What you need to know before buying Bitcoin

by - August 12, 2019

Bitcoin might be the most talked about currency in the world, but it still remains an enigma to many women. According to Google Analytics data as of June 2018, 91.2 percent of individuals engaged in the bitcoin community are men.

You might we wondering how to start buying Bitcoin. You may be feeling brave and want to try a new type of investment which has the potential to form the backbone of a new financial system. The first thing you need to know, is you don’t need to buy a whole Bitcoin currently valued at over R146 000.  Marius Reitz, GM for Africa of Luno, South Africa’s leading cryptocurrency exchange, explains that you can invest any amount from R20. With more than 2000 cryptocurrencies in existence, he unpacks how to identify credible exchanges, what you need to know about cryptocurrency and how to get started in investing in a few simple steps.

What is Bitcoin?

Bitcoin is a currency designed to pay for goods and services, just like the Rand or U.S. Dollars. But that’s where the similarities end. Bitcoin, unlike a traditional currency, is:

Decentralized—no government or central bank controls the currency supply.
Digital—there are no physical Bitcoins or Bitcoin bills. The currency lives entirely online, tracked by blockchains, continuously growing groups of records that provide a complete history of each Bitcoin. (Imagine, for example, that you could use the serial number on a ten-dollar bill to look up every single time it changed hands.)
“Pseudo-Anonymous”—Bitcoins are tied to a wallet ID rather than your personal information, but this doesn’t make it entirely anonymous (more on that below).
Bitcoin was developed in 2008 by someone with the pseudonym “Satoshi Nakamoto.” This person published a paper discussing how Bitcoins could work and just a year later it started being traded and mined.

The reason people are so drawn to Bitcoins is the lack of middlemen and banks with hefty fees. Since it exists entirely online, your wallet ID (more on that later) is what is used in transactions, not your name and other information, unless you give it.

How is the price of Bitcoin calculated?

The price of Bitcoin works in the same way as it would with other currencies or objects. It’s based on supply and demand. The price of a currency or Bitcoin boils down to the price a buyer and seller will agree upon.

A key differentiator of Bitcoin though, is that there is a finite supply. Once the 21 million in existence are in circulation, Bitcoin cannot be reproduced, nor can more currency be printed as with hard currency. Over 17 million have been mined to date. This scarcity drives the future value of Bitcoin and this is expected to increase as more people use Bitcoin.

What are the risks?

The same intuitive rules that apply to traditional money also apply to Bitcoin. For example, don’t invest more than you can afford to lose and don’t put all your eggs in one basket. Bitcoin is a brand-new technology and it will mature, addressing some of these risks in the process. Bitcoin is more volatile (it can move a lot in value both up or down in a short time) than many other currencies.

Transactions are like cash in that they are irreversible - so if you send Bitcoin to the wrong person, or your wallet is compromised and someone steals your Bitcoin, it might be impossible to get it back. On the upside, this makes it more secure and easier for retailers to accept with a lower risk of payments being reversed.

Just as in the traditional investment world, it is important to do your own research and to use your own judgement. Ensure that you partner with a trusted exchange with transparent investor and director information. Be wary of any scheme that promises guaranteed returns on investment. Read how to avoid Bitcoin scams and protect your crypto from hacks, scams and phishing and use Luno built-in security features like OTP (one-time-pin) authentication.

What happens if the price goes down after I buy?

Just like investing in shares on the stock exchange, ideally you buy Bitcoin at one price and then sell it at a higher price. You can expect lots of spikes and troughs, but when viewed as a long-term investment, the price is on an upward trajectory despite all the ups and downs over the past few years. You are in control and make your own decision about whether you’d like to wait for a higher price or at which point you want to sell.

How do I get Bitcoin?

You can buy Bitcoin from a credible exchange provider, like Luno. This is similar to how you would buy shares online. Just like traditional money, you can earn it by providing goods or services, and asking for people to pay you in Bitcoin rather than in traditional money. This is one of the easiest ways to get your hands on some Bitcoin. Online retailers, including Bidorbuy, allow you to make purchases with Bitcoin.

How much do I buy?

One of Bitcoin’s distinct characteristics is that you don't have to purchase a single Bitcoin currently valued at around R146 000, but you can buy small fractions from as little as R20.  Once you’ve deposited money via EFT from your bank, you’ll choose the cryptocurrency you want to buy (Bitcoin and Ethereum are traded on Luno).  You can then track the price of your chosen currency in Rand. Selling cryptocurrency is just as easy. Simply select the ‘sell’ option and enter the amount in Rand you want to sell.  There are transaction fees payable for buying and selling cryptocurrencies, which range between 0 and 1% per transaction on Luno.

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