OPINION: Buying bitcoin: What you should know
You might we wondering how to start buying Bitcoin. You might want to try a new type of investment. The first thing you need to know is that you don’t need to buy a whole Bitcoin, currently valued at more than R146000. You can invest any amount from R20.
Here’s how to get started in investing in a few simple steps:
What is Bitcoin?
Bitcoin is a new technology that’s a mix of a credit card, a piece of gold and hint of “internet”. Because it allows you to move money so easily, Bitcoin functions as a global payment system, similar to bank transfers or credit cards. It is similar to gold in that gold can also be used as money or as an investment, but Bitcoin is much easier to move.
In South Africa, most people currently use Bitcoin as an investment, but increasingly people are using it as a payment system. Finally, Bitcoin is like the internet in that no single person or entity controls it.
How is the price of Bitcoin calculated?
It’s based on supply and demand. The price of a currency or Bitcoin boils down to the price a buyer and seller will agree upon.
A key differentiator of Bitcoin, though, is that there is a finite supply. Once the 21 million in existence are in circulation, Bitcoin cannot be reproduced, nor can more currency be printed as with hard currency.
More than 17 million have been mined to date. This scarcity drives the future value of Bitcoin.
What are the risks?
The same intuitive rules that apply to traditional money also apply to Bitcoin. For example, don’t invest more than you can afford to lose and don’t put all your eggs in one basket.
Transactions are like cash in that they are irreversible - so if you send Bitcoin to the wrong person, or your wallet is compromised and someone steals your Bitcoin, it might be impossible to get it back. On the upside, this makes it more secure and easier for retailers to accept with a lower risk of payments being reversed.
Ensure that you partner with a trusted exchange with transparent investor and director information. Be wary of any scheme that promises guaranteed returns on investment.
What happens if the price goes down after I buy?
Just like investing in shares on the stock exchange, ideally you buy Bitcoin at one price and then sell it at a higher price.
You can expect lots of spikes and troughs, but when viewed as a long-term investment, the price is on an upward trajectory, despite all the ups and downs.
How do I get Bitcoin?
You can buy Bitcoin from a credible exchange provider. This is similar to how you would buy shares online.
Just like traditional money, you can earn it by providing goods or services, and asking for people to pay you in Bitcoin rather than in traditional money. This is one of the easiest ways to get Bitcoin. Online retailers, including bidorbuy, allow you to make purchases with Bitcoin.
Marius Reitz is the general manager for Africa of Luno, a South African cryptocurrency exchange.