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Bitcoin and cryptocurrencies have become all the rage. We practically have information about it every day in the press and many people have become excited about incorporating cryptocurrencies into their savings or considering them as investment assets.
It is possible to make a lot of money with the cryptocurrency boom. That’s true, but it’s also true that getting into the world of cryptocurrencies requires some background knowledge, especially for those who are used to the traditional fiat money exchange system.
What you need to know before you start using bitcoin
Those entering the world of cryptocurrencies should be clear about one thing from the start: bitcoin and other cryptocurrencies are unpredictable.
Even in the case of bitcoin – which is the most stable and well-known cryptocurrency – volatility is something that accompanies that currency and all of its kind.
Extreme volatility indicates that the price or quote of that currency can undergo significant variations in a short time. It can depreciate or appreciate rapidly before we are able to react.
The reasons for this extreme volatility are diverse, among them we can cite: the novelty of this type of virtual currencies, which have generated an economy of their own characteristics that is still in formation, and also the influence of information, whether favorable or unfavorable, something that we see also occurring frequently in stock prices.
Is it advisable to have all my savings in bitcoin and cryptocurrencies? So far the answer is no. It is not advisable to have all our savings in bitcoin for the simple reason that so far, and given the volatility of these virtual currencies, they are considered a risky asset.
The best strategy regarding the use of bitcoin would be to invest the part you are willing to lose. This way you will most likely increase your returns by investing in cryptocurrencies. It’s a conservative outlook, but it’s the right one.
What you should know about bitcoin trading
Many people who are used to trading with banks and traditional fiat money forget something important: transactions that occur within the bitcoin network are irreversible. There are no refunds, a refund would only be a new transaction generated in the opposite direction.
This feature of the bitcoin network makes it imperative to be sure before making a bitcoin transfer. If you make a mistake you won’t have the opportunity to go back.
Another question that many people have doubts about is how to acquire bitcoins. On exchanges you can buy them, exchange them for other cryptocurrencies.
Of course you can use dollars or euros (or any other traditional currency) to buy bitcoins. You can use your cards and you can even buy bitcoin with PayPal.
Remember that bitcoin is not totally anonymous.
Many people believe that cryptocurrencies, blockchain and all that operates in an environment of total privacy and this is not the case. Contrary to what many believe, bitcoin and its network is not totally private or anonymous. Transactions are documented and stored in a publicly accessible database.
Technically, anyone can see the funds and transactions of a specific bitcoin address. But you should rest assured that just because that data is public, it does not mean that the identity of the users involved in a given transaction is revealed.
Bitcoin and taxes
Everyone mentions that bitcoin and cryptocurrencies are part of a decentralized universe, but that doesn’t mean it’s a completely unregulated investment.
What does this mean? It means that your bitcoin gains and transactions must be included in your tax return.
