Until recently, investing in Bitcoin was considered trendy, which constitutes a massive change from its initial reputation. Today, you could even say that we’re in the middle of a global Bitcoin craze.
The appeal is obvious – a digital currency with no central authority and plenty of potential for profit. But it almost seems too good to be true.
The reality is that if you want to buy Bitcoin or trade it, there are a few crucial things to keep in mind. Indeed, understanding Bitcoin doesn’t happen overnight. But having a solid starting point can help you avoid common Bitcoin investment pitfalls.
Securing Your Bitcoin Wallet Is Essential
You know how careful you are to keep your physical wallet safe. It’s not that much different with your Bitcoin wallet. When you get started with Bitcoin, one of the first things you need to do is create an opensource Bitcoin wallet.
It allows you to make easy transfers and have greater control of your coins. Moreover, if used correctly, even a free Bitcoin wallet will deliver a high level of security.
On the other hand, it can be vulnerable if you’re not careful. There’s a lot that goes into securing your Bitcoin wallet, but here are a few fundamentals to consider:
- Keep smaller amounts of Bitcoins for everyday uses.
- Always backup and encrypt your online Bitcoin wallet.
- Create a strong password and keep it in a safe place.
- Use a hardware wallet for extra security.
- Always keep Bitcoin software up to date.
- Use the multi-signature feature as protection against theft.
Bitcoin Is Valuable and Volatile
At present, the price of one Bitcoin is close to £23,000 – a significant decrease from £30,000 in January 2021. This gives you a perfect idea of how volatile the price can be.
Numerous factors determine the price of Bitcoin, such as supply and demand, availability on currency exchanges, cost of mining, and regulations and legal matters. Speculation is at the core of all cryptocurrencies, but volatility is also a considerable part of it.
If you plan on investing in Bitcoin, you have to be prepared for the unpredictable price increases and decreases over a short period, which means that you should never invest what you can’t afford. Bitcoin is still a high-risk asset, and it’s how it should be approached.
A Bitcoin Transaction Is Irreversible
A Bitcoin transaction isn’t automatically irreversible. Instead, they get a “confirmation score”, emphasising how challenging it is to reverse them. A single transaction confirmation takes anywhere between a few seconds and 90 minutes.
A vital fact to remember about Bitcoin is that it can’t be reversed once a transaction is verified. Therefore, the only way to get your money back is to ask for a refund from the person or business that received them.
This doesn’t happen too often, as Bitcoin can detect typos and typically won’t send funds to an invalid address. However, additional safety measures can’t hurt, especially when dealing with a large number of coins.
Bitcoin Anonymity Is Mostly a Myth
Bitcoin started utterly anonymous. But as it was initially used for mostly nefarious purposes, efforts have been made by law enforcement to reduce its anonymity.
They’ve largely succeeded, which means that all Bitcoin transactions are public and available on any Bitcoin block explorer. However, even though Bitcoin transactions are traceable, the identity of the users can remain unknown.
This entails adopting certain practices, though. For example, you’ll need an anonymous Bitcoin wallet and new addresses for each payment, among other things.
Bitcoin Is Taxed
While incredibly popular and globally used, Bitcoin is not yet an official currency. Regardless, most jurisdictions require Bitcoin users to pay income, sales, and capital gains taxes.
In the UK, the HMRC (Her Majesty’s Revenue and Customs) has issued guidance for filing taxes on digital currency. It’s the responsibility of every person holding crypto assets to adhere to these rules and abide by all regulation.
Get Your First Bitcoin Armed With Knowledge
Until relatively recently, information about Bitcoin and other cryptocurrency wasn’t readily available. However, nowadays, there’s a plethora of helpful information that can help you take the first step with Bitcoin.
It doesn’t matter if you only want to test the waters of cryptocurrency as a hobby or you’re looking for a serious investment. The principles listed above will apply. A secure Bitcoin wallet is a foundation.
But you can build a stable operation by never losing sight of Bitcoin’s volatility and irreversibility of transactions. Also, total anonymity is impossible, but a reasonable amount of privacy is still an option with little effort.
Author Bio: Hitesh is a digital marketing strategist and entrepreneur with more than 15 years of experience in digital marketing, start-ups, branding, and customer acquisition strategies. Hitesh is the CEO and Founder of Reposition Group, which specialises in digital growth strategies for companies in the cryptocurrency market such as Bitamp.com.