in this article I share my reasons for optimism. I hope my opinions will help you draw your own conclusions.
What Is Bitcoin?
Bitcoin is a cryptocurrency based on mathematics and invented by an unknown programmer, or a group of programmers, under the name Satoshi Nakamoto. The idea was to produce a digital currency independent of any central authority, stored and transferred electronically, more or less instantly, with very low transaction fees.
No single institution controls the Bitcoin network. Only 21 million Bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a Bitcoin and is called a ‘Satoshi’, after the founder of Bitcoin).
What makes Bitcoin attractive, is that it can be anonymous. Users can hold multiple Bitcoin addresses that aren’t linked to names, addresses, or other personally identifying information. Bitcoin then stores details of every single transaction that has happened in the network in a blockchain, but these transactions are not linked to names like a bank account. Starting to regulate this Wild West are brokers like coinbase which makes buying, selling and storing bitcoins more easy, but requires a form of identification such as a passport to open an account.
What makes Bitcoin even more attractive, is that anyone can buy a Bitcoin, or portion of a Bitcoin. Like any other currency its value fluctuates, but as a result of it’s increasing popularity, the value of a Bitcoin has rocketed up and up (see graph above) which makes it a very exciting proposition for an investor.
Advantages Of Using Bitcoin As A Currency
Bitcoin is not only an investment, it is a great way to transfer money internationally. Transaction fees are tiny unlike banks or institutions like paypal charge you a significant fee for international transfers. Bitcoin is also much faster than larger banks for transfers. You can send money anywhere and it will arrive in minutes.
Should I Buy Bitcoin?
Bitcoin has risen from around $400 a year ago to almost $2000 today. Don’t we all wish we had bought 10 Bitcoins in early 2016! Yet it is only just being picked up by mainstream media and remains a niche currency for now. Japan is leading the way in making Bitcoin a useable currency on the high street. The rest of the world is lagging behind, so the potential for growth remains huge.
I am not alone in my enthusiasm for Bitcoin. According to Fortune.com, Fred Wilson, the venture capitalist known for backing Twitter and Tumblr, has made a big bet on blockchain cryptocurrencies including Bitcoin—and he thinks regular investors should buy some too.
Wilson believes that coinbase offers the equivalent of a Wall Street bank for digital currencies. Wilson said that coinbase, which is a Bitcoin, Litecoin and Ethereum brokerage, is “like J.P. Morgan or Goldman Sachs for blockchain…”.
Wilson’s Union Square Ventures has backed several blockchain companies, and the VC has also personally bought cryptocurrencies including Bitcoin and Ethereum as well as a bit of Litecoin, representing “some small percentage of my net worth,” he said in Fortune.com.
“If I were a trader, a stock trader or hedge fund person, I might think of having 5% of my assets in something like this,” Wilson added. “It’s still early days; I don’t think you want to go all in on it, but I think you want to be in it.”
Further to this, Gatecoin’s Menant has told CNBC that Bitcoin prices should climb beyond $3,000 this year.
Is There A Cheaper Alternative To Bitcoin?
Yes, there are other digital currencies out there as mentioned above. Coinbase also offers the opportunity to buy and sell Litecoin and Ethereum which also show increasing graphs, but as yet these currencies are not worth as much as Bitcoin.
Bitcoin Vs. Litecoin: What’s The Difference?
What is Litecoin? Litecoin launched in October 2011. Litecoin’s developers intended is to create the “silver” to Bitcoin’s “gold”. Both are cryptocurrencies but the Bitcoin network can never exceed 21 million coins, whereas Litecoin can accommodate up to 84 million coins. Having said that, Bitcoin and Litecoin are divisible into nearly infinitesimal amounts, so users of either currency have no difficulty buying low-priced goods or services, regardless of the value of the currency.
Bitcoin has a valuation today of almost $2000, Litecoin is valued at $27 and yet there are only 4x as many Litecoins as there are Bitcoins therefore one could argue that a Litecoin should be worth 1/4 of the value of a Bitcoin which is $500. The current price of $27 therefore looks a bargain. However, because Bitcoin and Litecoin can be split into such tiny amounts, the price for one Litecoin vs one Bitcoin is not necessarily relevant.
Bitcoin Vs. Ethereum: What’s The Difference?
Ethereum is “a platform for creation of decentralized applications running on blockchain, through the use of smart contracts”. This means that it is not only a cryptocurrency, but it also features smart contracts, the Ethereum Virtual Machine (EVM) and it uses its currency called ether for peer-to-peer contracts.
Bitcoins average block time is about 10 minutes, compared to Ethereum’s which claims to be 12 seconds. A faster block time means that confirmations are quicker. However, there are also more orphaned blocks. Additionally, more than two-thirds of all available Bitcoin have already been mined. Ethereum raised its launch capital with a presale and only about half of its coins will have been mined by its fifth year of existence.
Perhaps more relevant to investors is the fact that, since its launch on June 30, 2015, it has been gaining popularity and the coin now has a valuation of around $114.
What Should I Buy? Ethereum Vs Litecoin Vs Bitcoin
So you have opened your coinbase account, now what should you buy, Ethereum or Litecoin or Bitcoin? Sadly no-one has a crystal ball and they have all risen hugely in the last month. They could all drop massively next month but the general consensus is that it is early days for these currencies and all three have the potential to grow. It remains to be seen which will perform the best as an investment. If you do decide to invest, it doesn’t hurt to spread your bets and to have a stake in all three. For now, Bitcoin is getting the biggest PR exposure and seems to be where more people are putting their money.
Where Should I Buy Bitcoin And Can I Get Cheap Or Discounted Bitcoin?
Coinbase seems to be one of the more secure cryptocurrency brokers (in my opinion). If you open an account with coinbase, make sure you set it up using a coinbase referral link like mine. Once you buy or sell $100 USD (£76) of digital currency or more, you will get $10 USD (£7) of free Bitcoin (as will your referrer, which on the link above would be me). You can then help to grow the coinbase community and your own portfolio by referring your own friends with your own referral code.
Is Buying Bitcoin A Risk?
Yes. Of course any investment is a risk, and can go down. Even standard currencies, including US $ and GB £, can go up and down. With the upcoming Brexit and the UK leaving the EU, I believe that the pound fall against other currencies in the shorter term. This is one of many reasons I am investing a small amount in Bitcoin; it gets my money out of UK pounds which I believe will devalue over the next 6 months.
I was always advised that you should never invest anything that you can not afford to lose. I am an entrepreneur that has taken many risks, including leaving a very good job to start-up a number of companies. I am now in a much better position than I would have been if I had remained in my by “safe bet” job.
So often in life, the risk is in fact, not taking the risk. I have rolled the Bitcoin dice and own a small slice of Bitcoin action. Will it buy me a house? Probably not. Will it perform better than my other investments. I am betting yes.
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