If you have been hearing about cryptocurrency as the future of money and you just can not wait to get on the bitcoin bandwagon, well…. you are not alone. In fact, it seems like the pretty obvious thing to do given its wild price swings and therefore the growing number of people all over the world who use Bitcoin and other digital currencies for everyday purchases.
But you should not just dip your feet into the growing industry without doing your homework, especially on the pitfalls you are most likely to face on your journey ahead.
6 things you should know before buying Bitcoin.
While this article focuses mainly on Bitcoin, most of the following points also are valid for a large variety of cryptocurrencies available on the market.
1. Bitcoin is volatile
Okay. That one you almost certainly already knew. Bitcoin, since its inception, has proven day after day that it is a really volatile asset. The value of Bitcoin can change rapidly and unpredictably, sometimes, during a very short space of time.
The price of Bitcoin can jump high and within a couple of hours, or days, fall dramatically. An ideal example is what happened in January 2021. The leading digital currency reached a high of quite $40,600 but within a few days, the value had retreated to but $30,000.
The price of Bitcoin is determined by supply and demand. When more people are buying the asset, the value goes up and when more people are selling, the value goes down.
Bitcoin also responds to market sentiments. Positive news on cryptocurrency adoption, for instance, tends to drive Bitcoin’s price higher while events concerning cryptocurrency regulation or bans have an opposite effect on Bitcoin’s valuation.
Bitcoin’s volatility is one of the main talking points for critics who argue that Bitcoin is not a reliable store of value. Yet, an increasing number of people in Nigeria are turning to Bitcoin to guard their investments even in light of the recent ban on Cryptocurrency based transactions by the Central Bank of Nigeria (CBN).
2. Bitcoin is transparent
Bitcoin is probably the most transparent payment option in the world, mainly thanks to its underlying distributed ledger technology, blockchain.
All transactions on the network can be traced, are immutable, and publicly stored on the Bitcoin blockchain network. Whenever you purchase and sell Bitcoins, the information is updated and available for the public to reference.
However, you do not have to divulge your personal information like your name and address. You simply need a Bitcoin wallet address to send and receive BTC.
One of the most important advantages of Bitcoin is its capacity to facilitate peer-to-peer exchanges around the world instantly and for a really reduced cost. Unlike traditional fiat currencies, Bitcoin does not need any third parties to settle transactions. Instead, you simply need to pay the blockchain fee — a small fee that covers the energy cost of settling your transaction on the blockchain.
3. Bitcoin is often a bubble
What’s a bubble? A bubble is usually described as a rapid increase and abrupt crash in price. If you take a good look at Bitcoin charts, then you will know that was exactly what happened back in 2017, or 2011, or many other times really.
The price of Bitcoin reached an all-time high of nearly $20,000 in December 2017, largely thanks to speculation and FOMO (Fear of Missing Out). Here is a Twitter thread on how FOMO and FUD (Fear, Uncertainty, and Doubt) affect the market.
Of course, the bubble popped, and on its way down many predicted that Bitcoin would collapse permanently. That never happened. In 2021, Bitcoin has doubled that value. When thinking about investing in Bitcoin, it’s important you understand that timing is everything.
“Buy when everyone else is selling and hold until everyone else is buying.” — Paul Getty
4. Bitcoin is for everybody
The beauty of Bitcoin is that it is for everybody. If you see Bitcoin as an investment, then you should know that you do not have to be an accredited investor to invest in it. Unlike the normal markets reserved for the rich, its decentralized nature makes it easily accessible to literally anyone.
Not only are you able to purchase Bitcoin, but also participate in its creation through a process called mining. While mining has become a game for those backed by large capital reserves, individuals also can join Bitcoin mining pools and obtain modest returns.
5. Bitcoin isn’t anonymous
Contrary to popular belief, Bitcoin is not anonymous and some work from your side is required to make certain your privacy. Bitcoin transactions are stored on a public ledger. This means that anyone who is interested can see your transaction history and balance.
While your address can not be used to identify who you are on the ledger, government agencies have the tools to link addresses to your identity. People who really care about their privacy tend to work with so-called privacy coins, like Monero and Zcash.
6. Bitcoin is widely accepted as a method of payment
A lot of people only think of Bitcoin as an investment. But this digital currency can also work as a payment method. That’s right… a bit like the dollar and naira. It may well be used to buy goods and services just the same way that you simply use your fiat currencies.
Nowadays, mobile cryptocurrency wallets allow you to simply pay with Bitcoin or the other cryptocurrency using QR codes or send via phone features.
Moreover, the existence of cryptocurrency debit cards has made it possible for thousands of holders to spend digital assets on the go, even on physical stores that do not accept bitcoin.
Cryptofully is a cryptocurrency exchange platform with a mission to make cryptocurrency less difficult and more accessible, so that everyone can use it for everyday transactions — remittances, bill payments, airtime and even commercial business purchases.