Few assets have gained as much attention as Bitcoin over the past ten years, with early investors enjoying returns of more than 1000%. This digital currency has taken the world by storm but will the price continue to grow over time and what are the risks involved?
In this article, we’ll explore Bitcoin investing and look at the fundamentals around the currency and outlook for the future.
What is Bitcoin?
Bitcoin, shortened to just BTC, is the very first cryptocurrency. This is a type of digital asset which is specifically built on a technology known as blockchain. Rather than being owned by a bank or issued by governments, this currency is completely decentralised, meaning it’s not controlled by anyone.
This has helped it gain widespread appeal, particularly for people concerned about increasing government control.
The blockchain is the main factor in the decentralised nature of Bitcoin. When transactions are made using the coin, they’re recorded as data on blocks. Each block is generated by a network of computers, using their combined computing power to process and validate transactions. This is known as proof of work and ensures that each transaction is verified before being saved.
Each time a block is created on the blockchain, new Bitcoins are created and given to the computers which process the transactions. As a result, there’s an incentive for transactions to be completed quickly and at little cost. This is known as mining, and every four years the rewards from mining are halved, as only a fixed number of Bitcoin will ever be produced.
Investing in Bitcoin
While it was originally created as a way to transfer money without having to rely on banks, Bitcoin has now become a hugely popular investment for millions of people around the world. Part of the reason for this is the fact that there’s a limited supply. Only 21 million BTC will ever exist, and this has created demand as people rush to own a slice of the pie.
As the price of Bitcoin has increased, further speculation has helped fuel massive price gains. However, these increases often come with big drops too. Bitcoin and the cryptocurrency market are still relatively new and are very volatile compared to traditional, mature markets. Those who invest in Bitcoin have the potential to make great returns, but losing money is also possible.
Before you invest in anything, it’s important to carry out a proper risk assessment. Which factors are likely to affect your investment over the years? For Bitcoin, things such as competitor coins, regulations or world events can all have an impact on the market and the value of your investment.
In addition, you should think about how much money you can afford to invest and the timeframe in which you hope to profit from it.
Security Concerns
One of the things that holds people back from investing in Bitcoin and other cryptocurrencies is security. Compared to traditional investing, there are greater security concerns around crypto, as it’s still new and has fewer regulations.
If you hold your coins on an exchange, they’re at risk if the company goes bankrupt. In addition, your coins could be at risk from hacks or scams if you keep them in a wallet.
Before investing in Bitcoin and other cryptocurrencies, you should consider how these security issues might affect you and the best ways to lower your risk. Holding your coins in an offline wallet is the safest solution, although this does mean they’re harder to access and you need to still ensure your private keys are safe.