Should you invest in bitcoin? Bitcoin is one of the most volatile currencies on the market currently. But early adopters are now millionaires. Just a few years ago, bitcoins were worth fractions of pennies. As I write this now, they are selling for an average of $800 USD each! A modest investment in bitcoins even at the beginning of the year would have increased a thousandfold.
The question is are we in a bitcoin bubble? Or is this just the beginning?
These were the same questions I asked myself about 2 years ago, when I first heard about bitcoins.
What is Bitcoin?
Before we talk about investing in bitcoin, we must understand what it is.
Bitcoin is a peer to peer digital currency. It is money that is created and stored digitally.
Bitcoin was first introduced to the wild back in 2009 by an anonymous developer known only as Satoshi Nakamoto.
Bitcoin is designed to be completely secure and anonymous. It is created by computers solving a complex math problem. Each time the problem is solved, it rewards the person with a block of bitcoins. At the same time the math problem becomes exponentially more difficult to solve.
This process is constantly synchronized online with the worldwide bitcoin community so that bitcoins are never duplicated. The process of discovering bitcoins through using your computer to solve the bitcoin math is called bitcoin mining. However, because it is exponentially more and more difficult to discover bitcoins as each problem is solved, it becomes more scarce over time. Currently, it takes entire server rooms full of computer miners to generate bitcoins.
The advantage of bitcoins is that it is also completely anonymous. As yet, there is no way to trace a bitcoin transaction. This makes this form of digital currency appealing to those who support decentralized money and less regulation.
The anonymous nature of bitcoins also gave rise to a digital black market for various underground products as services known as the silk road. Rumor has it that anything from drugs to hired hits could be purchased on the silk road.
There are a number of thoeries as to why bitcoin became so successful. Being a decentralized cryptocurrency, it gained support with tech enthusiasts early on. However, bitcoin also started gaining some mainstream support with online ecommerce sites. Also, the thriving black market created by the silk road bolstered support. Although the silk road was recently shut down, bitcoin had gained enough momentum to continue to rise.
This year, bitcoin value rose to a high of around $1200 USD each in the end of November.
Some speculators believe it will continue to rise.
Start Using Bitcoin
In order to start using a bitcoin, you simply have to get a free bitcoin wallet. You can learn about the different ways to get a bitcoin wallet at bitcoin.org.
Just visit their site and click the get started button to learn about the different ways to get a bitcoin wallet. Personally, I downloaded my own software wallet. I’d rather keep it on my computer than trust my bitcoin to a cloud wallet. However, this is just a personal preference.
Once you have a wallet, you can receive bitcoins by using the bitcoin address associated with your account. This is a long string of numbers letters and characters that you will find under the heading for receiving bitcoins.
This is just the first step, having a bitcoin wallet simply gives you the ability to make bitcoin transactions. You still need to earn bitcoins.
How to Get Bitcoins
There are a number of different ways to get bitcoins.
You could set up your computer to do some bitcoin mining, but the current difficulty level of discovering new bitcoins makes this an inefficient method.
If you want to try your hand at mining bitcoin, there are a number of online resources that teach how to mine bitcoin.
The easiest way to get bitcoin is to simply buy bitcoin. Here are a couple of the more popular bitcoin currency exchanges:
If you are an online merchant, you can start accepting bitcoins as a payment method. Coinbase.com has merchant tools to allow you to easily begin accepting bitcoins.
You can also join some bitcoin referral programs to earn bitcoins. I can’t vouch for any of these programs, but I have discovered a couple:
- bitvisitor: earn bitcoins by visiting websites (referral link)
- freebitcoin.in: freeplay for bitcoins (referral link)
- mybitcoinjob.com: Earn bitcoins through referrals and by signing up for online offers (referral link)
- coinurl.com: Run contextual PPC ads on your website and earn bitcoins when visitors click on your ads.
These are just a few of the referral programs that I’ve discovered with a simple online search. I’m still experimenting with these networks and will see how it works out.
My Bitcoin Investing Experience
In 2011, bitcoins had already been in circulation for a few years. There were already rampant stories about early adopters becoming millionaires by investing in bitcoins. Afterall, bitcoins had inflated over a thousandfold from fractions of pennies to $10 USD. At one point, it had even risen to $50 USD and then dropped back down.
Was the bitcoin bubble over? Was this a price correction? Would bitcoin last?
Does this sound familiar?
Bitcoin news was circulating around the internet and I thought I’d try my hand at investing in this cyptocurrency.
I learned a little about bitcoin mining but quickly discovered that I entered into bitcoin mining late and was never able to discover any new bitcoins. I decided the easiest way to get some bitcoins was simply to buy some.
I decided that I would put in a modest $100 investment and see where it goes.
Buying bitcoin at the time was a bit of an endeavor. Bitcoin currency exchanges at the time didn’t accept direct USD deposits. I had to first deposit my money into a third party payment system and then transfer the money into a bitcoin exchange. The largest exchange at the time was mtgox.
So, after jumping through a few hoops, I was the proud owner of 10.95 BTC on the MtGox exchange. I left those bitcoins in the exchange account, so they would be available to trade. The process of transferring the money back out of MtGox at the time just made it easier to leave it in the account.
These days it’s much easier to directly change USD to BTC.
Shortly after I opened my MtGox account, I got an email notice that they had been hacked. The notice recommended that all users change their passwords.
So, dutifully, I followed up to try and register for a new password. And I didn’t receive the new password email. I tried several times and nothing…
Well, bitcoin prices had appeared to plateau at the time and I just figured that I had lost my account.
Well, the news about the bitcoin died down until earlier this year.
I had forgotten all about my bitcoin investment until I heard the news in November that prices had spiked to above $1200 USD per BTC. What the heck! Didn’t I have a few bitcoins?
So, I figured I’d try and get back into my MtGox account. They were still around and seemed to have a sound reputation as the largest bitcoin exchange around.
Well, I contacted support to inquire about my old account and didn’t hear back from them right away. I figured my account was still lost. Oh well, I gave it the old college try…
Until, after a few weeks passed, I got an email out of the blue from MtGox. They recovered my old account!
I was able to log in and create a new password and lo and behold! I still had my old 10.95 BTC!
So, my old $100 investment had turned into more that $7000!
I’m still holding onto my old 10.95 bitcoins. I’m still curious about how high it will go.
What do you think? Has it reached the high?
As I write this, MtGox shows bitcoins trading at $796 USD each. Will it get back to it’s high of $1200USD? I’ve even heard of some analysts predicting that it will eventually reach $40,oooUSD.
Quite frankly, I don’t think there’s any way of predicting. I’m hearing all the same speculation that I heard back in 2011 when I first put in my $100. Does that mean that bitcoin is still on the rise? Or has the bubble burst?
I really have no idea where bitcoin will go from here.
If I hadn’t forgotten about my account, I likely would have cashed out a year ago to break even or turn a small profit. So it was really more by luck that I held on as long as I did. But is it time to cash out now or is it still too early?
Tell me your thoughts: buy, sell or hold?
If you are a bitcoin user, analyst or advocate, leave me a comment with your thoughts.
Hey, if you enjoyed this article, you can send me a bitcoin donation/tip at the following bitcoin address: 1MM7eWyrJTFNTFruJwJBPEEs8sDXdXZ12H
Thanks for reading and sharing your thoughts!