It’s hard to go a day without hearing a headline about Bitcoin. It has taken the world by storm and you might be thinking ‘should I put some money into this?' and 'How can I buy some for myself!’. As with anything you want to invest your money into, always get your knowledge up on it first.
Although I’ll be focusing on Bitcoin, the same applies to a long list of other currently available cryptocurrencies.
1. Almost nothing is priced in Bitcoin
If you think about all the things you’ve used your money on recently, pretty much all of those things couldn’t have been bought with cryptocurrency.
From your clothes, Netflix subscription, mobile phone bill or even that trip to the local takeaway couldn't have been bought with it.
However, more places are slowly starting to adopt these digital payments. Microsoft for example has started accepting payment on their online store, Tesla is on the verge of making it more widely accepted and a handful of Etsy sellers are starting to embrace it.
As you’ve noticed, none of these places listed is selling ‘essential’ or common items.
2. It takes a HUGE amount of energy to run
For those concerned about our natural world, especially if you love watching a David Attenborough nature shows, Bitcoin isn’t the ‘greenest’ currency to use.
It is created through a process called “Mining” which is performed by high-powered computer processing. This is done across a wide network of computers.
It involves people around the world trying to solve a mathematical problem. The reward for solving the equation is a Bitcoin.
Cambridge University suggests that Bitcoin uses more energy annually than Argentina!
3. There’s a limit
The money we use is printed by the Bank of England. They have the ability (if they wanted) to print an almost unlimited amount of money.
Bitcoin is different. It was designed to have a limited amount created through a process called 'mining'.
That limit is 21 million Bitcoins to be precise. At the time of writing, 88% of this limit has been mined.
This limited supply has been one of the reasons why the price has increased so dramatically since its creation back in 2009.
As for what will happen to the value of Bitcoin once the limit has been reached, who knows? If anyone knew they’d be rich very quickly.
4. It is not a stable store of value
Most assets that people invest in, tend to be a fairly stable store of their value. Take saving cash, for example, a £10 note will have a fairly similar value in one year's time.
Unlike most other assets, Bitcoin has a reputation for being highly volatile. Volatility is how likely the price is to move up or down.
The higher the volatility, the riskier the investment. The price can change around 5-10% up or down on a daily basis.
Picture this. You want to buy something which costs £50 only for it to rise in price to £60 by the following week, then drop to £45.
This wouldn’t only be an inconvenience for you but also for the business that has to constantly adjust its prices!
5. It’s not technically an ‘asset’
People commonly say that they are ‘investing' in Bitcoin which then makes you assume that it is an ‘asset’.
Most normal assets have a stream of income that they give you (like stocks, bonds and property) or have a use (such as a property you can live in). Gold has no income, but it can still be used to produce goods.
Bitcoin has no income, no practical use and no regular payment from it.
It is better to say that people are ‘speculating’ or in other words ‘gambling’ on Bitcoin. They are hoping that it will continue to rise and make them as rich as those who are crypto millionaires now.
6. It must be bought from a trusted source
Bitcoin is currently the most successful cryptocurrency around. Because of its success, there will always be people trying to take advantage of those looking to buy it.
There have been a large number of complaints around scams associated with Bitcoin.
These scams are mostly around unregulated companies who steal your information and money, trying to take advantage of people desperate to build their digital wallet.
7. Protect the precious key!
There are a number of stories online about people who have lost their Wallet key.
When you purchase bitcoin, you are issued a 52 character long private key which is picked randomly. It looks a little bit like this:
5Kb3kLf9zpWQnogixMW76MzPL6TsZZY36hTXMssSzNydYXYB9KF
If you lose this key, you lose your Bitcoin. As you can imagine, unless you write it down or store it securely, you’re unlikely to remember this long string of information.
An unfortunate computer programmer lost access to his secure IronKey hard drive and only has two attempts left before he is locked out completely, losing $390 million!
To get around this issue, Bitcoins can also be bought through some online platforms which will look after your key.
The takeaway
Some people have made a lot of money from buying Bitcoin, but more people have lost out.
My personal view, as with any investment, is to only put in what you would be prepared to lose completely.
If you can afford to buy Bitcoin and it is factored into your financial plans, then why not go for it.
If you do, don’t walk into it blind and make sure you understand it fully, buy it safely and securely store your wallet key information.
This article is for information purposes only. It is not intended to be used as financial advice. You should seek specialist advice from your bank or a qualified Financial Advisor before making any financial decisions.