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 1,000 euros for the first week. The link contains an affiliate reference (https://bitvavo.com/?a=2E11CA1ABF) for which I get a small fee.
You may have seen my videos on Bitcoin (click here). Bitcoin is a revolutionary technology that creates a ‘store of value’ based on complex calculations performed decentrally on a network of servers. These calculations aim to capture, encrypt and record Bitcoin transactions in a series of ‘blocks’ that cannot be changed afterwards but can be viewed by anyone.
table of contents
‘Mining’ a Bitcoin is very complex
A lot of computer power is involved in calculating these transaction blocks as the complexity gets higher as Bitcoin usage increases. This shows one of Bitcoin's ingenious fundamentals. The degree of difficulty increases as the use of the technology increases. This level of difficulty keeps the network stable because it makes it even more difficult to attempt to hack the network.
Bitcoin is scarce and forces efficiency
The miners who make the blocks and thus incur high costs for computers and electricity are paid a fee that consists of two elements; the costs you have to pay as a user to make a transaction, and for each block a miner receives a number of Bitcoin that is halved approximately every four years. This ensures that Bitcoin is both scarce (up to 21 million Bitcoin can be mined) and that the miners must constantly look for more efficient methods to break even.
Bitcoin is not a means of payment
It is actually a misunderstanding to think that Bitcoin will be a means of payment. A block is ‘mined’ every 10 minutes and you have to wait for confirmation from the network that it is all agreed. This ensures that the network is stable and secure but also that people at the checkout can get quite impatient. So you can see layers being developed on 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. Bear in mind also that 1 Bitcoin consists of 100,000,000 satoshis. It is more obvious that in the future we will talk about satoshi's when we want to make a transaction. Why satoshi's? Satoshi Nakamoto is the hitherto anonymous inventor of Bitcoin.
How can you buy and own Bitcoins?
You cannot buy Bitcoins from the regular bank because with Bitcoin, you choose to be (ideally) your own bank. Bitcoins are digital files that are your possession when you have the key to them. This may sound complicated but it is not. If you want to buy and hold Bitcoin yourself, you will need to have a ‘wallet’ and the key to it. mmmm... still a bit vague perhaps. In short, it comes down to having a usb stick on which there is a special chip containing a key. Because you are the owner of this usb stick, you are also the only one who can access the Bitcoins. Find out more or buy your own usb key; click here to go to Ledger's website. Too much hassle?
Buying and storing bitcoins with a third party
They sometimes say; if you don't own the key yourself, you don't own your Bitcoin. Well, that's 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 not have to manage everything yourself. Then, 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 want to make it known that I personally find these very interesting. At Bitvavo you can buy the crypto coins but they also have an advanced section where you can trade with them and thus trade with price changes. Signing up with Bitvavo is quite simple, just follow the steps and in no time you can be trading. So how can you best build a portfolio with Bitcoin and/or other crypto currencies?
Dollar Cost Averaging
Dollar what? You will probably have regularly heard in the news that Bitcoin's share price shoots up only to fall sharply again. This is called volatility and is a well-known phenomenon in stock or crypto-currency trading. So you don't want to buy 500 euros worth of crypto on one day only to see it fall 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 in one go, you pay 10 x 50 euros over a period of 10 weeks. The price will rise once in between and you will pay a bit more for your coins, then it will fall and you will buy more coins with the same 10 euros. That way, you limit the risk of sudden price fluctuations.
What if the share price collapses completely?
One last piece of advice; invest what you can lose. In December 2017, we were in a huge bull-run, prices shot to the 20,000 euros per Bitcoin. Fast forward to 13 March 2020, the price tapped 3,850 euros per Bitcoin and at the time of writing (25 May 2020) it is hovering around 9,400 euros per Bitcoin. Had you bought for 200 euros in December 2017 in your enthusiasm, your investment would have already seen a price swing from 38.50 euros to 94.00 euros in the last 3 months of this year. However, had you bought on 13 March at 40 euros, that 40 euros would now be close to 100 euros.
The chances of the rate collapsing completely like oil did recently will not happen soon. But it is still a very volatile currency in its 10 years of existence so buy with your wits and buy with money what you can spare. If it can go from nothing to almost 20,000 in 10 years, think what Bitcoin can 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 total Bitcoin would still be worth less than gold, even though Bitcoin has very much better properties than gold!
Any questions about Bitcoin?
You can always contact me. I am not a financial adviser, nor is this article financial advice. However, I do want to share my enthusiasm about it and where I can help you buy some Bitcoin yourself. Even if you buy 0.01BTC now for around 94 euros - it could be a very nice little nest egg in 10 or 20 years' time! Or that State Lottery ticket you don't win anything with every month.... ever calculated what that has cost you over the past few years? What if you had invested that in Bitcoin 😉
