Bitcoin has been part of the Internet’s background noise for a while now. Enthusiasts have been raving about it since its launch in 2009. They’ve talked about the freedom of a currency that isn’t controlled by a national bank. They’ve described the ease of trading on the Internet using money that’s genuinely global and doesn’t need transfer fees. They’ve said that bitcoin is here to stay.
The rest of us have been… well, maybe a little lukewarm. We might have wondered what to do with coins that can’t be spent in the local grocery store. We could have expected that it would all blow over soon. But it’s been eight years, and as of this writing a single bitcoin is now worth over $4,000! Cryptocurrency really is here to stay but before you dive in and start buying here are four things you need to know:
1. Bitcoin is volatile… but not as much as you think
If someone had given you $100 worth of bitcoin on November 15, 2012, the day WordPress began accepting the currency, you would have received 1,104 bitcoins. By the end of November the following year, those bitcoins would have been worth more than $1.37 million. If you had held onto them for another five months, you’d have lost more than half.
Bitcoin is volatile. Hacks, forks, news, exchange collapses can all send the price rocketing or plummeting. But while bitcoin jumps around more than other currencies, fluctuations aren’t as big as they sound. According to the Bitcoin Volatility Index, over six months the volatility of the dollar price of bitcoin is 4.23 percent. Over a year, it’s just 3.58 percent. Bitcoin does make big moves and is more volatile than many other assets but over the long term, the graph just moves steadily up.
2. Bitcoin trading isn’t completely free
For all the talk of bitcoin being a currency that’s democratic and skips around banks, start buying, selling and moving bitcoin and you’ll soon run into fees. Each bitcoin transaction includes a small tip for bitcoin miners that encourages them to put your transaction in a block to be added to the blockchain. That tip is now worth about $1.67 but it varies with size of the file, and the bigger the tip, the faster your transaction is processed. Use an exchange to make deposits and withdrawals, and you’ll have to pay their fees too. They can be as high as 3.5 percent and you can spend as much as $50 to send your dollars back to your bank account. For a free currency, you’ll have to factor in a lot of expenses.
3. Bitcoin is traceable
Bitcoin has a reputation for being the black market’s currency of choice. It’s not linked to local bank accounts so governments can’t demand the owner’s details. But the blockchain is a public ledger of every transaction ever made in bitcoin. Anyone can see it. We can see exactly where each bitcoin is at any moment and who owns it. That information is anonymous. We can only see that the bitcoin is associated with a number; we don’t know who owns that number… until the bitcoin is converted back into fiat. Then everything becomes open again. Bitcoin might sound sleazy but it’s cleaner and less anonymous than it looks.
4. You can invest in bitcoin futures
Currency traders have all sorts of tools that allow them to make big investments and land giant returns. They can buy futures, use leverage, trade derivatives. It’s risky, but it’s how they make the big bucks for themselves and for their clients. Bitcoin has now been around long enough for platforms to offer the same service for cryptocurrencies. Sites like Bitmex and Deribit are no place for beginners but they show how far cryptocurrency has developed, and they offer a goal for new bitcoin investors.
Editor’s note: Bitcoin and digital currencies, as with any investment, may involve the risk of loss. The Consumer Financial Protection Bureau has warned that virtual currencies, including Bitcoin, carry “significant risk” to consumers.