4 things to consider before buying bitcoin

Yoshikazu Tsuno/AFP/Getty ImagesA member of a Bitcoin trading club posing with a Bitcoin medal at the club’s meeting in Tokyo.

“New Year, New Me” has been Bitcoin’s mantra to start 2018. It’s just that ‘new’ Bitcoin is the worst version of 2017 Bitcoin. After taking a huge tumble in value over the past few months, prospective buyers are now weighing up their options – is it a good time to buy Bitcoin? Should you ‘buy the dip’?

Here’s what the near-future looks like for Bitcoin and some of the things you need to weigh up if you’re considering buying bitcoin now.
I should preface this piece by repeating the adage: ‘only invest what you’re willing to lose’. That’s the best place to start. If you’re thinking about investing serious money into Bitcoin, then there are hundreds of resources to choose from that can educate you on the subject.

Some of those resources are dense, so we’ve broken down what you should look at in the near-future to keep ahead of the next wave of developments in Bitcoin.

Bitcoin Forks

‘Forks’ are important to watch for because they can impact the Bitcoin marketplace, community and the development process, as was the case when the first hard fork appeared last year.

In August 2017, the first ‘hard’ Bitcoin fork was created as a result of the Bitcoin scalability debate. It was named Bitcoin Cash.

A hard fork is perfectly summed up by the expression ‘a fork in the road’, hence the name. When you come to a fork, there are two paths to take. Once you take one path, you cannot take the other. That is to say, when a hard fork is created, the resulting protocol is incompatible with the original protocol. Bitcoin Cash was created because of some of the perceived limitations of Bitcoin, including the scalability problem and block sizes in the blockchain. Currently, Bitcoin Cash sits fourth in the market in terms of market cap.

Since August, several other hard forks have been created. It doesn’t change anything for Bitcoin’s protocol or blockchain itself – but if the community sees it as a better alternative, then Bitcoin may dip in value. If you already have Bitcoin and a hard fork is created, you are credited with the new blockchain’s currency – as long as you can work out how to redeem it.

In 2018, there are a huge number of proposed Bitcoin forks launching – but be wary, some have already been discredited as scams, such as Bitcoin Platinum.

Privacy

Although Bitcoin only records an electronic address whenever a transaction is made, that address is still tied to you – which means if someone can find your blockchain address, you’re no longer anonymous. This is known as pseudonymous privacy and is one of the concerns that some Bitcoin investors have. Especially since it was revealed there are relatively straightforward ways to find out someone’s BTC address because of the trail left by conducting transactions.

A handful of new privacy measures are currently in development to protect user’s information when performing Bitcoin transactions including Dandelion, Neutrino and Bulletproofs. It may be hard to parse the information that these new technologies are describing but as they are further developed to work with the blockchain, Bitcoin again becomes an attractive purchase to potential investors (and perhaps, potential criminals).

This, of course, drives the value up and driving the value up is why you’re here reading in the first place.

Mining

To ‘make’ Bitcoin, you have to ‘mine’ Bitcoin and much has been made of the energy needed to perform the complex calculations needed to do so. A large proportion of mining, potentially around 60 percent, has taken place in China due to their cheap electricity and access to land. However, with the Chinese Government cracking down on these Bitcoin mines, those that are looking to continue mining the coin have had to look elsewhere.

This presents a potential roadblock in the process as ‘mining’ the coin is how Bitcoin transactions are verified and added to the blockchain. If there is a mass exodus from China, that could see the market become more volatile as verification slows down and attracts higher transaction fees.

Regulation

The ‘R’ word became more and more prominent in discussions around BTC as it rocketed to mainstream acknowledgement late last year. In Australia, new laws are being looked at that allow the Australian Transaction Reports and Analysis Centre (AUSTRAC) to scrutinize exchanges more readily and obtain information about clients and suspicious transactions.

The Australian Criminal Intelligence Commission (ACIC) believe that cryptocurrencies are being used by criminal organisations and have been calling for greater regulation in the space. They still declare that cryptocurrencies are completely anonymous – though this has been shown not to be the case – but they are correct in asserting that they’ve been used to fund illegal activities in the past.

For that reason, cryptocurrencies are still stigmatised, though their current day use has changed dramatically from shadier beginnings.

Complicating things further is the fact that late last year, reports started filtering out that the four big banks were freezing accounts and transfers to cryptocurrency exchanges. Major exchanges, such as Coinspot, have conceded that the banks do not seem to want to work with them and late last year, they suspended deposits via BPAY because of that unwillingness.

In the US, just today, a senior White House Official stated that the US is still a long way from regulating the coin.

Regulation will play a huge role in the future of Bitcoin and other cryptocurrencies, specifically in the short term, as governments and organisations come to grips with how to police and respond to the challenges a new technology introduces.

That’s all great, but should I buy bitcoin now?

Bitcoin currently sits at around $11,400USD ($14,600AUD), but reached an all-time high of almost $20,000USD ($25,331AUD) late last year. There’s definitely scope for the coin to reach such heights again and, of course, there’s also scope that it crashes to zero. The past two weeks have seen healthy increases in BTC’s value, suggesting that it may be on the way back up.

There is definitely scope over the next few months for BTC’s price to rise even further, but such a volatile market is hard to predict. It does seem that, for now, the bleeding has stopped and that BTC is settling in for a slow, steady increase once again. If you’re looking to get in long-term, now is a good time to buy. If you’re the kind of person that day trades and flips coins for altcoins – well, it may not be such a good time.

Truth is, BTC might crash again tomorrow. It might have crashed while I was typing this article up. You might have just put your house on it and now it’s plummeting. Maybe it will plummet back to zero and we will all laugh at how silly we were.

But can that be predicted? Absolutely not. So, to reiterate: Only invest what you’re willing to lose.

Oh, and listen to Andreas Antonopoulos.

It doesn’t get any simpler.

That’s what you can put your house on.

This first appeared at Lifehacker Australia. See the original here.

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