This article is not financial advice and merely presents my enthusiasm for Bitcoin and the digital revolution. I own Bitcoin myself and if you use the link to Bitvavo to buy Bitcoin then you pay no transaction fees on the first 1000 euros for the first week. The link contains an affiliate reference (https://bitvavo.com/?a=2E11CA1ABF) for which I receive a small fee.
Perhaps you have seen my videos about Bitcoin (click hereBitcoin is a revolutionary technology in which a 'store of value' is created based on complex calculations performed decentrally on a network of servers. The purpose of these calculations is to record, encrypt, and store Bitcoin transactions in a series of 'blocks' that cannot be altered afterwards but can be viewed by anyone.
Table of contents
Mining a Bitcoin is very complex
Calculating these transaction blocks requires significant computing power, as complexity increases with the growth of Bitcoin usage. This reveals one of Bitcoin's ingenious fundamentals: difficulty increases as the technology's usage grows. This difficulty level keeps the network stable because it makes it even harder to attempt to hack it.
Bitcoin is scarce and forces efficiency
The 'miners' who create the blocks, and thus incur significant costs for computers and electricity, receive compensation consisting of two elements: the fees you, as a user, must pay to make a transaction, and for each block, a miner receives a number of Bitcoin that is halved approximately every four years; the 'halving'. This ensures that Bitcoin is both scarce (a maximum of 21 million Bitcoin can be mined) and that miners must continuously search for more efficient methods to operate cost-effectively.
Bitcoin is not a means of payment
It is actually a misconception to think that Bitcoin will be a means of payment. Every 10 minutes a block is 'mined', and you have to wait for confirmation from the network that everything is in order. This ensures that the network is stable and secure, but also means that people at the checkout can get quite impatient. Consequently, you see layers being developed on top of Bitcoin to handle daily transactions; Layer 1 and 2 applications.
Satoshi Nakamoto
You can therefore see that Bitcoin can be compared more to gold; a stable, divisible, exchangeable unit of value. Also bear in mind that 1 Bitcoin consists of 100.000.000 satoshis. It is more likely that in the future we will be talking about satoshis when we want to make a transaction. Why satoshis? Satoshi Nakamoto is the inventor of Bitcoin, who remains anonymous to this day.
How can you buy and own Bitcoins?
You cannot buy Bitcoins at a regular bank because, with Bitcoin, you choose to (ideally) be your own bank. Bitcoins are digital files that are your property once you have the key to them. This might sound complicated, but it isn't. If you want to buy Bitcoin yourself and keep it under your own control, you will need a 'wallet' and the key to this wallet. Hmmm... still a bit vague perhaps. In short, it comes down to having a USB stick containing a special chip that holds a key. Because you are the owner of this USB stick, you are also the only one who can access the Bitcoins. Want to know more or buy a USB key yourself; Click here to go to the Ledger website.Too much hassle?
Buying Bitcoins and storing them with a third party
They say: if you don't possess the key yourself, you don't possess your Bitcoin. Well, that is how banks work too; you trust the bank to manage your money well and give you access to it. But suppose you want to buy Bitcoins but don't want to have to manage everything yourself. Fortunately, there are plenty of alternatives.
An exchange where I myself Bitcoin buying and management is Bitvavo. You can also buy other crypto coins there such as Ether, ADA, and ChainLink; this is not advice, but I do want to make it known that I personally find these very interesting. On Bitvavo You can buy the cryptocurrencies, but they also have an advanced section where you can trade with them and thus trade on price fluctuations. Sign up with Bitvavo It is quite simple; follow the steps and you can start trading in no time. So, what is the best way to build a portfolio with Bitcoin and/or other cryptocurrencies?
Dollar Cost Averaging
Dollar what? You have probably heard regularly in the news that the price of Bitcoin shoots up only to drop sharply again. This is called volatility and is a well-known phenomenon in trading stocks or cryptocurrencies. So, you don't want to buy 500 euros worth of crypto one day only to see it drop by 30% the next day. (Yes, it happens!) The answer is DCA, or Dollar Cost Averaging. It is actually a very simple and logical way of investing.
Instead of paying 500 euros all at once, you pay 10 x 50 euros over a period of 10 weeks. The price will rise at times in between, meaning you pay a bit more for your coins; afterwards, it will drop, and you will buy more coins with the same 10 euros. This way, you limit the risk of sudden price fluctuations.
What if the price collapses completely?
One last piece of advice: invest what you can afford to lose. In December 2017, we were in the midst of a massive bull run, with prices shooting up to 20.000 euros per Bitcoin. Fast forward to March 13, 2020: the price touched 3850 euros per Bitcoin, and at the time of writing (May 25, 2020), it is fluctuating around 9400 euros per Bitcoin. If, in your enthusiasm, you had bought 200 euros in December 2017, your investment would have already seen a price fluctuation from 38,50 to 94,00 euros in the last three months of this year. However, if you bought more for 40 euros on March 13, that 40 euros would now be almost 100 euros.
The chance of the price completely collapsing, just like oil did recently, is unlikely to happen anytime soon. However, it is still a very volatile currency in the 10 years it has existed, so buy wisely and buy with money you can afford to lose. If it can rise from nothing to nearly 20.000 in 10 years, just imagine what Bitcoin could do if we give it another 10 years and people become more familiar with it. 40.000 euros, 100.000, or even 288.000 euros? The latter seems unlikely, but even then the total value of Bitcoin would still be worth less than gold, even though Bitcoin has far better properties than gold!
Any questions about Bitcoin?
You can always contact me. I am not a financial advisor, and this article is not financial advice either. However, I do want to share my enthusiasm about it and help you acquire some Bitcoin yourself wherever I can. Even if you buy 0,01 BTC now for about 94 euros – it could turn out to be a very nice nest egg in 10 or 20 years! Or that State Lottery ticket you don't win anything with every month... have you ever calculated what that has cost you over the past few years? What if you had invested that in Bitcoin 😉
