Bitcoin is often very present in the media. But the facts are not always presented. It’s much more about price predictions or things like that. If you want to deal with Bitcoin and cryptocurrencies in general, it is important to know at least the most important facts about it. Here we present you the 5 most important facts about Bitcoin that you should definitely know.
1. Bitcoin is not anonymous
The use of Bitcoin is not as anonymous as most think. When transactions are made, they are publicly trackable and permanently stored in the Bitcoin network (see: What is a blockchain).
A Bitcoin address is sufficient to receive and send Bitcoin. These addresses are “secretly” generated by a user’s wallet. After using an address, it is added to the blockchain. This means that the transactions you make are liable to this Bitcoin address.
Since the addresses are public, everyone can see the balance and all transactions that have taken place. However, the identity of the owner cannot be linked to the Bitcoin address unless the owner himself reveals the information within the transaction.
Here is the problem. There are many users who have to reveal their identity in order to trade services or goods. For example, if you order online and want to pay with Bitcoin, the online shop must be able to assign your name to your Bitcoin address. This will link your name to your Bitcoin address and other people can track the activity of the address at blockchain.com, for example.
Tip: Fortunately, you can generate almost an infinite number of Bitcoin addresses in a wallet. Therefore, if you want to be on the safe side, you should only use each address once.
2. Bitcoin investment with the highest return in history
The return that Bitcoin has is higher than any other financial investment in history. If you compare the price of the very first bitcoin with that of today (around $ 6,800 as of April 5, 2020), the return is over 225 million percent! An unimaginably high return.
If you set the price of the first bitcoin in relation to its high ($ 20,089 on December 17, 2017 source: coinmarketcap.com), the return would be 670 million percent.
By the way: The first Bitcoin traded was priced at $ 0.003 (source: Wikipedia). So the first bitcoin cost less than a cent 11 years ago.
What does that tell us? Bitcoin has always proven itself in the long term, even if it has seen some significant price declines.
3. Bitcoin payments are not reversible
If you want to carry out a Bitcoin transaction, it is advisable to check the Bitcoin address carefully for typing errors. A Bitcoin transaction cannot be reversed. Only the recipient could initiate the repayment.
It is therefore advisable to only send your bitcoins to institutions and people you trust.
To avoid typing errors, most services recognize a typo to avoid sending to an invalid address. In the future, it can be expected that these services will be expanded and become even more consumer-friendly.
Tip: Always pay attention to the recipient address when sending the bitcoins. It is best to check this several times before submitting.
4. Bitcoin does not correlate with traditional investments
Bitcoin has the advantage that it does not correlate with classic investments unless the market environment is accompanied by a crisis.
The higher the number from 0 to 1, the higher the positive correlation. This means that the assets would then be very similar in price history.
Bitcoin almost doesn’t correlate with classic financial instruments. For reasons of diversification, it makes sense to add Bitcoin to the portfolio. There are also scientific studies that consider an addition of 2-7% in the form of cryptocurrencies to be a sensible strategy.
5. Investing in bitcoins is risky
The Bitcoin price is very volatile, which means you can always see strong price jumps. On the one hand, this makes this system so interesting for investors, on the other hand, it could also have disadvantages.
Even if it makes sense to invest in Bitcoin, one thing should be clear: Bitcoin is a risky financial investment. The volatility makes investing in Bitcoin a roller coaster. The investment made today could be worth twice as much tomorrow, or worth half as much. You have to count on both.
Those who cannot sleep well with such price jumps should look for an alternative investment.
Our tips for buying Bitcoin:
- Bitcoins should only be bought and traded with money that is freely available. Invest only what you are willing to lose. If you are considering taking out loans to buy cryptocurrency, this approach is not recommended. Unless you are aware of all the risks and are convinced of your decision.
- Pay attention to the storage of your bitcoins. Make a note of your private key several times if a note should be lost. If passwords are lost, there is a risk of financial damage.
- In order to avoid a “wrong” entry point, it is more advisable to buy bitcoin in stages than to spend everything at once.