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Bitcoin provides some of the most profitable investment opportunities available.
While I didn’t have the foresight to predict the 36 Bitcoin in my wallet would be a profitable investment at some point, I have made significant profits engaging in peer-to-peer and short-term trades.
Investing in Bitcoin has its share of advantages, but there are some disadvantages anyone who plans to be involved with it or other cryptocurrencies should be aware of.
The Pros Of Investing In Bitcoin
Bitcoin is well on its way to becoming one of the main ways people purchase goods and services all over the world, particularly online.
As is the case with most cryptocurrencies, the price of a single bitcoin reflects what investors and traders around the globe think it’s worth. It is not tied to any real-world assets.
You’re probably wondering why so many people seem to think a single bitcoin should be worth over $58k.
Bitcoin is managed by a decentralized network called the blockchain that transparently records each transaction.
Each new transaction is added to a databank called a block, and it’s linked to the block before it, creating a link of data blocks that contain every transaction that’s ever taken place.
It provides a secure alternative to fiat currencies, which are controlled by central banks and the many regulations that surround their use.
Some of the advantages Bitcoin has over more traditional ways of paying for goods and services or transferring money include:
Faster Transactions
Most bitcoin transfers are completed within a few minutes. Traditional bank transfers can take up to three days.
An Easier Way To Receive Payments
Small business owners often run into issues when receiving payments for their business.
For example, PayPal is notorious for flagging perfectly good accounts simply because they started getting more payments — which is ironically what all business owners hope for.
Bitcoin allows small business owners to avoid many of the hassles that come with traditional payment processors.
Easier Access
Some traditional payment processors like CashApp require users to submit identification documents like their ID to use their services.
Getting a Bitcoin wallet does not require submitting any documents, and there are a myriad of ways to buy Bitcoin, giving anyone in the world with access to the internet access to the cryptocurrency.
Anyone Can Get In On The Action
Unlike traditional investment mediums like the stock market, anyone can invest in Bitcoin.
With Bitcoin slowly becoming a mainstream currency, purchasing it is now as simple as going to a Bitcoin ATM and inserting some cash.
If you live in a developed country, there’s probably one less than a few miles away from you.
Bitcoin can also be easily purchased online. You can purchase them from users on sites like LocalBitcoins using virtually any payment option you can think of, from debit cards to gift cards you never cashed.
You can also purchase Bitcoin on many exchanges like Kraken, using a debit card or other cryptocurrencies. You can even purchase Bitcoin for apps like Cash App nowadays.
Unlike traditional stockbrokers who often require a minimum amount to open an account, you can start investing in Bitcoin with any amount regardless of how small.
While the current price of Bitcoin is at $60,000, each unit can be divided by up to eight decimal units. The smallest fraction of a Bitcoin is called a satoshi (0.00000001 BTC) and it’s currently valued at $0.00060.
More Practical Uses
In my experience, this is where Bitcoin stands out the most, compared to fiat currencies.
Practical advantages Bitcoin and other cryptocurrencies have over fiat currencies include:
Lower Transaction Fees
Generally speaking, transferring assets from one person to another costs less when sending cryptocurrencies. Western Union, MoneyGram, and other currency transfer services charge much higher fees.
Faster Transaction Speeds
While electronic fiat currency transactions remain faster than cryptocurrency transactions, that’s the only area fiat currency wins as far as speed is concerned.
When it comes to transferring funds globally, cryptocurrencies have fiat currencies beat.
For example, you can transfer large amounts of money anywhere on the globe within minutes with Bitcoin. Wire transfer services and ACH transfers can take up to three days.
Non-reversible Payments
One of the biggest issues small and medium-sized online businesses deal with are customers fraudulently charging back transactions.
The standard policy most banks and credit card providers have is to put the loss on the business.
It’s no surprise online business owners like myself have been quick to start accepting cryptocurrencies like Bitcoin as payment options.
Cryptocurrency transactions cannot be reversed once confirmed, making them the online version of spending cash.
It puts the power back in the hands of entrepreneurial people who often get discouraged due to how powerless they feel when it comes to fighting banks and their chargeback policies.
Banks tend to barely investigate chargeback disputes and often simply pass on the expense to the seller. Scammers are aware of these policies so they simply order things and dispute the transaction with their banks.
Now, I should warn you that this can also be a bad thing since there is no way to get your BTC back if you end up getting scammed, mistakenly send BTC to the wrong wallet address, or find yourself dealing with a provider that fails to meet their obligations after getting payments.
Trading And Investment
Bitcoin and other cryptocurrencies provide a once-in-a-lifetime investment opportunity.
With no minimum amount required for investment, many people who have been shut out of traditional investments now have access to cryptocurrency markets that have already made countless millionaires.
Popular Bitcoin trading strategies include holding, peer-to-peer trading, day trading, margin trading, short-term and long-term trading.
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Security
Bitcoin utilizes SHA-256 encryption to verify transactions and its Proof-of-Work system. Its main security system is called the blockchain – which is a chain of blocks that contain transaction history.
Bitcoin’s blockchain starts with a single block known as the genesis block, and new blocks are added to the blockchain as solved hashes and transactions are added.
The link of blocks creates the blockchain.
The blockchain that contains the most work in it is classified as the best blockchain, and the protocol goes back to it when verifying transactions. A Bitcoin is considered spent once confirmed.
Bitcoin’s blockchain provides a powerful security protocol that is virtually impossible to manipulate.
One of the biggest risks with the blockchain is the case of double-spending, meaning the blockchain has been fooled to spend the same bitcoin twice.
Merchants can simply counter this by waiting for transactions to be confirmed before counting incoming transactions as paid. There’s no way to reverse or double-spend a bitcoin transaction once confirmed.
That’s important since double-spending would allow people to reuse Bitcoin they have already spent.
Bitcoin is stored in wallets that provide varying levels of security. These include online wallets, hardware wallets, and paper wallets, with paper wallets providing the highest level of security.
A Bitcoin wallet doesn’t hold bitcoin.
It just stores the location of your funds so you can retrieve them the same way an account number pulls up your bank account. A private key is used to verify ownership of the wallet.
The Cons Of Investing Bitcoin
While Bitcoin’s blockchain has proven to be extremely secure, exchanges and sites that deal with Bitcoin often have loopholes unsavory characters can exploit.
Exchanges like Mt. Gox and Crytopia have been hacked, costing users all of their cryptocurrencies. Other exchanges like COSS have been involved in exit scams, stealing all of the cryptocurrencies stored on their exchange.
The companies that deal with Bitcoin have proven to be the weakest link when it comes to security. This is why I strongly recommend storing most of your cryptocurrencies in personal wallets and not exchanges or third-party sites.
I lost quite a bit of cryptocurrency when Crytopia got hacked, but I failed to learn the lesson that storing cryptocurrencies on third-party sites wasn’t a great idea.
It took losing more cryptos during the COSS exit scam for me to finally commit to never storing significant amounts of cryptocurrencies on sites I do not control.
Other things you should be wary of if you decide to invest, trade, or use cryptocurrencies include:
Chargebacks
These are one of the biggest issues peer-to-peer traders deal with.
Volatile
Bitcoin’s volatility makes it a riskier investment than traditional stocks. The currency can sometimes drop $1,000 in value overnight, then gain $5,000 the next day.
Because of this, it may not be the best investment for those who are looking for something with a little less daily movement.
No Regulation
Bitcoin and other cryptocurrencies do not have governing bodies like the SEC creating regulations and standards.
This leaves cryptocurrency markets more vulnerable to manipulation like pump and dumps.
In addition, without a governing body, beginners could get scammed by investing in a new coin that is not legitimate, so make sure to always do your research in-full before investing in any coins you’ve never heard of before.
Value
Bitcoin’s value is based solely on speculation.
It not tied to any real-world assets so there is always a risk the cryptocurrency loses all of its value at some point.
Government Interference
Some governments might attempt to shut down cryptocurrencies like Bitcoin in the future since people who engage in illegal activities can also use it to transfer assets.
No Recovery
There is no way to recover your wallet if you lose your private key/password.
There’s some poor guy in San Francisco with over $100 million in his BTC wallet and no way to retrieve the funds.
Fraud
There are just as many fraudulent cryptocurrencies as legitimate ones. Investing in established cryptocurrencies is always the safer option.
Investing In Bitcoin Has Its Pros And Cons
Before investing in Bitcoin or other cryptocurrencies, be sure to do your research on whether they are legitimate or not.
Since trading crypto is still relatively new compared to other investments like Stocks, there are plenty of scams and frauds out there looking to take your money.
But, you can protect yourself by knowing the ins-and-outs of what you’re investing in, which will be essential to your success, since there is no governing body like the SEC to protect you & your money.
Still, the pros of investing in Bitcoin can significantly outweigh any cons when you do your research and make educated investment decisions that are right for you and your goals.
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