If you have been following business news lately, I am sure you have heard about Bitcoin. It is the latest craze in the world of investment.
In the last one year, the value of Bitcoin has risen from $572 to an all-time high of $20,000. Analysts are predicting that the price will continue increasing, probably going past $40,000 by 2020 and over $100,000 by 2030.
Fact: If you bought $1000 worth of Bitcoin in 2010, your investment would be worth a whopping $35 million today.
What is Bitcoin?
Bitcoin is a digital currency used as a medium of exchange and belonging to an asset class known as cryptocurrency.
Unlike the traditional currency such as the dollar or the Rand, cryptocurrencies are virtual currencies that use cryptography to secure transactions and control circulation.
The Cryptography technology makes it possible to convert legible information into unhackable code to track purchases and transfers.
Before you decide that this Jargon is not for you, consider this simpler explanation.
Picture a cryptocurrency as a digital note that can be used in online transactions as money. The digital note must be made in such as way that it is hard to earn, cannot be duplicated or oversupplied, and is easy to verify. Note that for the traditional money we use today, respective countries Central Banks are responsible for the regulation and control of supply.
However, with our digital note, there is no central bank or any regulative body to prevent duplication or oversupply. Instead, there is a ledger where every transaction using the digital note is recorded. And this ledger is available to every user, therefore, making it impossible for anyone to duplicate the note.
In other words, when the digital note moves from one person to another, the transfer appears in the ledger, and everyone knows that the note has left one user to another. Consequently, the old user cannot claim to hold the digital note without the support of the ledger.
The ledger is open source meaning that mathematicians and computer scientists anywhere around the world can use sophisticated tools to validate transactions and make it more secure. The process is known as crypto-mining and is the way in which new digital notes are produced.
Every time a computer scientist makes a breakthrough, the system rewards them with 25 digital notes hence increasing the number of notes in circulation.
Crypto mining is tough and requires special tools meaning that only a few can do it thus limiting new digital notes production. The digital notes system is set in a way that only a few are produced in a year and production will stop when the amount in circulation hit 21 million which will happen in the year 2140.
Now think of the digital note as Bitcoin, the most popular cryptocurrency today. In summary, here are the key characteristics of Bitcoin.
- It’s not regulated by a central body.
- It’s completely transparent.
- It cannot be replicated.
- It’s anonymous, i.e., the specific details about the user are not revealed.
A Brief History of the Bitcoin.
In 2008, the world was hit by one of the worst financial crisis in history. The crisis was largely blamed on the traditional financial system where central banks had failed to implement sustainable monetary policies and regulate financial institutions.
Following the crisis, an unknown brain under the pseudonym Satoshi Nakamoto published a paper detailing a process that would eliminate the need of having a centralized system and bankers acting as financial intermediaries.
The paper proposed a peer to peer network that would be used to generate a system of electronic transactions that do not rely on fiduciary trust. In 2009, the Bitcoin system was introduced with Nakamoto being the first to mine and earn Bitcoins.
In what is known as the first Bitcoin transaction ever, Laszlo Hanyecz, a developer, bought two pieces of pizza at 10,000 units of Bitcoin. In today’s Bitcoin value, the pizza would have cost over 20 million USD or 271 million SA Rand.
What Determines Bitcoin Price?
Bitcoin price movements solely depend on demand. The more people adopt and use it, the more the price keeps going up.
As mentioned earlier in this guide, Bitcoin production does not come easily and therefore with demand growing and supply remaining constant, the price grows fast and steadily.
It is important to note that Bitcoin price is highly volatile as a result of increasing and decreasing demand which in turn results from market sentiments.
However, the truth remains Bitcoin is a well thought out technology, and therefore its price will keep rising irrespective of the ups and downs.
How to Invest in Bitcoin in SA.
Unlike stocks or Forex, Bitcoin investing does not require a lot of due diligence. The only thing you need to know before investing is how it works and what drives its price growth.
Now that you have an idea on that let us look at what you need to get started.
The number one way to trade Bitcoin in SA is through a Bitcoin Exchange. Here you will need to conduct a thorough investigation to determine the most reputable. While there are multiple exchanges in SA, Luno and ICE3X are the most popular.
The best thing with buying Bitcoin from an exchange is that there is enough liquidity and you are guaranteed of fast payouts. However, you will be required to fully verify your identity and proof of residence to use the exchange.
Once you have identified a reputable exchange, you can sign up for a free Bitcoin Wallet, transfer money through EFT, and convert it to Bitcoins. When it comes to selling, all you need to do is execute the order in your Wallet and request the funds to be deposited in your Bank account.
Another way to invest in Bitcoin is through peer to peer trading platforms. These platforms offer an avenue for people or entities that know or have information about each other to trade Bitcoins amongst each other.
LocalBitcoins is the most popular peer to peer Bitcoin trading platform in SA. According to Bitcoinhub, SA has more trading volume on localBitcoins than any other country in the world.
One can also purchase Bitcoins at a Bitcoin ATM. In SA, there is only one BTC ATM located in Kylami, North of Johannesburg.
Picking the Best Bitcoin Exchange.
Identifying a reliable exchange should be the number one goal for anyone looking to trade Bitcoin.
Different countries have different rules regarding Cryptocurrency trading or more specifically bitcoin, and therefore it is paramount that you choose an exchange governed by rules that you understand.
For SA traders, we recommend a locally based exchange. A comprehensive review of different SA Bitcoin exchange providers is available for free in our trading materials.
Another factor to consider when choosing a Bitcoin exchange is its accepted mode of payment. The possible options include cash, wire transfer, and Pay Pal. It is important to choose a brokerage that allows a mode of payment that is convenient for you.
Also, ensure that the fees charged by your exchange of choice are reasonable. If possible avoid providers who charge additional fees on top of transaction costs.
Other factors to consider include:
- How quickly will you get the BTC after purchasing them?
- Is the exchange transparent?
- How liquid is the exchange?
- Are there complaints from other users regarding the exchange?
- How secure is the exchange?
More in-depth materials on identifying the best Bitcoin exchange in SA are available for free on our website.
How Much do you Need to Trade Bitcoin?
There is a common misconception among wannabe Bitcoin traders that one must have an amount equal to a whole Bitcoin to invest. The truth of the matter is that one can get invested with any amount.
Whether on an exchange or a peer to peer platform, you can buy a fraction of Bitcoin equal to the amount of Rand that you have and get rewarded proportionately when the price appreciates.
You can also invest in a mutual fund or buy shares of companies that invest in Bitcoins. However, these are not common in SA, but you can still access them through international providers.
Another thing worth noting is that Bitcoins selling at SA exchanges are usually at a premium. In other words, one is likely to pay more for a Bitcoin in SA exchanges than in other exchanges.
According to Dwaine Van Vuuren, the price differences are as a result of arbitrage, which favors sellers in a small market like SA. In such a market, the demand is high than the supply hence pushing the price up above the global average.
This means that while you will buy at a price above the global average, you will also sell at a higher price.