Bitcoin is a well-known cryptocurrency that stores and protects your digital assets via a network of interconnected computers. More people than ever are eager to invest in Bitcoin to get market-beating profits, thanks to the exponential rise of the crypto market in recent years.
While it can be a profitable investment, you should proceed with caution because it is a very high-risk asset. That implies Bitcoin’s value can change significantly in a short time.
Digital currencies are continuing to take a spot in the news. Investing in Bitcoin may appear complicated at first, but it becomes more straightforward once you break it down into steps.
In this blog post, let’s discuss how to invest in bitcoins in the UK.
What are bitcoins?
How does blockchain work?
Why is bitcoin valuable?
What are the requirements for Bitcoin investing?
How to invest in Bitcoins in 5 easy steps
Things to consider before investing in bitcoin
Final thoughts
What are bitcoins?
It is a worldwide payment system and a type of digital cash. Unlike traditional money, such as minted coins or printed bills, it is created and held electronically. And unlike conventional currencies, bitcoin is not controlled by a single body, which means no single authority can manipulate the value or undermine the network.
Users exchange bitcoins electronically using encrypted addresses. It is one of the most extensively utilised types of cryptocurrency. Virtual “coins” or “tokens” are used in a cryptocurrency system instead of physical money.
Miners must authenticate all transactions and record them in a public database known as the blockchain, which is simply a long list of interconnected blocks. The authentication process requires significant computing power and thus electricity.
As a reward for their mining efforts, coins are issued to the miners. Such coins or tokens are called bitcoin.
How does blockchain work?
It is a type of database that keeps track of all transactions and timestamps them. It is a continuous receipt of transactions. When a blockchain database powers a cryptocurrency, it records and validates the transactions.
A decentralised computer network runs many crypto blockchain databases. The database works by several redundant computers, which check and recheck transactions to ensure accuracy.
Check our blog post on Blockchain Technology: Shaping the Future of the Accountancy Profession.
Why is bitcoin valuable?
Because others are eager to exchange Bitcoin for goods, services, and existing currencies, it has a similar value to other currencies. Stock market values have increased and dropped due to various causes, including firms accepting or removing support for the money.
On the other hand, the value of bitcoin comes from a variety of sources. For example, it has some scarcity, divisibility, transportability, durability, and authenticity. Bitcoin possesses the following characteristics:
- They are limited to 21 million.
- It has eight decimal places. A satoshi, the smallest unit, is equal to 0.00000001 bitcoin.
- It is easily transportable.
- Provides security by using blockchain and cryptographic keys.
What are the requirements for Bitcoin investing?
To invest in Bitcoin, you don’t need a lot of cash. Only the following items are required:
- Personal identification documents
- Bank account information
- Internet connection
If you acquire coins through a stockbroker, you may not need to supply any personal or financial information because your stockbroker has it on file.
How to invest in Bitcoins in 5 easy steps
Bitcoin investing does not have to be complicated. The four quick steps you need to take to buy in Bitcoin are listed below.
1. Select an Exchange
Bitcoin isn’t yet available for purchase through your bank or investment firm; however, several startups are attempting to make it possible.
For the time being, you’ll have to trade your currency for Bitcoin or other digital currencies through a cryptocurrency trading platform.
There are hundreds of exchanges to select from if you want to buy bitcoin online. These exchanges are online marketplaces for buying and selling cryptocurrency. The following are the pointers to choosing the best bitcoin exchange platform.
a. Do your research
Reputation is essential when it comes to cryptocurrency and exchanges. Take the time to investigate the exchange properly you’re considering before even creating an account (which should indicate a high degree of trust, as it requires a user to send over confidential information of various forms).
Always go for the regulated exchanges, like those regulated by FCA in the UK.
A professional investor can trade in the Bitcoin futures, a derivative contract, listed on an international exchange like Chicago Mercantile Exchange- CME.
b. Choose a higher level of security.
The more difficult it is to open an account on a specific exchange, the better.
If it’s too simple to create an account, it’s a sign that the business isn’t very reliable. So, what happens if your digital assets suddenly vanish?
Finding and collecting your money may be significantly more difficult in some situations. So make sure to go through the security methods before making the decision.
c. Exchange fees
Trade fees are revenue streams for the exchange, but they might be challenging for a trader with thin profit margins. Exchanges impose costs for everything from depositing to withdrawing, from instant selling and buying to futures trading, and from wallet transfers to lending/borrowing.
They will charge a flat fee or a percentage, with pricing varying by user tier and subject to change, making any direct comparison futile at worst and complicated at best. So select one whose charges are affordable and moderate.
2. Get a Bitcoin Wallet
When you buy bitcoin, it is stored in a “wallet,” which holds all of your cryptocurrency. A hot wallet and a cold wallet are the two sorts of wallets available.
Bitcoin exchange or a third-party supplier manages the hot wallet. When you open an account with some businesses, they will instantly supply you with a hot wallet. They are helpful because you can access your coins over the internet via a software programme.
A cold wallet is an encryptable offline device that you may use to download Bitcoins. You can take the device with you. It costs roughly £100 and is considered safer than a hot wallet.
On the other hand, cold wallets are costly and require you to have the gadget with you at all times if you wish to conduct regular transactions.
Hot Wallet vs Cold Wallet?
If you’re only planning to buy a small unit of cryptocurrency, a hot wallet with an insured crypto exchange might suffice. On the other hand, a cold wallet would be well worth your money if you invest in large cryptocurrency quantities.
3. Fund your account with Government-Backed fiat currency
It’s time to fund your account once it’s set up. Online funds transfer from a linked bank account is the quickest method. You can also use payment applications depending on your exchange.
Some cryptocurrency exchanges allow you to trade immediately, while others need you to wait for the money to clear before purchasing. If you can buy cryptocurrencies instantly, you may have to wait for the deposit to clear before withdrawing money from your account.
4. Get your first Bitcoin
After you’ve linked your wallet to the exchange, you’ll need to decide how many Bitcoins you wish to buy. One Bitcoin costs tons of money, making it impractical for most people to buy them.
They can be purchased in fractions, letting you acquire precisely the quantity you want.
5. Keep a close eye on your Bitcoin investments
Following your purchase of bitcoin, you can perform the following:
- Use your coins to make online purchases.
- Keep your bitcoin for a long time to increase its worth, though it is not guaranteed.
- Use your coins for day trading when you purchase and sell currencies with other Bitcoin owners on a cryptocurrency exchange.
Things to consider before investing in bitcoin
Bitcoin, like any other investment, has risks and rewards. It is more volatile when compared to different sorts of investments. Before you invest, consider the following points:
- It is not recommended to invest your life savings or pension savings in cryptocurrency markets.
- Never put more money into an investment than you can afford to lose.
- If you don’t save a lot of cash at the end of each month, you should avoid crypto and focus on savings.
- To maximise your chances of profit, treat cryptocurrencies as a long-term investment, similar to traditional assets.
Final thoughts
Bitcoin appears to be the future currency, or at the very least a recognised store of value, as institutions add it to their balance sheets and countries, making it a legal tender. Due to the market’s volatility, risk-averse investors are still unwilling to buy Bitcoin, let alone any other cryptocurrency.
Cryptocurrency is a speculative industry, and many savvy investors have chosen to invest elsewhere. However, the best advice for beginners who want to start trading bitcoin is to start small and only invest a small amount you can afford to lose.