“Normal” money is stored in a wallet or bank account. Bitcoin is stored in a digital wallet, meaning an application or software that is installed on the computer or smartphone (another type, less common, is a wallet that comes as hardware). Accordingly, even before buying crypto-currency of any kind, you should equip yourself with such a wallet – and make sure that it is secured at the highest level available. Bitcoin can also be kept in exchanges and dedicated websites, but there is a certain risk in doing so, as well as restrictions regarding the ability to trade in the currency, so the digital wallet is the recommended option.
This wallet comes with a code – a key that includes 12 or 24 characters, without which there is no access to the wallet and the coins inside. Accordingly, it is strongly recommended to back up the key details, in order not to lose the digital money.
Unlike traditional currencies, there is no bank that issues bitcoins. Its production is digital and decentralized, based on a technology called Blockchain, and in order to buy bitcoins one must enter a currency trading arena or contact companies that provide exchange services, i.e. convert shekels (or other traditional currencies) to bitcoins (or other cryptographic currencies). Because of the unique nature of digital currencies, it is important to pay attention to choosing the company through which you purchase Bitcoin, and to make sure that it is a reliable entity that is operated by serious professionals.
The rate of Bitcoin changes of course, and sometimes as mentioned the fluctuations are dramatic. The main factor affecting the price of the coin, which began circulating in 2009, is supply and demand, like any currency or financial product. Also the production costs – the “mining” operation of Bitcoin consumes relatively high amounts of electricity – have a weight in the exchange rate at any point in time. Another factor that may lead to price increases or decreases is the state of other digital currencies that compete with Bitcoin.
The Decentralized Finance, of which Bitcoin is a symbol, holds many opportunities but also quite a few risks. In particular, the field that is developing at an accelerated pace, but at the same time constitutes a kind of ‘wild west’ in the absence of real regulation, attracts crooks and criminals. Accordingly, it is important to proceed with caution – never, under any circumstances, give anyone the key to the digital wallet (but back up the details!), do not be tempted by unfamiliar crypto-currencies (even if someone promises you that it is the ‘next Bitcoin’ and whoever invests today will get rich), and do not buy Bitcoin from an untrustworthy source.
Bitcoin is a currency, but the purpose of buying Bitcoin is not to buy products with it (although today it is already possible to pay in Bitcoin for certain services and products). Bitcoin is actually an investment, and the recommendation is to treat this digital currency as a medium-long term investment.
In this context, it is important to remember that any investment, for any term, in any existing channel, may yield adequate returns – but also cause losses. A person who is characterized by a significant loss aversion should not buy bitcoin, and in any case it is advisable to define in advance what the investment range is and not to be stressed by the drop in the currency rate, even if it is a real dive. Those who rush to sell when the market is down may lose quite a bit of money when in a short time the trend reverses. The graph that depicts the price of Bitcoin over the years is characterized by volatility, but also in a clear direction – up, and therefore the recommendation to consider buying Bitcoin as a long-term investment.
Another recommendation for those just entering the digital currency market is to start with modest amounts of money, and gradually increase the investment.
The crypto market is constantly changing, and at a fast pace. Also with regard to Bitcoin specifically, there are constantly innovations and moves that may affect its rate – so when you buy Bitcoin it is very worthwhile to make a commitment (to yourself, of course) to keep up to date and gain more knowledge in the field. Knowledge is power, and in the field of digital currencies, information translates into correct decisions, and extracting the full possible benefit from every bitcoin purchase.
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