What is Bitcoin?
Definition according to Coindesk: Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
Why is it so important?
Bitcoin just like gold cannot be printed. It is mined by computers using softwares to solve mathematical problems. Analysts believe it the gold of the computer age.
What determines the price of Bitcoin?
Just like gold, several factors determines the price. But I will pick the two most important factors.
- Mining Cost
- Demand and Supply
Mining Cost: Since mining Bitcoin requires computers, internet and electricity. The cost of these utilities will definitely be priced into cost of Bitcoin.
Demand and Supply: The higher the demand, the higher the price. vice versa.
How can I invest in Bitcoin?
Just like gold, you can decide to invest in the mining sector or hold the coin for capital appreciation, since investors see bitcoin as a hedge against inflation.
How do I invest in Bitcoin mining?
- Cloud mining service
- Physical mining rig
Cloud Mining: Just like cloud data storage services. There are several companies that have physical mining facilities with 24hrs power supply and internet service. You pay a certain amount and you get access to mine bitcoin using their computer remotely. This is usually fully automated and easy as it requires no special computer skills to perform.
Note: Its important you calculate the monthly cloud mining fees and the estimated monthly yield (bitcoin worth mined) before you deploy this option so you don’t run at a loss. Tables are usually shown on most cloud mining website for you to do your calculation.
Physical mining rig: Unlike the cloud mining services. In this case you will need to buy the bitcoin mining computer hardware, have it online with 24 hours power supply. It’s advisable to start small or not to venture into this if you do not have the computer experience or guidance.
You can find cheap mining rigs on Alibaba and Ebay if you want to purchase some. It’s very important you find out the power consumption rating and hash rates of the machine before you purchase it. The lower the power consumption the better for you.
For further information, you can search for Bitcoin mining on Youtube to see how it’s done.
Note: You also need to calculate the set up cost, electricity cost, internet bills, security (if need be) compared to the monthly yield before you deploy your mining rig. You can use Bitcoin profitablity calculator to calculate your profit. http://www.bitcoinx.com/profit/
Holding Bitcoin itself as a form of investment.
Just like gold. If you own gold, next thing that comes to mind is where to keep it. Bitcoin are stored in wallets and you need wallets in other to spend or receive bitcoin. The first thing you must do in other to own bitcoin is to create a wallet. To create a wallet visit https://blockchain.info/wallet/ . It’s free.
How do I buy Bitcoin?
Just like buying gold or FX. There are exchanges where you can trade your FIAT money in exchange for Bitcoin. You pay in your desired currency and the exchange credits your wallet with the equivalent amount in bitcoin.
How do I sell?
Just like gold or FX. You can easily sell your bitcoin anytime in exchange for FIAT money by contacting an exchange. You can sell your bitcoins at any exchange or to a friend irrespective of where you bought it.
What else should I know about buying bitcoin?
There are local exchanges and there are foreign exchanges. As a Nigerian, I always prefer to sell my bitcoin at foreign exchanges and I get paid in USD. So I am free to sell my USD at any price I am comfortable with. Unlike the local exchanges that have a fixed USD rate which may not favour you when you want to sell.
For example some local exchanges are willing to remit the sales of your bitcoin proceeds to you at 350 Naira per USD when the black market rate is at 410 Naira per USD. Meanwhile they willing to sell Bitcoin to you using a Dollar rate of 420 Naira. I see this as cheating.
Since bitcoin is not quoted in Naira, but in USD. It’s better to find out the exchange rates of local exchanges before you make any transaction.