By now you’ve probably heard something about cryptocurrency and Bitcoin itself. The financial world is divided over the technological innovation of decentralized money. Some allege that it is a scam or a fraud and useful only for those wishing to break the law, such as money launderers and drug dealers. Meanwhile, others believe that Bitcoin represents the first true breakthrough in monetary technology in hundreds of years.
Those who are old enough will probably remember that another democratizing technological innovation similarly divided opinion during its formative years. The internet was claimed early on to be nothing more than a method for terrorist organizing or distributing illicit material. Many naysayers refuted the notion that digital communication via email or instant messaging systems would ever prove popular.
At the same time, just like Bitcoin, many early internet pioneers could see the potential and, over the years, have helped develop the largest global network that today touches literally every facet of modern life. Interestingly, many of these are the same voices who are now passionate about Bitcoin.
Let’s be honest though. You’re likely here because you’ve heard some of the stories about people getting immensely rich after the Bitcoin price skyrocketed to unbelievable heights in December 2017. That’s how most people get attracted to the space at first.
However, Bitcoin is so much more than that as it has immensely liberating properties. For the first time, humans have an entirely decentralized currency, a reliable store of value and medium of exchange. These features make Bitcoin unique as a form of money. Moreover, it has free secure storage and a truly limited supply.
If all this sounds interesting, then you probably want to get started buying some Bitcoin already. Hold off for now, though. There are a few steps you should probably take as an absolute beginner that will help you to feel more confident about investing in this brand new, entirely digital asset.
Research and Learn
We’ve already given you a brief primer to what Bitcoin is all about in the introduction to this article. This should serve as a basis for your own research. As with any investment, it’s important to fully understand what you’re getting yourself into. This isn’t just another company that you’re buying stocks and shares in. It’s an entirely new asset class.
The logical starting point on your quest for knowledge is to clearly understand what a public blockchain is and what it isn’t. Following on from this, you should get a firm grasp of the reasons why humanity needs a decentralized, non-governmental form of money in the first place.
To support this research, visit the Nakamoto Institute. Here you’ll find loads of great articles including the Bitcoin Whitepaper itself, texts which influenced the creation of Bitcoin, and many other articles on cryptography and finance.
All this study might seem like a lot of work at first. However, it’s vital that you understand exactly what Bitcoin is about before you buy in. Many of those who invested during the heights of the epic bull run of 2017 did so based on fear of missing out on “the next big thing”. As the price declined, rather than averaging out their positions by buying more, they gave up on Bitcoin and sold at a loss. Had they fully understood their investment, they would be far more likely to become part of the ever-growing bedrock of believers needed for the technology to truly disrupt.
Choose an Appropriate Storage Medium
If you’ve read what we’ve advised, you should already know how important it is to securely store your crypto investment. The most crucial thing to remember is that storage is down to you and you alone. With the freedom Bitcoin grants also comes great responsibility. Over the years many people have lost money due to improper storage techniques. This might have been leaving funds on an exchange platform that subsequently was hacked or not fully understanding the importance of storing private keys.
Below, we’ve listed the main methods of storage and their pros and cons. As with anything, optimizing for one quality, say security, means the solution is less optimized for another, such as convenience. The methods below are listed from the least secure to the most.
- First on the list, online wallets are those found at merchants’ websites and trading platforms. They certainly have a purpose (usually to let you buy something from an online store or to swap BTC or another crypto). However, they should not be considered permanent storage since the user does not hold their own private key. Put simply, if anyone other than you knows your private key, they have sole control over the Bitcoin you think you control. Moreover, they are notoriously insecure. Online platforms are hacked all the time and it’s pot luck whether you will be refunded if you lose money due to a cyber-attack.
- Wallet software downloaded to a computer or mobile device is known as a desktop or mobile wallet. These options are highly convenient but not very secure. Any issue affecting your computer system (keyloggers, malware) can potentially compromise your Bitcoins’ security. You should think of this storage type like the wallet you walk around the town with. It’s great for a few bills to spend on day-to-day purchases. However, you don’t want to keep your life savings there.
- Hardware wallets are one of the most secure options out there and are often referred to as ‘cold storage’. They are designated devices that generally resemble USB sticks. Private keys are created offline using the device itself. A hardware wallet offers a great balance of security and convenience. You can even make multiple transactions from a hardware wallet without considering its security compromised.
- Finally, here comes another form of cold storage called paper wallets. Once properly set up, these are the most secure form of storage possible. However, unless you are very good with computers, we don’t recommend using one. To create a paper wallet perfectly is incredibly tough. And if you’re reading this introduction to Bitcoin article, it’s safe to say you don’t have enough tech skills for it. Also, each time you use your private key to send funds, its security is completely compromised. You should transfer all funds to another storage medium immediately following each transaction from the wallet.
Make Your First Investment
Finally, after all the learning you should have done by this point, it might be time for you to purchase your first Bitcoin or fractions of one. There are loads of services that will assist you in this. They include crypto brokerages, peer-to-peer marketplaces, exchanges, and more. If you’re lucky, you might even have a friend who will sell you a few satoshis (the smallest unit of Bitcoin – 1/100,000th of BTC) so you can get the feel for your chosen wallet before diving into the exciting world of cryptocurrency.
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