An in-depth guide to investing in Bitcoin. 

Diversifying your portfolio with new types of investments has numerous benefits, like protecting your savings and generating higher returns. Above all, it minimizes industry-specific risks and losses caused by market volatility.

One of the most trending investments in the last decade has been Bitcoin, the “digital gold” of the twenty-first century. In this guide, you’ll find out everything you need to know about investing in Bitcoin.

Bitcoin: The World’s First Cryptocurrency

Bitcoin is the first cryptographic digital asset that’s built and exchanged on a decentralized peer to peer network using distributed ledger technology known as the blockchain.

In 2008, Satoshi Nakamoto, a cryptographer whose real identity remains a mystery, published a whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System where he described the mechanisms of the first completely decentralized digital payment system and its native currency Bitcoin.

In the nadir of the global financial crisis and the US stock market crash, crypto enthusiasts saw Bitcoin as a much-needed alternative to the fiat currencies issued and controlled by the government and as the future of our outdated financial system.

To create scarcity and prevent inflation in the future, Nakamoto hard capped the total Bitcoin supply to 21 million BTC. Today, over 85% or more than 18,470,000 BTC have been mined, but experts predict that the remaining bitcoins won’t be mined before the year 2140 because the mining difficulty keeps increasing. Afterward, there would be no new bitcoins.

Blockchain Technology and Bitcoin Mining

Nakamoto wasn’t the first software developer to try his hand at designing a functional digital payment system or a form of digital money. However, he was the first to find the solution to the double-spending problem and create a payment system based on cryptographic proof instead of trust in intermediaries (read: banks).

In his whitepaper, Nakamoto described a revolutionary new technology called blockchain, i.e. a public ledger that consists of chained blocks of data (hence the name). The ledger stores every Bitcoin transaction and prevents third-parties from making any changes or removing data.

Blockchain is also where mining Bitcoins takes place. This is done by “miners”, volunteers who operate the network’s nodes and spend great amounts of computational power to run the incoming data through a hash function and solve a complex algorithmic problem.

When the majority of the nodes accept the solution, the transaction is verified and enters the new block. The lucky miner wins a Bitcoin reward for the job.

Where Can You Buy Bitcoin?

Cryptocurrency Exchanges

The most common platforms for Bitcoin purchases are the crypto exchanges. The Malaysian Securities Commission (SC) has approved three Bitcoin exchanges that are recognized as registered digital marketplaces: Luno Malaysia, SINEGY Technologies, and Tokenize Technology.

Luno is a reliable trading platform where you can make free deposits and withdrawals and buy/sell Bitcoin enjoying inexpensive fees. It applies 2FA and cold storage to protect customer funds. Security is the number one priority when looking for crypto exchange. Just remember what happened to Mt. Gox!

On a global level, Coinbase and Binance are the two most widely used trading platforms. Based in the United States, Coinbase offers prominent cryptos at an industry average fee of 1.49% and 3.99% for card payments or PayPal.

Unfortunately, Coinbase is unavailable for Malaysian Bitcoin investors unless you live abroad, but you can try Binance instead which has a better choice of altcoins and affordable rates.

Traditional Stockbrokers: Robinhood

If you’re a fan of traditional stockbrokers, you’ll be happy to know that some of them such as Robinhood, eToro, and TradeStation support Bitcoin purchases too. The fee-free stock brokerage Robinhood, allows Bitcoin trades since 2018. Primarily designed to be used on mobile phones, they recently launched a desktop platform.

Bitcoin ETFs

An exchange-traded fund closely tracks and mimics the price of an asset. Bitcoin ETF would mean indirectly purchasing Bitcoin with an ETF of the value of Bitcoin without worrying about security issues or digital wallets. Moreover, if you believe that the price of Bitcoin is about to fall, you can short sell shares of the ETF.

Bitcoin Futures

Futures are contracts that allow Bitcoin investors to speculate on the future Bitcoin price. This is similar to commodities or stock futures. TradeStation and Binance are some of the platforms that support Bitcoin futures.

Bitcoin ATMs

Another option to buy or sell Bitcoin is to use a Bitcoin ATM but do be aware that most of them accept card payments only. Do take note that there are no legal crypto ATMs in Malaysia at this point in time.

Peer-to-Peer Platforms

P2P platforms are a popular option for buying Bitcoin. Exchanges like LocalBitcoins list thousands of Bitcoin offers with buyers and sellers that accept different payment methods. You can even find someone in your vicinity and agree to meet in person and pay them in cash.

Where Can You Store Bitcoin?

Your newly purchased Bitcoins should be safeguarded in a proper digital wallet that doesn’t store the actual coins (they’re intangible and virtual, of course) but your private key, the encrypted wallet address that gives you access to your balance.

There are three popular types of Bitcoin wallets:

  • cloud-based,
  • software, and
  • hardware wallets.

Both cloud-based and software wallets are designed by crypto exchanges or third-party providers and can be accessed online on your computer or mobile phone. Although convenient, these wallets are liable to cyber threats and malware which is why we recommend using them temporarily.

Hardware wallets, on the other hand, are portable USB-like devices that store your private key offline which significantly reduces the chances of hacking attacks and malware. Popular and affordable hardware wallets include Ledger Wallet Nano S, Ledger Wallet Blue, and Trezor.

Before You Invest in Bitcoin

Once you’ve found the right platform to purchase Bitcoin from, creating an account is quite simple and straightforward. Before you start the registration process, it’s important to have all your documents at hand.

Every registered exchange has to comply with international AML policies which require them to perform KYC checks on all customers. You’ll need to provide personal information, a copy of a government-issued ID, utility bill, and link your bank account or debit card to fund the account.

We advise against using your credit card to make crypto purchases as borrowing money to invest in a risky asset has proven to be a bad idea. This can easily lead to overspending which is why it’s better to invest with your savings only.

When investing online, make sure your Internet connection is secure and private. Avoid making purchases via public Wi-Fi networks when on the go.
Finally, be aware of potential market schemes. One such example is the “pump and dump” scheme, i.e. when experienced investors try to mislead novices into investing in a certain cryptocurrency in order to boost its price and sell its positions.

As long as you are cautious and do thorough research of the cryptocurrency market in advance, whether you engage in day trading or hold onto your digital currencies long-term, Bitcoin investments have the potential to provide you with highly lucrative returns.

Other popular cryptocurrencies to consider investing in are Ethereum, Bitcoin Cash, Ripple, and Litecoin.

 

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