Bitcoin and other virtual currencies are taking the world by storm. Keen to invest? Monzi has put together a comprehensive guide of everything you need to know about Bitcoin, from the Bitcoin price to how to buy. We’ve got you covered.
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Bitcoin: an introduction
While Bitcoin probably rings a bell for most people, the world of virtual currencies typically remains a mystery.
In simple terms, Bitcoin is a virtual currency that enables peer-to-peer transactions online. In other words, it’s essentially online cash that allows you to make payments directly to other users.
Realistically, Bitcoin is a complex virtual currency that would take hours to explain. In any case, unless you’re an IT wizard with an understanding of Blockchain (you don’t need to know this), this explanation would likely make no sense.
So, we’re going to simplify things for you. We’ll do our best to give you a comprehensive yet accessible breakdown explaining all you need to know.
Bitcoin: a brief history
Launched as the first virtual currency in January 2009, Bitcoin has undergone rapid growth. While people were initially skeptical, the growing acceptance over time has seen some businesses adopt Bitcoin options to complement traditional payment methods.
Bitcoin’s initial premise was to break away from relying on a central authority (e.g. banks, an economy). Instead, cryptography controls bitcoin, its creation and its management.
In terms of price, one bitcoin was initially worth only a fraction of a cent. By December 2017, Bitcoin peaked with a price of one Bitcoin in AUD equal to just over $26,000, however, prices have dropped since.
How does Bitcoin work?
Rather than getting into the finer details of how Bitcoin works on a technical level, we’ll instead focus on how it works for you. If you are interested in Blockchain and more of the behind the scenes details, there are plenty of other great resources online that can help.
In any case, how does bitcoin work?
Essentially, it operates exactly like cash, except that it’s online. Via a mobile app or computer program, users can access their Bitcoin wallet from which they can send or receive coins (or fractions of coins).
That’s really all there is to it.
Who controls Bitcoin price?
In simple terms, coin owners control bitcoin. Users retain the right to make transactions where they see fit and there are no restrictions on this.
In addition to this, there is no organisation in charge of making the rules or setting the value. Instead, market supply and demand determines the price of one Bitcoin in AUD.
This freedom and absence of structure are two of the key selling points for Bitcoin advocates.
Is Bitcoin useful?
Bitcoin is far from a gimmick. In fact, there are an increasing number of businesses and individuals who are willing to accept Bitcoin as payment. This isn’t limited to online businesses either. Some restaurants and major retailers have begun to accept Bitcoin as payment.
Overall, Bitcoin value worldwide exceeds $100 billion. Not only that, people exchange millions of dollars of Bitcoins each day.
Bitcoin price: how do I buy one?
Typically, people acquire Bitcoins in one of three ways:
- Buying bitcoins through an online exchange. You can trade a bitcoin for cash just like any other product.
- Selling a product and receiving bitcoin in return as an alternative to cash.
- Bitcoin mining: This requires some explanation.
Bitcoin mining: create your own
Realistically, bitcoin mining isn’t something you will need to know about. For the average person, bitcoins are acquired through buying or selling. However, bitcoin mining is fascinating, so we thought we’d explain it.
In order for Bitcoin system to operate, some people must make their computers process transactions for everyone.
In order to process these transactions, computers must solve insanely difficult maths problems (there are 64-digit numbers involved). Sometimes, when these problems are solved, the computer’s owner is rewarded with a bitcoin.
Given the limited supply of bitcoins, these sums increase in difficulty over time to ensure there aren’t too many coins being generated.
To put in context just how difficult bitcoin mining is, the chance of solving the problem on a single try is 1 in 13 trillion. That’s over 40,000 times more unlikely than winning the lottery. In other words, you’ll probably need more than a Macbook.
Bitcoin price: do I have to buy a whole bitcoin?
It’s possible to buy Bitcoins in fractions. In fact, you can divide one bitcoin into 100 million pieces!!
That means no matter how much cash you have to invest, some portion of a Bitcoin will almost certainly be affordable for you.
Whether it’s a good idea to buy $1 worth of Bitcoin is a different story, although it is possible should you choose to.
Advantages of Bitcoin
As a wholly online currency, Bitcoin brings with it a number of advantages. If you’re thinking of investing, consider the following:
Bitcoin price: anywhere, anytime
Bitcoin brings freedom. You can send or receive payments from anywhere in the world, at any time of day. There’s no need to wait for banks or business hours, you retain total control. Not only that, payments can be confirmed in the blink of an eye whereas international wire transfers can take days.
Sending and receiving bitcoins is free. If you go through an exchange to purchase Bitcoins initially, you may encounter deposit, withdrawal or purchase fees. These fees are typically minimal and less than those charged by banks or credit card networks.
Simple to set-up
You can buy bitcoin in any country, at any time. All you need is a Bitcoin wallet. There is also no need to prove your identity like you would have to with a bank.
Bitcoin transaction can be process without personal details. As such, risk of identity theft can be eliminated. In addition to this, coins may be stored offline to protect against the threat of hacking.
There is no controlling body in charge of maintaining Bitcoin. Instead, the control of Bitcoin is in the hands of its users. As such, there’s no need to worry about changes in policy or protocol which could adversely affect ownership.
Bitcoin Australia: what are the laws?
Bitcoin, virtual currencies and their related exchanges are all legal in Australia. In fact, Australia has adopted a highly progressive attitude towards Bitcoin.
While it is perfectly legal to buy and sell Bitcoin in Australia, there are tax implications to be aware of. Bitcoins are classified as property under Australian tax laws. As such, they are subject to Capital Gains Tax.
For more information on laws regarding Bitcoin and taxation in Australia, visit the Australian Taxation Office website.
The Bitcoin price: what’s its value?
Like with any currency, Bitcoin has a price. A value that tells you the equivalent cost of one bitcoin in relation to your currency of choice. A simple Google search will bring up plenty of websites that let you track the Bitcoin live price.
If you’re from Australia, the Bitcoin to AUD price will be most relevant. Although, Bitcoin to USD is standard.
As an example, you might see the Bitcoin price at $10,000 AUD. That means it will cost you $10,000 AUD to buy one bitcoin. Simple, right?
What determines the Bitcoin price?
Like with most currencies, it’s about supply and demand. When demand for Bitcoin increases, so too does the price. Similarly, when demand decreases, the price will too.
Interestingly, there is a limit on Bitcoin supply. The number of Bitcoins is capped at 21 million and new Bitcoins are created at a predictable and decreasing rate.
Given the relatively small market and limited supply, Bitcoin is extremely sensitive to changes in demand. As a result, the price often fluctuates. In other words, it doesn’t take much to move the price up or down.
Why do people buy Bitcoin?
When most people learn about Bitcoin, typically, they want to know why they might need it.
Put simply, Bitcoin is an easy way to transfer money online. Rather than dealing with banks, exchange rates, brokers or a host of other red tape, Bitcoin provides a cheaper and faster alternative method of making payments.
Bitcoin, in essence, cuts out the middleman. You can transact directly with another party thereby increasing efficiency and eliminating any fees or costs that could be involved using traditional means.
But that’s not all, other reasons for buying Bitcoin include:
Bitcoin price speculation
Speculation is a risky finance strategy that involves buying or selling based on your expectations of price movements.
In other words, if you expect the price of the currency, in this case Bitcoin, to increase in the near future, you would buy the currency now. After the price increase, you would sell the currency to earn a profit.
Similarly, if you expect the Bitcoin value to decrease, you would sell the currency now. Following the price decrease, you may opt to buy again at a lower price.
Speculation, however, comes with significant risk. Bitcoin is, in a word, volatile. Prices fluctuate daily and with little predictability. In other words, the Bitcoin price today likely won’t be the Bitcoin price tomorrow.
Making profit from speculation relies on your projections of future prices being correct. If prices move in unexpected ways, speculation can produce significant losses.
Diversifying and the Bitcoin price
Don’t put all your eggs in one basket.
Investing in Bitcoin may be an alternative to buying traditional currencies, shares or securities. In order to diversify, Bitcoin would make up a portion of the investor’s portfolio.
What are some of the issues with Bitcoin?
While Bitcoin can provide a simple, cheap and convenient alternative to traditional cash payments, there are some downsides. These include:
It won’t be accepted by everyone
Bitcoin is still a relative unknown to most people. While they recognise the name, often there is a lack of understanding about what it is and what it can be used for. As such, there is still a limited number of vendors willing to accept bitcoin as payment.
Although, there is reason for optimism. More and more businesses are adding bitcoin options each day. Slowly but surely, the network is growing.
Bitcoin price volatility
While you may buy one bitcoin today for $10,000, there’s no guarantee it will be worth that much tomorrow. The small market and limited supply means that the price is sensitive to relatively small transactions or changes in demand. If you’re someone who values stability or shies away from uncertainty, Bitcoin might not be for you.
It’s still developing
At this point, Bitcoin is still an unknown. The world has never seen anything like Bitcoin which makes it difficult to project where it might be heading. New features, tools and services are constantly under development aimed at increasing accessibility and security. In other words, Bitcoin is still a work in progress.
Transactions are final
Once you submit a transaction, there’s no going back. Transactions cannot be reversed and there’s no way to recover funds if you’ve made a mistake. As a result, ensure you double-check every transaction before you submit it.
How to buy bitcoin: finding the right exchange
If you’re keen to become a bitcoin trader, your first step will obviously be to buy bitcoins. The easiest way to do this through a Bitcoin Exchange.
An exchange is simply a digital marketplace where investors can buy (or sell) bitcoins using conventional money.
As Bitcoin and other virtual currencies have increased in popularity, so too have the number of exchanges. To help you decide which exchange is right for you, consider the following:
The exchange location and regulations
While Australia has been proactive in regulating digital currency exchanges, the same can’t be said for all countries. Find out where the exchange is based before signing up and take a look at the regulations of that country. Ensure the exchange complies with their regulations.
What security features are offered? This may include two-factor login authentication or encryption types.
Do your research to ensure the platform has never been hacked or linked to any kind of suspicious activity. In other words, confirm that it’s all above board.
Bitcoin price and fees
If you’re using an exchange, your transactions (i.e buying or selling) will incur a fee. In addition, some exchanges may add deposit or withdrawal charges. Before getting started, compare fees and rates to find the best deal.
Some exchanges may apply a minimum or maximum limit on purchases, deposits or withdrawals. Policies will vary among exchanges though, so be aware. Ensure you read the fine print.
Reputation and customer service
Check out the reviews of previous users. What were their experiences like? Are they positive or were there issues? This will give you the best guide as to the quality of the platform.
Customer service and willingness to assist is crucial too, should you encounter any issues. Ensure their contact details are provided and that they are contactable and responsive in the event that something goes wrong.
Before you buy your bitcoins, you’re going to need somewhere to store them. You’ll need a “bitcoin wallet”.
Essentially, a bitcoin wallet is a software program that stores your bitcoins. Although, to be technically accurate, the wallet doesn’t store the coin, it instead stores the private key, unique to the Bitcoin that tracks ownership and allows it to be spent.
In most cases, Bitcoins wallets store your information offline. That way, you are protected against malware, cyber hacks or threats that come with online storage.
Online storage is available too via web or mobile. These “hot wallets” are connected to the internet and come with the benefit that payments and withdrawals can be made instantly. The obvious downside is that they are less secure as online storage increases vulnerability to hacking.
Considerations may include:
- Offline or online
- User experience
- Are they reputable and high-quality?
Tracking the Bitcoin price
There’s no shortage of bitcoin news. Nearly everyday there’s a new story about bitcoins, where they’re going, how they’re travelling, what they could become. Put simply, it’s easy to stay up-to-date.
There are also a number of free, high-quality apps that allow your to track the current bitcoin price in real time via a Bitcoin price chart. You’ll never be short on information meaning as long as you do your research, you’ll always be able to make an informed decision when it comes to buying or selling.
What happens if I lose my Bitcoin?
The problem with Bitcoin compared to cash or banked funds is that unfortunately they can be lost.
Bitcoins comes with a private key and a recovery seed. The private key gives you access to your bitcoin. The recovery seed is a string of words that stores the information needed to back-up a wallet.
If you lose both of these, your bitcoin will be lost.
Similarly, if you store your bitcoins on an offline device (e.g. external hard drive or USB) and the device gets misplaced, they will be unrecoverable.
Buy Bitcoin Australia: wrapping up
While we’ve provided you with plenty of information, there’s still so much more out there. Bitcoin is a volatile, potentially high-risk, virtual currency. While it can make transactions simple and convenient, it can also produce significant losses.
As always, before making any financial decision, do your research. Ensure you have a clear idea of your financial situation and know how much you can afford to invest. At the end of the day, you must decide what is right for you.
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