How to invest in bitcoin 2021: what you need to know
Virtual currencies emerge as an alternative to traditional fiat currencies and have their maximum exponent in bitcoin.
The cryptocurrency has become one of the best long-term investments (full of risks, yes). Someone who had invested 1,000 euros in 2010 today would be a millionaire.
What is bitcoin
Bitcoin is an independent and intangible virtual currency. What differentiates this cryptocurrency from a common currency such as dollars or euros is that it does not belong to any State. In other words, what are bitcoins and how do they work? They are basically decentralized currencies, since there is no central bank, government or financial institution or company that acts on it.
In the case of the euro, the Central Bank can intervene to affect the price through massive money issues or through interest rates. This is not possible with bitcoin. What's more, its creators have already set a limit on the number of bitcoins in circulation. They will reach 21 million in 2030 and there will be no more.
Control of bitcoin rests with the users themselves. They are the ones who validate any operation through exchanges (Point to Point P2P), without state intervention or any institution. In fact, the structure itself makes it impossible to manipulate its value. To make any change it is necessary for the entire user community to approve it.
Bitcoin is the first electronic currency that managed to be implanted with some solvency, but not the first to appear. What differentiates bitcoin from other attempts is its blockchain technology - later on we will explain better what it consists of.
- August 2008 marks the birth of Bitcoin with the registration of the domain bitcoin.org.
- Two months later, in October, the first document explaining the design of the virtual currency was published and in January 2009 the bitcoin network was officially born with the publication of the first open source code of a client. It is at that moment when the first block of Bitcoins with 50 prize bitcoins is mined and the first shipment of this coin is made - later on we will explain what bitcoins mining consists of.
- In October 2009, the first transaction in dollars was carried out with a price of 1,309.03 BTC (Bitcoin) for one dollar. The first exchanges of Bitcoins for dollars are made already in 2010 at a price of 1 BTC for 0.003 dollars. Also in 2010, Mt Gox was created, one of the largest bitcoin brokers that would later become famous for starring in the largest scam with this virtual currency.
- The first exchanges of Bitcoins for dollars are made already in 2010 at a price of 1 BTC for 0.003 dollars. Also in 2010, Mt Gox was created, one of the largest bitcoin brokers that would later become famous for starring in the largest scam with this virtual currency.
- In May 2010 the first purchase in bitcoins takes place. Specifically, 10,000 BTC was paid for two pizzas. We can say that these are the most expensive pizzas in history. At the current price, we are talking about $ 30 million for two pizzas.
- In 2011, other cryptocurrencies began to emerge and the growth of Bitcoin continued until 2013, when it received a new push and its price reached $ 3,000.
- It is not until 2015 when bitcoin begins to be legislated as a payment method - we remember that this is its main function. That year, the EU exempted operations with this virtual currency from VAT, while the technology that allows mining and obtaining bitcoins faster advances. In addition, it elevates it to the rank of payment method. But the true boom of Bitcoin does not come until 2017. It is at the beginning of the year when it exceeds 2,000 dollars and even 3,000 dollars per BTC. The reason according to the experts is that the BTC would be ceasing to have value as a means of payment and would begin to have it as a financial asset, something similar to what happens when investing in gold.
- Throughout 2017, the value of bitcoin surpassed $ 20,000, marking a milestone.
- In 2018, volatility reached the virtual currency and registered a fall of more than 80% from its highs, to approximately $ 3.00. Between 2019, the value of bitcoin stabilized again at around $ 8,000.
- In 2020 with the coronavirus crisis, bitcoin became an ally for investors and at the end of the year it traded close to $ 30,000.
- In 2021 the cryptocurrency has smashed all its records. Currently, Bitcoin has reached over $ 46,000. Among the reasons is, for example, the purchase of Bitcoin by Tesla, which has invested 1.5 billion dollars in the cryptocurrency.
- To this is added another relevant question: how many bitcoins are there mined? At present, the 18.8 million units of bitcoin mined have already been exceeded, which brings us closer to the maximum threshold of 21 million bitcoins that will be created.
- In fact, its production and value is based on the law of supply and demand.
- Another interesting detail is that Bitcoin has a fixed limit of 21 million coins. Initially, this limit was expected to be reached in 2030. However, the estimates are getting longer and longer. As there are fewer bitcoins every day, mining becomes more complicated.
Who created bitcoin
The creator of Bitcoin is Satoshi Nakamoto. It is a pseudonym, so it is not known whether it is a person or a group of people.
Satoshi Nakamoto is the name listed as the creator of the bitcoin protocol, who mines the first bitcoin block and makes the first transaction to Hal Finney.
This user made his last public contribution to the development of electronic currency in 2010.
Until 2016 Gravin Andresen was the most visible figure of bitcoin.
Who controls the bitcoin network Although Bitcoin has developers who act as spearheads, nobody controls the virtual currency as nobody can control the development of email in the sense that it does not have a single owner.
Programmers can improve Bitcoin software, but they cannot enforce a protocol change. This must follow the same rules for all and these are created in consensus among all users with their decisions about which platforms they choose to operate, for example.
In fact, when discrepancies about bitcoin arise, they are resolved among the entire community. For now, there has only been one occasion in which a consensus was not reached and it resulted in the creation of Bitcoin Cash, a new fork in technical language. For the common public, it would be a new, separate version of the base cryptocurrency with which it shares the same history of blocks until separation.
From there, the 'control' of the transactions is carried out through the users themselves, who are the ones who validate the blocks of the chain and the security of the transaction. Since this chain cannot be altered because it is present in thousands of computers around the world and that each change must approve the real control of the bitcoin users.
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How bitcoin works
For the end user, Bitcoin is another means of payment, such as the euro and an asset in which to invest, such as a share or oil. So is it safe to invest in bitcoin or not? Faced with this question, it is convenient to know that behind this entire market there is a technology that is what allows the system to be reliable. It is the blockchain technology or chain of blocks that, among other things, prevents the double spending of the currency, that is, that someone can spend the same bitcoin again.
In a very summarized way, the Bitcoin network is a public accounting system of which each user keeps a copy. Every time someone makes a transaction, it is stored on the users' computers, in a way that is avoided, known as double spending.
What is the blockchain
The block chain is the technology behind bitcoin that acts both as a database and as a backup for the system. As we have just seen, in a traditional financial system, any transaction is entrusted to a third person (bank, credit card ...), who is the one that validates the process. With block technology, it is the users themselves who do it.
The blockchain is like a large book of digital events (transactions in the case of Bitcoin) shared and distributed among many people. It can only be updated from the consensus of the majority of users and, once it is updated, the information cannot be deleted.
In this sense, each blockchain that is added contains verifiable information of all the transactions that have been carried out in the history of bitcoin.
Is bitcoin safe
Bitcoin as a means of payment is totally safe, since to carry out any transaction it needs the authorization of the majority of users.
The security of bitcoin is also based on the fact that in order to access your bitcoins, you will need to provide your private key. Without that key, no one will be able to access your bitcoins. In the wallets section we explain in more detail what this private key consists of and the difference with the public address, it is something like your bitcoin user and it will help them to send you and you can send coins.
How to get bitcoins
What do you have to do to get a bitcoin? If you don't know how to invest in bitcoin, we'll explain it to you here: currently, there are three ways to get hold of one of these cryptocurrencies: mine bitcoins, buy bitcoins through a platform and sell something and get paid in bitcoins.
Of the three formulas to get bitcoins, the first two are the most used unless you have an online store and also accept payment with virtual currency.
Mining Bitcoins
Mining is the earliest way to get bitcoins. Mining work involves using powerful computer equipment to solve mathematical problems, while acting as guardians of the currency's security.
For you to understand it better, it must be remembered that bitcoin is an encrypted code associated with a bitcoin address that is stored in a bitcoin wallet that does belong to a natural person. These bitcoins can be sent to other people, used to pay, exchange for another cryptocurrency, or get paid.
Each transaction is grouped into a block that must be sealed. This process requires complex mathematical calculations and therefore requires a lot of computing power to carry out. That's where the miners come in. As a reward for lending their equipment for this task, the Bitcoin network releases blocks with new bitcoin for which the miners compete.
How to mine bitcoins
To mine bitcoins on your own you need a powerful team specialized in this task. The reason is that with increasing competition, home computers do not have enough power to make the task profitable.
Today the best equipment is specialized and incorporates ASIC circuits. Its price ranges from 1,300 euros to more than 2,000. Among the houses that manufacture them are the Chinese Canaan, Bitmain, BitFury or Spondoolies Tech.
In this equipment it will be necessary to mount specific hardware to mine bitcoins that are often sold by the same manufacturers. That is to say, the program that will be in charge of mining effectively.
In recent months, an alternative formula for mining bitcoins without having to have your own computer has come to fruition. It is about cloud mining, with which a mining contract is rented with a certain mining power (ability to solve those algorithms we were talking about). Instead of having the equipment at home or on a ship, you pay a specialized company, which is the one that does the work and then shares the profits with you. Of course, keep in mind that most will reserve the right to keep everything obtained if they understand that the price of bitcoin at that time does not cover their expenses or does not leave enough margin.
How long does it take to mine a bitcoin
The time it takes to mine a bitcoin will mainly depend on the processing power or mining power. The higher it is, the less time it will take. Today machines already include rough statistics on how long it can take and the chances of success.
The thing to keep in mind is that the more people are dedicated to mining and the more competition there is, the more difficult it will be to mine and the more power will be required. In the same way, there are less and less bitcoin left (remember that a maximum of 21 million will be issued) and that is why the network makes it increasingly difficult to mine them.
How much do you earn from mining bitcoins
This is the one million question. Is it profitable to mine bitcoin? Can you really make a living from it and make a fortune? As you have just seen, making money mining is not that simple. There are several factors that influence, starting with the processing power you have.
If you prefer, there are also calculators on the internet that offer you the mining benefit based on your power.
In any case, the profitability of mining bitcoins is directly related to the price of bitcoin. In other words, the more expensive the coin, the higher the profitability and vice versa. In this sense, if the difficulty of mining continues to increase because more and more people enter the business and do so with more powerful equipment (what is called mining potential). The result is that more and more resources have to be invested to make money mining bitcoins.
Miner and businessman
A separate issue is that in order to mine bitcoins with all the laws you must register with the IAE in section 831.0 of section 1.
In addition, if you earn more than 13,300 euros (the Minimum Interprofessional Salary) you will also have to become self-employed and pay the corresponding self-employment fee.
How to invest in bitcoins in 2021
Another formula to get bitcoins is to invest in virtual currencies. In other words, speculate with the cryptocurrency as we would with gold, oil or any other action.
How to buy bitcoins
To buy bitcoins, just go to one of the bitcoin trading platforms. For those who already invest in the stock market, its operation will be similar, although somewhat different from that of a broker to use.
These platforms are called bitcoin wallets and it is where virtual currencies are stored. There are different types of bitcoin wallets based on issues such as security and usability.
The first ones are bitcoin wallets for PC, which you can download as a program for your computer. The second are the online wallets of virtual currencies, which can be for mobile phones or computers, it is indifferent. The second are the most secure and are the hardware wallets. In other words, a physical device that will store the virtual codes of your cryptocurrencies.
As a user you can use one or more virtual wallets that will have their backup passwords and their encryption system. In this sense, it is common for online wallets to ask for double password confirmation via SMS.
Which bitcoin wallet to choose
The market for bitcoin wallets is vast. The Bitcoin Wallet you choose will depend on the use you want to make and the amount of bitcoins you have associated with your user address. Virtual wallets are suitable for small amounts because they are much faster to operate. On the contrary, they are not so recommended for storing large quantities. Of course, when operating with these wallets it is essential to save the private key that they will give us, since it will be the one that will allow us to later recover the bitcoins.
As a general rule, the greater the number of bitcoins under your belt, the more advisable a physical wallet will be and not constantly connected to the network. The danger at this point is what can happen if the device breaks. Again, the solution is to write down on paper and have the private key or private address of the account located.
When choosing a cryptocurrency wallet there is a difference between those that are common wallets, with their public and private key, and the bitcoin platforms, where in the end it is the web that keeps the money and not you with your own keys.
Among the most popular wallets is Coinbase, very easy to use and intuitive, but it will also charge significant commissions every time you buy, sell or transfer bitcoins. In addition, being a platform or exchange, the security of your bitcoins will depend on its encryption and not on what you do. That is, you will be including a third party that is the one that will have all the data of your bitcoins.
On the other hand, Kraken is slower in the execution of orders and deposits, which must be carried out by transfer for large amounts, but has lower commissions. If you have invested in the stock market, it is not much different from choosing a stock broker or a mutual fund supermarket.
How to trade bitcoins
Once you choose your bitcoin portfolio, the operation is very similar to that of buying and selling shares. The difference is that, depending on the payment method, the order will take more or less to execute.
But as with a common broker, you will be able to enter your portfolio and see the evolution of bitcoin and its translation into euros. What does change is that there is no reason to buy 1 whole bitcoin, simply choose the amount to invest. That will translate to a portion of bitcoin.
In the case of these bitcoin trading platforms, the transactions are controlled by a third party, which is the platform. That is, security depends on them and it is they who have the private keys of the bitcoins.
Bitcoin today
To follow the bitcoin price, all you have to do is connect to your virtual wallet. There you can follow the evolution of bitcoin and see how it fluctuates. In fact, you should look at the price set by your platform, since the price of the virtual currency varies depending on the wallet you use.
If you don't mind that the data is not 100% accurate, you can use platforms such as Coinbase or Coingecko. Even specialized media like El Economista will give you this information.
In this sense, there is one thing you should be clear about when investing in bitcoin: it is a very volatile asset. It is normal to see large swings in the price of bitcoin within the same day.
At this point it is easy that you have read news about the profitability of bitcoin and how a person who had invested 1,000 euros in 2009 today would be a millionaire. The data is real, but to put it in context, just remember how much the first two pizzas bought with the virtual currency cost. Investing in bitcoin at the time was doing it on a promise. So much so that you only have to think of other cryptocurrencies of the time such as Dogecoin, whose evolution has been uneven.
Advantages and risks of investing in Bitcoin
The benefits of investing in cryptocurrencies are obvious. The first is the enormous profitability that you can get, as long as you bet or bet at the right time. As with any other asset, and more after becoming a trend, the timing of the investment in bitcoin is critical.
From there everything is a matter of whether or not you believe in its future as an alternative to traditional currencies or fiat currencies. If you are confident that this type of system and the blockchain in general will end up having a hole, long-term investment will be interesting.
That speculating with bitcoin is interesting does not mean that it is not without risk. The most important is that bitcoin is very volatile. In fact, it is extremely volatile. Its price can suffer variations of more than 10% in the same session, so speculating with the classic rules can be difficult. In addition, you will have to take into account what your risk profile is. If you are not willing to tolerate losses of this type, perhaps Bitcoin is not for you.
Taxes on bitcoins
Investing in bitcoins is not exempt from paying taxes. In fact, you will have to pay for them in the income statement and in the Wealth Tax.
DISCLAIMER: Keep in mind that past returns are not a guarantee of future returns. This article provides only information on the behavior of various financial products and does not constitute a purchase recommendation. Nor does it constitute a financial advice proposition.
We believe that each bitcoin investor should know the risks well, learn and compare between different options before contracting any financial product or service.
