What is Bitcoin?
Bitcoin was created in 2009 by an anonymous entity known as, “Satoshi Nakamoto.” It was the original cryptocurrency. Bitcoin can be sent over the internet to anyone, anywhere in the world. Because of this, it can be thought of as digital money or digital gold.
Bitcoin uses a decentralized ledger to track all transactions and allows people to send funds directly to each other. This means it is not controlled by a single entity, so there are no middlemen that can control transactions, try to block them, or ask you to pay expensive fees for them.
Bitcoin is an independent, global, censorship-resistant system used to store and transfer value. It was a revolutionary invention, and many people refer to it as “gold 2.0.” This is because it shares many of the same properties as gold, such as scarcity, fungibility, durability, and divisibility. However, Bitcoin is infinitely more portable than gold.
In fact, gold is extremely heavy and requires an elaborate compliance process to transport across international borders. However, all that a person needs to transport Bitcoin across international borders is a smartphone.
Bitcoin is powered by “blockchain technology.” Blockchain technology is a financial technology in which groups of transactions are validated by special computer programs run by “miners” and added to the “chain” of transactions in “blocks.” This chain of blocks, or blockchain, contains every transaction that has ever occurred on the Bitcoin network. It is Bitcoin’s blockchain that preserves its integrity.
Key benefits of using Bitcoin:
Things to Know About Bitcoin
Digital gold
Bitcoin is still relatively young, at just over ten years old. It is not quite ready to be used by everyone around the world as a day-to-day currency. Even though it is possible to use Bitcoin to buy and sell things, right now its main use is as a type of digital gold. Because it has a limited, fixed supply, many people are buying Bitcoin and holding it over time as a store of value. A store of value is anything that can preserve purchasing power over time. Traditional currencies are not great stores of value because governments around the world print endless amounts of currency, thus creating inflation for fiat currencies. Bitcoin, with its fixed supply, is holding its value better than those currencies and other assets over time.
So, in this sense, it is like a digital form of gold that people are holding on to as security against inflation. But, it has many benefits over physical gold, such as being able to be sent anywhere around the world, almost instantly, with very low fees. It is also significantly easier to store. You can store Bitcoin on your computer, on a smartphone, on a hardware wallet, or on an online Bitcoin exchange. You will not need to purchase a safe deposit box, a safe, or space in a vault to store your Bitcoin. You can also easily bring your Bitcoin with you across international borders, unlike gold, as mentioned above.
Price can be volatile
As Bitcoin has become adopted by more and more people around the world, its price has increased tremendously. In fact, when Bitcoin was first released, it was worth a fraction of a penny. But, as Bitcoin goes through the adoption process, the price swings up and down can be very large. Bitcoin is, therefore, still a high-risk asset and people should not put more money into it than they can afford to lose.
Transactions can be tracked
All Bitcoin transactions are tracked and shared on a public ledger. Anyone in the world can view these transactions by looking at a Block Explorer online (the link here is to the Blockchain.com explorer but there are many others) and entering in a particular transaction or wallet address.
It is the identity of a wallet holder and their wallet address that is kept anonymous through public-key cryptography. However, when further information is shared, whether that is via specific spending behavior activity or other information, that could potentially reveal the user’s identity. It is therefore good operational security to only use wallet addresses once.
There are now also companies that specialize in tracking entities on blockchains such as?Chainanlysis . They work with governments and corporations to provide greater transparency on blockchains to track down specific users, as well as providing data analysis for large organizations.
Tax and regulations
Most countries around the world tax Bitcoin transactions in some way, so be sure to do your research to understand what taxes you may be liable to pay once you start using Bitcoin. In the Philippines and in many other countries, Bitcoin is taxed as property, meaning it is subject to capital gains taxes. If you buy and sell Bitcoin, then you should make adequate preparations to deal with these taxes so that you are not taken by surprise at tax season.
The Best Bitcoin Wallets to Get
There are several ways you can store your Bitcoin, each has different pros and cons. Storing your Bitcoin properly is important to make sure that it doesn’t get lost or stolen. In many cases, if your Bitcoin is lost or stolen, there is no recourse, and thus it will be gone forever. For this reason, you should make sure to always store your Bitcoin safely. The main Bitcoin storage options are:
Hardware wallet
Hardware wallets are physical devices a bit like a USB key that allows you to store Bitcoin and other cryptos on them. To get the Bitcoin onto these devices, you plug them into your computer and transfer them to the wallet using the wallet’s native software. After you move the Bitcoin onto the hardware wallets, you can store them anywhere. These wallets are password-protected, meaning that even if someone finds or steals your hardware wallet, they will still need the password to access the crypto. Don’t forget your password!
Examples of Bitcoin hardware wallets include:
The Trezor wallet is one of the most popular hardware wallets available to cryptocurrency holders. This wallet has a solid reputation and provides an intuitive user interface. Trezor also has great customer service which is essential considering the fact that many people who buy Trezor wallets have never used a cryptocurrency hardware wallet before. Trezor gives you a recovery seed phrase that is 12-24 words long. This phrase can be used to recover your coins in the event that you lose your physical Trezor wallet or damage it. Once you move your Bitcoin to your Trezor wallet and disconnect the wallet from your computer, your Bitcoin will be disconnected from the internet. This allows your Bitcoin to be safe from hackers who operate on the internet.
Along with Trezor, Ledger is one of the top Bitcoin hardware wallet brands. Ledger wallets have earned a reputation for being secure and reliable. They are also made with strong materials such as stainless steel, which makes them more resistant to being damaged. Many people view this added strength as a key advantage. Like the Trezor wallet, Ledger wallets give you a recovery seed phrase when you first use the wallet. You can use this phrase to recover your coins if you lose your Ledger wallet. Ledger has a number of models available for sale including the Ledger Nano X and the Ledger Nano S. If you are going to buy a Ledger wallet or a Trezor wallet, buy directly from the manufacturer. If you buy from an intermediary, there is no way to guarantee the wallet has not been infected with malware. This is why it is safest to buy directly from the manufacturer.
Desktop / Mobile Wallet
These wallets are applications that you can download onto your computer or mobile device. Once the application is downloaded, you can send your coins from the exchange you bought them on to the wallet. These wallets are extremely convenient and can allow you to easily store your Bitcoin on the devices that you regularly use and have access to. Many of these wallets are password protected too, meaning that even if someone gains access to your phone or computer, they will still need the password in order to get into the wallet and access the Bitcoin.
Third-party Website Wallet
Typically, exchanges such as Coinbase, Gemini, Kraken, Binance, etc offer Bitcoin wallets on their sites. These wallets are extremely convenient. But, some people believe that they are not as secure as other options, such as hardware wallets. Oftentimes, these third-party websites put security measures into their crypto wallets, such as 2 or 3-factor identification and time delays for transactions. For example, Coinbase has a security option called “vault storage” which allows you to transfer Bitcoin to a wallet that has a 48-hour wait period for withdrawals and requires verification from a phone and two different email addresses. Features like this help to amplify security.
Custodial Solutions
These tend to be for institutions or for individuals looking to safeguard large amounts of crypto. They are typically insured against loss or theft up to certain amounts. There are now a number of high-level Bitcoin custodial services for institutions. Companies such as Fidelity, BitGo, Coinbase, and Gemini offer Bitcoin custody. If you are a high-net-worth individual or if you are representing an institution, then Bitcoin custodial solutions could be the right option for you.
Which Bitcoin Wallet is Right for You?
Hardware wallets put you in full control of your funds. But with that control comes responsibility. It is up to you to keep those funds safe. You will need to protect the physical security of the hardware wallet and you will need to make sure that the hardware wallet is not lost or stolen. You also cannot forget the password. A number of people have lost ample amounts of Bitcoin by forgetting passwords or losing hardware wallets.
On the other end of the scale, keeping your bitcoin on third-party websites is low-hassle but means you have far less control over your funds. Can you really trust that third-party to look after your funds? What if they get hacked, or go out of business? There have been some cryptocurrency exchanges that have been hacked. In fact, Mt. Gox, the most prominent crypto exchange in the early days of Bitcoin had 850,000 Bitcoins stolen from it. There is a much greater amount of security nowadays on large cryptocurrency exchanges. For example, companies like Coinbase and Gemini keep the vast majority of their Bitcoins stored in cold storage, which is not connected to the internet and is therefore immune to digital hacks. However, occasionally, crypto exchanges still suffer security breaches.
The best solution will be down to the individual preferences, amounts of funds involved, and the required ease of access to the funds. Just like any form of money, you may keep small amounts in a less secure, easy-to-access place for everyday use, but keep larger amounts stored away somewhere safer. It is definitely wise not to store all of your Bitcoin in one place, just in case that place becomes compromised.
Bitcoin Safety Tips
It is very easy to lose your Bitcoin and unfortunately, Bitcoin is a major target for hackers. You probably worked very hard to get your Bitcoin, so it is worth taking a few simple steps to ensure that you protect it so you can hold onto it.
Encrypt your wallet
Whether your wallet is your own crypto wallet, or via a third-party website, always ensure that you have?strong password protection. You should make sure that your password is strong and cannot be easily identified by thieves. This means, if possible, you should include capital letters and lowercase letters, numbers, and special characters in your password. Avoid using the names of family members, pets, boyfriends, or girlfriends.
Make sure you can?easily remember the password?for years to come.
If you are using an established hardware wallet such as a Trezor or Ledger, you will be walked through best security practices when you set up the device.
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If you are using a third-party service such as an exchange, always use?two-factor authentication (2FA). If the website does not offer this function when you sign up, you should probably question whether storing funds on their site is a good idea. This is especially true considering the fact that you can easily just sign up for a site like Coinbase or Gemini, where you can definitely get 2FA protection.
Two-factor authentication acts as another layer of security that makes it harder for hackers to access your account.
How to use Two-Factor Authentication (2FA) for extra security:
Never share your private keys
Private keys are the code that allows you to move your coins, sign off transactions, and generally manage your funds. It is very important that you do not share your private keys with anybody. Keep them somewhere safe that only you can access. If someone has your private keys, they can take all of your funds.
Do not keep your private keys on any online device that can potentially be accessed by hackers or via malware.
If you have control over your private keys, then you have control over your coins. If you do not have control over your private keys, then you do not have control over your coins.
The major hardware wallets such as Trezor and Ledger allow you to generate your own private keys in a very simple way and store them securely. This is extremely convenient, and it is also good for security.
Backup your wallet
When you set up a hardware wallet such as a Trezor or Ledger, you will be asked to write down a recovery phrase.
This is important should your wallet ever be damaged, lost or stolen. You will still be able to access your funds by inputting your recovery phrase onto a new device.
Once you write down the series of words presented to you by the device, you will then need to store them offline, in a safe place. Do not keep a record of them on your phone or computer.
You can store the recovery phase in a safe in your home, or in another secure location. Wherever you store it, just make sure that it is both secure and accessible to you. If you do end up losing your wallet, you will want to be able to access the recovery phrase quickly in order to preserve your coins and prevent them from being stolen.
Update your wallet software
Always make sure you install the latest software updates for your Bitcoin wallet to ensure that your wallet is not vulnerable to bugs or attacks. The wallet companies periodically upgrade their software to account for new developments and positive changes. By installing these software updates, you can benefit from these changes and upgrades.
If you make sure that you update your wallet software regularly, it will also ensure your wallet has the latest features and best functionality.
How to Buy Bitcoin
The easiest and safest way to buy Bitcoin is to buy it via an?online exchange. Some of the most popular and trusted exchanges for buying Bitcoin are FTX, Gemini, Kraken, and Coinbase.
Bitcoin is now so popular that there are well-established exchanges in many countries around the world.
Less well-known, smaller exchanges are more risky and likely to have fewer compliance procedures in place. It, therefore, makes the most sense to buy your first Bitcoin from a large, well-established company that you find on the internet or high up the rankings on the Google Play Store or Apple Store. But even if you buy your Bitcoin from there, you may then want to store your bitcoin elsewhere for extra security once you have purchased it.
To buy some Bitcoin, you will typically need to deposit some money onto the exchange and then you can switch that money for some Bitcoin. Once you click a button to 'buy bitcoin' you will be asked to type in how much of your deposited funds you would like to spend on Bitcoin. Once you have entered the amount and click 'buy' you should see that you now own some Bitcoin in your account. Congratulations!
You can then decide whether you want to keep it on the exchange, or whether you feel more comfortable storing it yourself somewhere else, such as on a hardware wallet. If you want to store it yourself, you will need to send the funds to another wallet address that you control.
The exchange will give you instructions on how to do this, but in summary, it involves:
Bitcoin ATMs
The number of ATMs that sell Bitcoin is increasing all the time. They offer a private way to purchase Bitcoin. They are also a convenient way to get access to Bitcoin if there is one near where you live.
In the Philippines, only Unionbank has a Bitcoin-friendly ATM.
Bitcoin ATMs often charge a high fee anywhere between 5-15% and you may be quoted a price slightly higher than the current market price. For this reason, it can be significantly cheaper to buy Bitcoin from online exchanges as opposed to buying it through a Bitcoin ATM.
You Can Buy a Fraction of Bitcoin
Many people do not realize that you can buy a fraction of a Bitcoin. 1 Bitcoin can be divided down into one-hundredth of a million, which is 0.00000001. This unit is known as a Satoshi (or Sat). So you can purchase small fractions of a Bitcoin, you do not need to buy a whole one.
Being able to buy Bitcoin in units as small as Satoshis makes it significantly easier for the average person to start buying Bitcoin. After all, not everyone has enough money on hand to buy a full Bitcoin outright. This is especially true considering that Bitcoin Price tends to rise significantly over time.
Holding vs Trading vs Strategic Investing
Two of the most commonly discussed approaches within the Bitcoin space are Holding and trading using leverage.
Holding Explained:
Holding is the process of buying Bitcoin and holding it indefinitely without selling. When a person HOLDs, he or she continues to hold onto his or her bitcoin no matter what happens to the price in the belief that the value will rise over time. This strategy has proven to be extremely effective for many people who have held their Bitcoin through several market cycles.
Bitcoin Trading Explained:
Bitcoin trading is the process of buying and selling Bitcoin in short-term time intervals in an attempt to make profits. With trading, a person places trades based on his or her opinion of whether the price will go up or down. Many people who participate in Bitcoin trading using leverage (margin) to magnify potential gains.
Which is the Better Strategy?
Both Holding and Bitcoin trading have their merits. However, they each also have issues.
A person who HOLDs has to experience the extreme volatility of Bitcoin's market cycles. The most recent down market for Bitcoin resulted in a 55% drop in the value of a Bitcoin holdings. This level of downward price movement can be too much for some people to take and some end up selling on the way down to “cash out.”
The reality on the opposite end of the spectrum with margin trading, is that the majority lose money. Over 90% of Bitcoin traders lose money over time. The reasons for this are explained elsewhere and are worth looking up if you are considering margin trading. In summary, it comes down to the risk you expose your funds to by using leverage. That risk is then magnified in the highly volatile crypto markets.
Strategic Bitcoin Investing Explained:
Strategic investing is a very useful mid-point between the extreme Bitcoin investing styles of Holding and trading. Strategic bitcoin investing doesn’t use or have the risk of margin trading but it is more adaptable than simply Holding. The idea behind strategic Bitcoin trading is that an investor can apply an understanding of market cycles and blockchain analysis to determine ideal times to buy or sell on a long (multi-year) time frame.