We, at Beebom, are trying to jump on the Bitcoin bandwagon and have been covering it for a while now. Now that you understand what Bitcoin actually is, let’s go a step further. We are moving in the right direction but don’t buy a Bitcoin just yet. Bitcoin is a radically different payment system, so there are certain things you need to understand beforehand. Today, I’ll tell you 6 things you should know before buying a Bitcoin.
Note: All these points are made with reference to the Bitcoin technology. If you’re looking for economic advice on whether to buy Bitcoin, you are probably better off asking an investment consultant.
1. Bitcoin is Volatile
Bitcoin is in its nascent stage and there are a number of market factors that influence it. For starters, it depends on the classic supply-and-demand. The more the people are willing to buy Bitcoins, the more the Bitcoin value will increase. Conversely, if more people sell, the prices will dip. See this chart which shows the exchange rate of Bitcoin against the US Dollar, courtesy BitcoinCharts.com
As you can see, the value of Bitcoin fluctuates wildly with time. The unpredictability of Bitcoin’s value makes it an extremely risky investment. Bitcoin should not be seen as a quick-money scheme. Rather, you should research properly before making any investment in it. As a general advice, remember the golden rule of investing — Don’t invest more than you can afford to lose.
2. Learn About Security Before Buying Bitcoin
This may seem very obvious at first but is worthy of a mention given the number of people that choose to ignore it. Learning about security is of paramount importance before buying a Bitcoin. If you lose the Bitcoins in your Bitcoin wallet, they’re gone forever. As there’s no concerned governing authority, there’s absolutely no way to recover them.
Picture the scenario: You amass Bitcoins worth thousands of dollars over the years and one day, the online wallet you used to store them got hacked. Or if you have them stored locally on your computer, only to learn that your hard disk has failed. Things could go wrong in so many ways. Either way, your Bitcoins would be lost forever and cannot be recovered ever again.
Storing your money in online wallets should be avoided at any cost. Use a reputed mobile wallet service like CoinBase. Make sure to backup your wallet in case something goes wrong with your mobile device. An even better alternative could be to use a hardware wallet, which stores your private keys on a dedicated secure hardware device. This also ensures that your wallet is protected from malicious software that could try to steal it. The Ledger and TREZOR are some of the hottest hardware wallets available in the market as of now.
3. Bitcoin Transactions Cannot be Cancelled
Once you make a transaction over the Bitcoin network, it cannot be cancelled. Once the transaction is initiated and Bitcoins leave your wallet, the process cannot be cancelled. Therefore, it is extremely important that you double verify if the transaction you are about to make is the right one. If you happen to make an incorrect transaction, say to the wrong person or you input the wrong amount, your best bet would be to try and get in contact with the receiver and ask him for a return (which may or may not work depending on the situation).
4. Research Where Bitcoin is Accepted
Before buying a Bitcoin, it’s necessary to research where you can actually spend all of your Bitcoins. After all, what’s your Bitcoin’s worth if nobody accepts it as a payment system?
Among the large companies that accept payment through Bitcoin are Microsoft, Dell, WordPress, PayPal and many more. Look for “Bitcoin accepted” when making transactions at a local marketplace. If you’re not sure where to begin, start with CoinMap. It lists a crowd-sourced data of the local business places that accept Bitcoin all over the world. Over time, more and more business-place owners will turn to accept Bitcoin. If you are one of them, accepting Bitcoins is as easy as downloading a Bitcoin wallet and creating an account on it.
Of course, all this is only necessary if you’re looking to purchase something using your Bitcoins. If you’d rather use your Bitcoins as just an investment, you can easily exchange Bitcoins for fiat money like the US dollar using any of the exchange sites.
5. Bitcoin is NOT Anonymous
The number one myth people hold about Bitcoin is that we can transfer the money anonymously. But in reality, the opposite is true. Your public address is visible to anyone over the world. In fact, every transaction you make and your account balance is visible at the Blockchain website. It carries your public address as an identifier, but it shouldn’t take much effort to trace the name linked to that public address.
The Blockchain being public is important to protect the integrity of the Bitcoin network. It prevents tampering of transaction data in the ledger. If you’re looking to perform transactions anonymously, you may want to check out Dashcoin or other Bitcoin alternatives.
6. Verify if Bitcoin is Legal in Your Country
Perhaps one of the most important steps is to verify if using Bitcoin is legal in your country. You certainly do not want to surround yourself with potential legal actions in the future. But why would any Government deem it as illegal?
As there’s no central governing authority of Bitcoin, some Governments condemn the use of Bitcoins. The more people start using Bitcoins, more the fiat currency get de-valued. Banking institutions could be rendered useless as the power gets transferred from the government back to the hands of the people. This is the reason why some governments strongly censure the use of Bitcoins.
Here are some of the countries that have embraced Bitcoin with open arms and have declared it perfectly legal —
|Countries Where Bitcoin is Legal|
|United States of America|
If you cannot find your country in the above list, chances are that legality of Bitcoin could be fairly controversial or even unknown in your country.
Russia, Bolivia and Ecuador are the known countries that are hostile towards the Bitcoin approach.
In other countries like India, China and Kazakhstan, this is fairly controversial. While there have been raids on a few Bitcoin sellers, there isn’t any law as such which prevents using Bitcoin. Anyway, transactions through Bitcoin in such countries should be done at your own risk.
In the majority of Africa, Peru, Venezuela the status still remains unknown. BitLegal is a great resource to keep track of the legal status of Bitcoins around the globe.
Ready to Buy a Bitcoin?
We’ve only scratched the surface of what’s possible with Bitcoin. Bitcoin has a lot of potential applications that may find a way in the near future. Now that you’re equipped with the basics of the Bitcoin technology, you can proceed to buy Bitcoins. If you’ve purchased any Bitcoin in the past, you should definitely share your experience with other readers in the comments section below.