‘Do you invest in Bitcoin?’
‘Ehm … Nope. Have you?’
‘Yea, I just did. Just a few months back, my colleague bought it when it was just around US$ 5,000. The price today has already gone up to US$ 15,000. I heard some say that it will go beyond US$ 20,000. So, I went for it.’
The above was an excerpt of one of several conversations I had when it came to Bitcoin back in 2017.
At that time, Bitcoin was the talk of the town. Many people I have met seemed to know a thing or two about this cryptocurrency. I have friends who have ventured into Bitcoin as they are hopeful of its prospects.
Recently, I checked back my account at Luno, where I had a little bit of bitcoin, which I bought to pay for a logo design service online. And I just realised that I currently still have RM1736 worth of bitcoin.
Next, I wanted to find out how much did I pay for those last time on 13 March 2015.
I paid less than RM70??!! After I paid for the logo design, the leftover of BTC that I ignored all these times had turned into RM1736, which is kind of mindblowing!
But, those days are gone.
In 2018, Bitcoin faltered as quickly as it rose in its previous year. It went from as high as US$ 20,000 to US$ 3,500 in a single year. Its volatility is massive, and the conversation about it has subsided. Bitcoin became ‘yesterday’s news’.
Little do we realise that today, Bitcoin has risen to US$ 8,400, an increase which amounts to 140% from US$ 3,500 low in December 2018. Perhaps, you may wonder, ‘Is this a good time to get into Bitcoin?’
If that is you, please hold onto your horses. Here, I’ll list down five key things that everyone should know before getting into Bitcoin.
They are as follows:
#1: Bitcoin is a Digital Asset
Bitcoin is a digital asset, but not a cash-producing investment asset. It is unlike you investing in stocks that pay dividends, nor real estates that earn rental income or businesses which bring recurring profits to their investors or shareholders. As an owner of Bitcoin, you can only make money when selling it at a higher price than when you bought it.
Bitcoin is a cryptocurrency, which is formed by joining two words: currency and cryptography. A currency, just like our Ringgit Malaysia, is used either as a store of value, or as a transfer of value from one person to another. Cryptography is a technology used to secure and verify the identity and the amount of value that a person wishes to transfer to his intended recipient.
Thus, buying units of Bitcoin from an exchange, like Luno, for instance, is similar to you exchanging your Ringgit into your preferred currency which includes the US Dollar, Singapore Dollar, Japanese Yen, … etc. from a money exchange booth in a shopping mall. Instead of storing value in a nation’s main currency, you have the choice to have it in the form of a digital asset.
#2: How Does Bitcoin Derive its Value?
In a way, Bitcoin is viewed to be a form of digital gold. This is because, like gold, Bitcoin is limited in supply, divisible into smaller units, easily transferable, and it could not decay over time. Some even opine that it is better than gold itself.
I believe the value of Bitcoin is hugely determined by how many people around the world are using it and how much they collectively think it should be worth at a given point of time. It is similar to physical currencies. For instance, if we view that the Singapore Dollar is a stronger currency as compared to the Ringgit, our demand for Singapore Dollars will rise and hence, leading to an appreciation of the Singapore Dollar against the Ringgit.
Therefore, how people perceive or view what Bitcoin is may influence its price, which leads us to our next point:
#3: Why Prices of Bitcoin is so Volatile?
First, it is crucial to understand that different people have different reasons and objectives for buying, selling, and holding onto Bitcoin. They could be in for the long term and also for a short time.
For instance, some have chosen to store their wealth in Bitcoin for they believe in its long-term prospects. Their mentality is likened to a value investor who did his homework and bought stock in the hope of its intrinsic value growing over time.
Also, some people wish to make a quick buck from ‘anything’ where its prices are booming. That ‘anything’ can be stocks, bonds, unit trust, real estate, businesses, and any other thing which could be ‘flipped’ for a massive profit for a short period.
Regrettably, this includes Bitcoin. 2017 was a time when the demand for Bitcoin was primarily driven by people of the latter category than the former. For most of them, clouded by greed, have dumped in massive amounts of wealth, either theirs or borrowed, into speculating prices of Bitcoin. Mostly, they had been caught in a Euphoria and was left in tragic consequences from their ventures.
So, is this the fault of Bitcoin?
I don’t think so. The fault lies in the people who ventured into Bitcoin without proper due diligence for they merely want to make ‘fast money’. If they failed to do so, they would blame Bitcoin by coining it to be a hazardous investment.
If you think about it, these same people will also be involved in stock trading, real estate flipping, and other speculative acts for the same motive of making a quick buck. If they fail to reap a handsome profit and suffer huge losses, they would also ‘put the blame’ onto stocks, real estate, or anything they ventured into. It is called a witch hunt, and the fault never lies with them.
Hence, I believe it would be of great help to you if you can spend some time to study and be educated about a venture first before getting into it.
This includes Bitcoin.
#4: What About Bitcoin Mining?
Bitcoin miners are people who use computers to process Bitcoin transactions to earn newly minted Bitcoins.
It is like a big bank which had invested billions into building a transaction processing system and then, charges its banking customers transaction fees to recover back its investment cost. The word “mine” is to indicate the similar action of a gold miner, who dig out the rare metal.
So, how do Bitcoin miners make money?
For a start, let’s say I would like to transfer a certain amount of Bitcoin units to Ian. This intended transaction is processed by computers run by Bitcoin miners where upon completion, the transaction would be sealed with a hash ID and be stored in a block. Bitcoin miners are rewarded with 12.5 Bitcoins per completed block of transactions processed.
In the past, the process of Bitcoin mining can be done profitably by just using a laptop. Today, it is more challenging to do so. The difficulty in producing a block of processed transactions is measured by its hash rate. A higher figure indicates that it is becoming more challenging to process a block, thus, ensuring that the rate of processing a block remains consistent at 10 minutes a block until it has reached the maximum mineable Bitcoin of 21 million. As I write, there are over 18 million Bitcoins mined and are circulating around the world.
Today, Bitcoin mining is undertaken by companies which have invested millions in setting up mining facilities equipped with highly sophisticated computers to process these Bitcoin transactions economically. Thus, if you like to set up your own Bitcoin mining operations, you may do it as a hobby as it is a next-to-impossible task for an individual to be commercially competitive in this industry.
It would be better just to buy Bitcoin from a reliable cryptocurrency exchange.
#5: How to buy Bitcoin in Malaysia?
On 14 October 2019, Luno has become the first cryptocurrency exchange to be granted
an approval to operate as a recognised market operator in Malaysia for it had satisfied all required conditions imposed by the Securities Commission of Malaysia. Thus, Luno is the only local platform that offers Malaysians an opportunity to buy, sell, and store Bitcoins legally in Malaysia.
Okay, How Do I Start Buying Bitcoins from Luno?
You can start to buy, sell, and hold Bitcoins with Luno in three steps. Sign up using my invite link and we’ll both receive MYR 25 worth of Bitcoin when you deposit money into your Luno wallet and buy or sell Bitcoin to the value of MYR 250 (Luno exchange not included):
Step 1: Sign Up for a Luno Account
Website – Luno.com/en/ (Use my referral link so we’ll both receive MYR 25)
Google App – Luno Bitcoin & Cryptocurrency
App Store – Luno: Buy Bitcoin, Ethereum, and Cryptocurrency
Step 2: Deposit Money
Step 3: Select an Amount and Buy Bitcoin
For readers of KCLau.com, please use the referral code: 4D9HD