Want to Invest in Bitcoin? Here are Things You Need to Know

By Jane Muia / Published May 16, 2022 | 12:23 pm

KEY POINTS

With everything today being digitized, some investors have also relied on digital currencies. Many digital currency enthusiasts believe that these investments could produce a new batch of digital currency millionaires (or billionaires). But those who have not yet invested in the digital currency space may be wondering if there are compelling reasons to start now.

Sprout plant and bitcoin, growth of bitcoin crypto currency concept

KEY TAKEAWAYS

Bitcoin is an experimental new currency that is in active development. Each improvement makes Bitcoin more appealing but also reveals new challenges as Bitcoin adoption grows. You might encounter increased fees, slower confirmations, or even more severe issues during these developments.

Gone are when people used to rely on and invest only in their savings for future security. In today’s world, savings may not be adequate to ensure financial safety. Idle money kept in your savings bank account may not serve the purpose. That is because of two reasons – one, the idle cash in your bank account is an opportunity loss as it cannot earn more money, and second, it does not have the potential to beat inflation.

Investing allocates money in different asset classes with the intention of capital appreciation and earning better returns in the long run. This is why you need to invest your money in the right way by giving it a chance to grow and work for you in the future. The type of investment you choose to sock your money entirely depends on you. Factors like your risk-bearing capacity, age, investment horizon and financial goals should first consider before going for an investment option.

The incredible growth of bitcoin (BTC) has made some investors rely on it because they see it as uncorrelated with stocks, making it an option as a portfolio diversifier. If you are determined to socking your money in bitcoin, this is what you need to know.

Bitcoin price is volatile

The price of a bitcoin can unpredictably increase or decrease over a short period of time due to its young economy, novel nature, and sometimes illiquid markets. Consequently, keeping your savings with Bitcoin is not recommended at this point. Bitcoin should be seen as a high-risk asset, and you should never store money that you cannot afford to lose with Bitcoin. If you receive payments with Bitcoin, many service providers can convert them to your local currency.

Bitcoin payments are irreversible

A Bitcoin transaction cannot be reversed; it can only be refunded by the person receiving the funds. This means you should take care to do business with people and organizations you know and trust or who have an established reputation. For their part, businesses need to keep track of the payment requests they are displaying to their customers.

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Bitcoin can detect typos and usually won’t let you send money to an invalid address by mistake, but it’s best to have security controls for additional safety and redundancy. Other services might exist in the future to provide more choice and protection for both businesses and consumers.

Unconfirmed transactions aren’t secure

Transactions don’t start out as irreversible. Instead, they get a confirmation score that indicates how hard it is to reverse them. Each confirmation takes between a few seconds and 90 minutes, with 10 minutes being the average. If the transaction pays too low a fee or is otherwise atypical, getting the first confirmation can take longer.

Government taxes and regulations

Bitcoin is not an official currency. Most jurisdictions still require you to pay income, sales, payroll, and capital gains taxes on anything that has value, including bitcoins. Your responsibility is to ensure that you adhere to tax and other legal or regulatory mandates issued by your government and/or local municipalities.

Bitcoin’s Future is Unpredictable

Bitcoin is an experimental new currency that is in active development. Each improvement makes Bitcoin more appealing but also reveals new challenges as Bitcoin adoption grows. You might encounter increased fees, slower confirmations, or even more severe issues during these developments. Be prepared for problems and consult a technical expert before making any significant investments, but keep in mind that nobody can predict Bitcoin’s future.