More people outside of crypto started asking me about how bitcoin works and more specifically, how and if they should still get some. ” It’s not going to go away, is it?” The very next question is pretty much always the same, ” Is this a good time to buy some now or is it going lower?”
So let’s get into it:
1. To get into bitcoin you first need a bitcoin wallet; If you are planning on holding bitcoins (even small amounts), best practice is to store them safely in your control. People often get intimidated by the idea, but in practice, its as easy as installing an app on your phone or PC and visiting a website.
Let’s start with the best option; the most secure way is a hardware wallet, which is a small specially designed digital key that is protected and keeps your wallet password safe for you. Because these hardware wallets are not on your PC or phone they are safe from hackers or viruses or anything that may compromise your devices.
We use Ledger and Trezor wallets personally and have always had a good experience with them. Its a good feeling to have knowing that your precious bitcoins are safe from evil.
If you want to try bitcoin out and buy just a small amount first, you can safely use your smartphone. Coinomy is a very easy to use app which lets you store your bitcoin on your phone.
It has a receive and a send button, and an optional password to protect the wallet app.
There are more advanced security features and backup options in the app just like all bitcoin wallets do. I suggest to play with wallets backups and restoring them a little bit to get to know the apps.
Important: Cold storage is a bitcoin wallet that is not connected to the internet, like hardware wallets and paper wallets.
If you do decide to keep your (partial) bitcoin, please move them to cold storage at least. The security of your coins depend on it.
If you like to know more about the security side of things I can recommend watching James on YouTube:
2. Risk Management is key -> Instead of buying bitcoin at one point in time, it is much better to buy small amounts periodically over a larger period of time until you have the amount in bitcoin that you want to have in your portfolio.
We call this method scaling into a position or scaling into your holdings.
This will make sure that the average price you pay for the total will be close to the average price of bitcoin over a larger period of time.
3. Keep an eye on the coinbase bitcoin usd price for a while. You will see that the price always makes big moves to both sides even tho it mostly ends up higher then a year before.
For people familiar with charts: we always use tradingview.com.
4. Create an account on an fiat exchange where you can buy bitcoin with your currency such as dollar or euro and exchange it for bitcoin.
There are many exchanges that offer this service so here is our best practice:
– stay away from all small and new businesses that offer this service.
– Don’ t keep your coins on an exchange or website, move them to your wallet after you buy them and make sure they are safe and in your control.
Coinbase, Kraken, Bittrex, Bitstamp, Binance and Bitflyer have been here for a while and seem safe to buy and withdraw coins from. Always make sure you are working with a legit exchange that has a lot of active users withdrawing bitcoin from that exchange before you use it.
5. Order placement: After you have created your account on the exchange and funded your account with a small amount you can start placing buy orders to get your first (partial) bitcoin.
The safest way:
Split your funds in 3, place a buy order 10% below the current price, another buy order 20% below the current price and another buy order 25% below the current price.
If the price goes much higher then when you placed the orders, you should reset them. And wait again until price drops. And so on. Until you have the coins you want.
You can also reset the buy orders once every week for the price at that time and wait.
Leave the buy orders and keep an eye on the price occasionally until you see price drop into your orders. Once you have orders filled you should move the coins off the exchange to your own wallet.
A more aggressive way:
Do the same as above but split your funds in 4 equal parts: buy 1 part at the current price and set the other 3 parts as described above. Do this every week or every month with the funds you want to buy coins with. Whatever you do, never buy all the coins you want at 1 price with all the funds you have. That is a recipe for disaster and a waste of your capital.
Obviously the very best way to get more bitcoin is to offer your own services for bitcoin as well besides your usual currency. It’s a peer- to peer currency after all 😉
6. I own some bitcoin but the price is moving so much, what do I do?
Handle it similar as you would with a normal savings account but realize the value is going to fluctuate a lot throughout the years you hold it. You can take advantage of this by selling some bitcoin into a price rally. Just like we buy the dip, you want to sell some of your holdings if the price is really high. ( If you are not selling some when price goes up 50% after you buy, then you are taking the risk that the value drops all the way back again.)
Selling some bitcoin in profit will give you some extra funds for your USD savings account or to buy more bitcoin in the next dip 🙂
It is well known that miners receive bitcoin as a reward for putting energy into securing the network. Because the Bitcoin network enforces its rules, a halving of the generated coins for miners every 4 years is inevitable.
We have had several halving’s in Bitcoin and the next one is less then a year away, around 15 May 2020. The mining reward will drop from 12.5 to 6.25 for each mined block. And about 4 years after that, it halves again to 3.125 bitcoin rewarded per mined block.
Handy live countdown at:
Besides this block reward halving, there is the well known grand total of 21 million bitcoin ever to be produced. A bitcoin has 100 million cents we call; Satoshi’s or sats. We can use a single Satoshi, or 0.00000001 part of a bitcoin as a unit in this network.
The entire network is a social economic experiment which is almost exactly opposite of current fiat systems. Where a central bank stimulates the economy by inflating the money supply, the Bitcoin network stimulates participation in its bitcoin economy by increasing in value overall in the longer term, stimulating saving rather then spending.
A very good speaker on this subject is without a doubt; Andreas Antonopoulus.
Check him out on YouTube if you want to know more about bitcoin;