Cryptocurrency, NFTs, and bitcoin are just a few of the new words buzzing about the internet these days. When it comes to investing, you may even think you are the only one that doesn't have something to say about the topic. The truth is that bitcoin is still a relatively new phenomenon in the finance world, and we are still trying to understand how it affects the larger economy and what buyers and sellers can come to expect from it.
What is bitcoin?
Bitcoin is the first notable and widely-accepted cryptocurrency, or virtual currency used like money. Bitcoin came about in 2009 by developers as an effort to create a money system that wasn't owned or controlled by any one group or government. Since its introduction, it has gained incredible popularity and grown in value many times over its initial price. It has also inspired other cryptocurrencies.
Bitcoin is "created" in a unique way. Unlike paper money that is printed, bitcoin is given as a reward to blockchain miners.
What is blockchain? Think of it as a decentralized ledger, or logbook, where online transactions are encrypted and recorded to keep them safe. As these miners work to verify each of the transactions (a very tedious process), they get access to the bitcoin codes that they can store in digital wallets and use to buy and sell things in the future.
Should I buy bitcoin?
If you have known people with bitcoin since the beginning, you are aware that the value has grown significantly. If these same people were able to cash out their bitcoin when it was valued the highest, they might have even come away with quite a bit of wealth.
The drawback to bitcoin, however, is that those who bought in early and held have seen the highest possibilities for returns. The rest of us, starting later in the game, might not see that high of a return and could even lose money as the cryptocurrency market faces massive ups and downs right now.
While the same could be said for the U.S. dollar, which is losing some value as markets struggle, bitcoin isn't true "fiat" — or money that's backed by a government. Because the U.S. dollar is backed by our government, there is some additional assurance in its overall long-term worth.
Bitcoin has also been the target of scams in the last few months. Whether it's a holding company that was targeted by hackers or an individual sending bitcoin to a fraudster, it's harder to track down and get back bitcoin than actual dollars since the government isn't really involved in its regulation.
How to buy bitcoin
If you are fine with the risk that can come with investing in bitcoin, there are some smarter ways to do so. Currently, you need a digital "wallet" to completely control the storage, receipt, transfer, and security of your cryptocurrency . You might have limited access your crypto unless you go through a third-party custodial service. For some people, this is not only a hassle, but it adds an extra layer of tech know-how that can be discouraging for the new bitcoin enthusiast. While they rely completely on the security of other platforms (which are also subject to hacks or tech disruptions), these options may work better.
There are many places to buy cryptocurrency, including bitcoin, online without having to have a digital wallet to store the bitcoin personally. Then, when you want to cash out your bitcoin for actual cash, you can. You can also use bitcoin to buy other types of cryptocurrency and items of value. This may be the simplest way to get into bitcoin without having to have the technology available to safely store and access your crypto.
Exchange-traded funds (ETFs) bundle together contracts and stocks of companies and other ETFs that are invested in bitcoin. Bitcoin ETFs don't commonly own any bitcoin directly, but they invest in bitcoin futures. A change in the bitcoin market would positively affect the companies in this bundle, and you would see it in the stock value. You can buy shares of these ETFs in the same places you would buy stock for Amazon or Walmart.
How much is 100 bitcoin worth?
Bitcoin, like any other asset, stock, or fiat, changes value every day — and even by the minute! For this reason, there's no way to say exactly what it's worth at any given moment. A quick look at your choice of financial website, including Yahoo! Finance, will tell you what it is valued at right now.
(Once you refresh your page, however, that number could have changed. Any time you buy or sell, you risk your price changing before you finish your transaction, something that can leave you with a little more or a little less than what you anticipated when you started the transaction.)
Is bitcoin for you?
Bitcoin has had a rollercoaster history, with some people making money with it, and others losing out. Like other investments, it is both an opportunity and a risk. Whether the opportunity outweighs the risk is dependent on the market and your personal tolerance to risk.
Tolerance to risk is a fancy way of asking, "How bad off would you be if you lost this investment?" If the answer is anything but "I'd be fine," you may want to rethink your strategy and go with something a bit more stable. Investing is always risky, but cryptocurrencies are especially volatile and unregulated. If you can't afford to lose money, this may be one investment worth passing over.