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FAQ: Everything You Need to Know About Bitcoin Before You Buy

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FAQ: Everything You Need to Know About Bitcoin Before You Buy. thinkmaverickWant to know more about Bitcoin?

 

I’m glad that more people are showing interest in Bitcoin.

 

But don’t jump on the bandwagon, by investing your hard-earned money without knowing the basics of Bitcoin and cryptocurrency.

 

What’s worse, many newbie investors lose their precious coins to shady ventures, scams, frauds and unsafe bitcoin investment opportunities.

 

With that said, it’s smart to educate yourself first before investing in Bitcoin.

 

So, today I’ll answer your common questions about Bitcoin. It can get much more complicated than what we’re going to discuss today.

 

But these are the essentials to get you started, as clear, simple and free of jargon as possible for everyday people like you and me.

 

I hope that I can help you understand the basic concepts and see the potential of cryptocurrency.

 

It can completely change someone’s life in the coming years: more equality, more wealth, more choice, more efficient and more freedom.

 

Here’s Everything You Need to know about Bitcoin.

  1. What is Bitcoin?
  2. What’s so special about Bitcoin?
  3. Is Bitcoin for Criminal?
  4. Is Bitcoin legal?
  5. What can you do with Bitcoin?
  6. How can I get Bitcoin?
  7. How about Bitcoin Cloud Mining?
  8. How to earn Free Bitcoin?
  9. How to Buy Bitcoin?
  10. How to Store Your Bitcoin?
  11. Best practice tips to secure your crypto assets
  12. What is Bitcoin Debit Cards?
  13. Do You Have to Pay Taxes on Bitcoin?

 

What is Bitcoin

Bitcoin is a decentralized peer-to-peer digital currency that can be used by anyone in the world.

 

Unlike a traditional currency like USD, GBP, AUD, SGD, Bitcoin is not regulated or issued by any government.

 

It’s the only truly decentralized cryptocurrency that no one can control it. No central bank, government, miners, coders or users can control the currency supply.

 

It’s borderless. You can use it anywhere in the world as long as you’ve access to it.

It’s permissionless. You can send obscene amounts of money across the planet without asking anyone’s permission.

If the Internet has its own currency, Bitcoin will be the currency native to the Internet- the Internet currency.

 

Also, read this article What is Bitcoin? Why all the fuss with Cryptocurrency?

What’s so special about Bitcoin?

Its finite, limited supply of 21,000,000 coins.

 

But what does that mean?
It means that there’ll be only 21 million bitcoins.

No one can keep on creating bitcoin, after reaching this 21million cap.

As of writing, there are 17.7 million bitcoins in circulation. And the last bitcoin will be mined in 2140.

 

Here’s why that’s important…
It solves the problem of printing money which leads to inflation.

As inflation takes place, the purchasing power of any government-issued paper money decreases.

This basically means that $1 today will constantly lose its value over the years….

 

But Bitcoin is different. With the limited supply, bitcoins that you hold today will effectively preserve and (most likely) increase its value across time and space.

 

In other words, 1 bitcoin (btc) = 1 btc 10 years ago, today and for the foreseeable future.

 

The easiest way to understand the effect of inflations, is to simply look at this infographic.

Inflation is stealing our wealth from right under everyone’s noses. Bitcoin functions as a store of value, is the cheapest way to buy the future.

 

Is Bitcoin for Criminal?

“Bitcoin is a great tool for financing criminal and terrorist activities.”

Not true!

It’s one of the biggest misconceptions about Bitcoin.

 

Because Bitcoin transactions aren’t totally anonymous. It’s rather Pseudo-Anonymous.

 

Every transaction is tied to a wallet ID which can be linked to real-world identities.

 

In addition to that, Bitcoin blockchain is a permanent, general ledger that operates entirely in the public view.

Transactions can be easily traced on Blockchain.info.

 

As you can see, it’s very hard to completely hide the tracks, albeit not impossible.

 

Because of its pseudonymous nature, FBI was able to arrest the owner of Silk Road, and Kim Nilsson, a Swedish software engineer was able to find the culprit of the Mt Gox attack, the largest cryptocurrency heist at that time.

 

If a person wanted to commit a crime, it’d be way more anonymous and safer to use cash rather than Bitcoin.

 

Is Bitcoin legal?

It really doesn’t matter.

Because Bitcoin cannot be banned.

It lives and breathes on the internet.

 

Here’s the thing…
Supposedly, Bitcoin was designed in such a way to eliminate intermediary control, to destroy the state’s monopoly on monetary policy.

Governments see it as a threat to their power.

But governments can only regulate it.

They can never stop you from owning, receiving or sending bitcoins with anyone, anywhere, anytime in the world.

 

Despite the bans and restrictions in countries like Morocco, Bangladesh and Vietnam, people still continue to trade Bitcoin.

While other progressive countries like Japan, Australia, Switzerland and Singapore are fully embracing Bitcoin technology, recognizing it as legal tender and regulating it.

Swiss city Zug and US States of Ohio allows local citizens to pay for government services and taxes with bitcoins.

 

Related: Top 7 Bitcoin Myths That Need To Be Busted Right Now!

 

What can you do with Bitcoin?

Let’s find out:

When banks and payment services like PayPal and Visa blocked and refused to process donations for Wikileaks, they accept bitcoins as a donation method instead.

 

How can I get Bitcoin?

This is probably the most commonly asked question about Bitcoin.

So you’re ready to get your hands on some digital assets. You can get them by working for them, buying with fiat money and acquiring bitcoins through mining process.

 

How to mine Bitcoin? Is Bitcoin Mining Profitable?

Mining your own Bitcoin seems like a no-brainer. All you need to do is set up a computer to automatically solve complex mathematical equations and you’ll be rewarded with a tiny fraction of a coin.

 

However, it’s no longer profitable for you to mine bitcoins at home.

The days where you can profitably earn bitcoins by mining bitcoins with your personal computer are long gone.

 

Today, if you want to mine Bitcoin, you’ll need to buy specifically designed equipment, so-called ASIC miner.

  1. The mining instruments can be expensive. You can easily spend a few thousands on your basic mining rigs.
  2. Plus, you need a lot of power to run the mining machines. Be prepared to spend at least $3000 in energy bills just to mine one bitcoin!
  3. Small miners can hardly compete with serious miners especially those from China.
  4. It’s hot and noisy. It is NOT suitable to do mining at home.

Considering the high setup cost, monthly electricity bills and low rewards, it could probably take years before you can start seeing the returns.

 

Related Content:

How about Bitcoin Cloud Mining?

Perhaps your friend introduces you an easy way to get into Bitcoin mining. There’s no hardware setup or investment required by you.

 

Basically, cloud mining refers to bitcoin mining factories that allow you to purchase a package/contract which guarantees you a fixed return in bitcoin.

 

You invest money, they’ll do the actual mining for you and you get bitcoins.

 

However, there’re lots of Ponzi schemes and pyramid schemes on the space of cloud mining. Do your own thorough research before investing any contract for lucrative promises.

 

How to earn free Bitcoin?

There are many legit ways to earn free bitcoins:

 

Timebucks is my favorite site to earn free Bitcoin doing small tasks. They’ll pay you for answering surveys, playing games etc. Almost all the tasks take a couple of minutes to complete. It’s absolutely an easy and hassle-free way to earn bitcoin online. Here’s 9 easy ways to earn money with Timebucks.

Check out this 10+ Legit Ways to Earn Free Bitcoin (#3 is my favorite)

If I want to buy Bitcoin, how can I get started?

Before you start investing in Bitcoin, there are two important things that you need:

 

The general process of buying bitcoin is:

1. Choose a Bitcoin exchange that supports your country in which you can turn your fiat money into Bitcoin. ( Check out this 10 Best Cryptocurrency Exchanges to buy and trade Bitcoin Cryptocurrency)

2. Create an account with your email ID. You’ll need to submit your Photo ID, address and personal details to verify your identity. Due to high demand and tight regulations, this verification process can take days or even weeks.

Tip: Even if you’re still unsure about buying, I recommend you create an account now and get it approved first. It’s free and you don’t have to buy any cryptocurrencies. You can buy anytime as you like.

3. Setup Two-Factor Verification (2FA) for your exchange account (see my guide on how to setup 2FA with Google Authenticator.)

4. Once your account is verified, transfer money to the exchange. You can use bank transfer, PayPal or credit card depends on the platform you use.

5. Buy bitcoin. Once you received money in your exchange account, you can start buying bitcoin.

6. Keep your bitcoin. Transfer bitcoins to your hardware wallet if you’re looking to keep it for long-term.

 

Besides using crypto exchanges, you can also buy bitcoins with Bitcoin ATMs, LocalCoinSwap (peer-to-peer platform) and giftcards.

 

Check out our series on how to buy Bitcoin:

 

How to keep my Bitcoin?

Once you get your first bitcoin, you’ll need a Bitcoin wallet to keep your coins safe.

There are two main types of wallets: Cold wallets and Hot wallets.

 

Hot wallets

Most likely, it’s the first form of wallet you would probably have after buying your first Bitcoin on an exchange site.

Most exchanges will offer you a free hot wallet which you can use to keep your funds for buying/selling bitcoin.

But it’s highly vulnerable to hackers.

You’re relying on a third-party to protect your bitcoin. Making it an option suitable for trading usage but not for long-term storage.

 

Cold Wallets

I highly recommend everyone to use a cold wallet to store Bitcoin.

It’s by far the safest way to keep your Bitcoin!

Because they’re stored offline and most importantly you hold your own Private Key.

Trezor  and Ledger Nano S are both reliable hardware wallets as long-term storage options.

 

Check out my comprehensive guide on securing your Bitcoin cryptocurrency (Cold wallet vs Hot Wallet).

Learn more about Private Key? How to Protect it here.

Best practice tips to secure your crypto assets:

Contrary to the popular belief, the biggest drawback to Bitcoin investment isn’t the extreme price volatility, but rather the safety and security of your crypto assets.

 

In bitcoin, you have 100% control over money. You have complete authority over your bitcoin and your personal finances.

 

In short, you become your own bank.

  1. Don’t store your money on an exchange any longer than you need to. Allocate enough funds that you need to trade and move your money off the exchanges once the transaction is completed.
  2. Keep your private keys safe is your no#1 priority.
  3. Buy a hardware wallet directly from the official supplier. Don’t buy a second-hand hardware or buy ones through 3rd parties.
  4. Use cold wallets for storing large amount of money for long-term HODLing.
  5. Use only trusted hardware wallets with PIN or password protection.
  6. Use hot wallets for small daily transactions or trading purposes.
  7. Never share your private keys or passwords with anyone!

Related: 10+ Bitcoin Security Tips For Beginners

So Where can I buy Bitcoin hardware wallet?

Look: Don’t EVER buy a hardware wallet from any third-party, no matter how cheap it is.

It’s not worth taking the risk of losing all your coins if the hardware is already compromised.

Regardless of your country, always buy a hardware wallet for Bitcoin storage from the official website.

Once you receive your hardware wallet, follow these few simple steps to set up your Ledger Nano S.

 

Besides bitcoin, what other cryptocurrencies can I hold?

At the time of this writing, there are over 2200 cryptocurrencies in the market.

Not all coins are created equal.

Each altcoin comes with its own unique features and has different use cases that Bitcoin doesn’t seem to address.

If you’re interested in investing other cryptocurrencies, please read this article: Top 7 Cryptocurrencies with High Potential

How about Bitcoin Debit Cards?

We haven’t reached the stage where we can walk into any store and buy something with Bitcoin yet.

 

But with Bitcoin debit card, you can spend your BTC and other cryptocurrencies as easily as your credit card.

 

These VISA/MasterCard linked-bitcoin debit card are accepted by all merchants across the globe.

 

There are tons of service providers that you can choose from, namely Wirex, Cryptopay and more.

 

Read more:

 

Do You Have to Pay Taxes on Bitcoin?

Yes. If you sell, exchange or trade Bitcoin, you may need to pay taxes on your profits.

 

As I mentioned earlier, governments around the world have tried to bring forth regulations on Bitcoin and cryptocurrency.

 

And crypto taxes are treated differently from country-to-country.

 

For instance, in the U.S. cryptocurrency is taxed as property, not currency. If you sell or trade crypto for profit, the gains are taxed like capital gains. If you trade it at a loss, you’ll be able to deduct your losses against other capital gains to reduce your taxes.

 

Generally, these are considered taxable events:

 

Calculating your cryptocurrency gains and losses by hand is an extremely time-consuming process.

 

If you are interested in actively trading, be sure to use one of these crypto tax tools to help you keep records of your crypto transactions, calculate your crypto taxes, minimize your tax liabilities, and simplify your filling.

 

Last but not least…

Never buy more than you can afford to lose.

Follow the best practice tips, don’t give away your Private key to anyone and stay safe.

If you have any questions not included here, feel free to comment below. I will do my best to help.

 

If you’re new to the world of crypto, it’s very important that you know these terms related to Bitcoin, blockchain and cryptocurrency. Check out this list of 30 Popular Bitcoin and Cryptocurrency Terms.

 

Disclaimer

Keep in mind that I’m not a financial advisor, my recommendations shouldn’t be used as professional investment advice.

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