[UPDATE Dec 22nd, 2016: Would you believe it? The service I show you in the video, Circle.com, has stopped facilitating the direct buying and selling of Bitcoin. They are now recommending Coinbase instead. Hope this post still helps you in understanding the basics on Bitcoin though.]
Obviously this is quite different to the usual internet marketing stuff I post about on this blog.
But it’s something that interests me so I thought I’d share it with you too 🙂
First, here’s a short video I made for you:
And some more info on why I’m doing this…
1. I’m Investing In Bitcoin
Specifically, I’m putting a very small percentage of my personal investment portfolio in bitcoin and holding that for the long term (i.e. years, not weeks or months).
You might call this a punt.
I’m quite prepared to wake up one day and learn that Bitcoin has disappeared off the face of the planet and my coins are worth nothing.
If so that’s fine – I won’t lose sleep and my lifestyle won’t be affected because I’m not betting “the house” (which I wouldn’t do on anything anyway).
>> Never invest more than you’re prepared to lose <<
On the other hand, maybe bitcoin won’t go to zero and I personally believe there is a good probability that its price will experience a very large rise over the longer term.
2. What Is Bitcoin?
It’s a currency which is created and held electronically.
It’s decentralised meaning that unlike normal currencies such as dollars, euros and yen it isn’t controlled by any central bank, government or group of individuals. It also has very low transaction fees which is one of its major advantages.
Here’s a reasonable helpful beginner’s guide on Coindesk’s website: http://www.coindesk.com/information (all links in this post open in a new window).
3. Why Bitcoin’s Price Could Rise
This is purely my opinion and nothing more. This is not financial advice and I’m not qualified to give any. Do your own research and take responsibility for your own investments.
With the health warning out of the way, here’s where I see the upside in bitcoin’s price:
i) More Use. More online and offline outlets are accepting Bitcoin as payment.
Applications like remittance where people send money from one country to another is particularly interesting, especially when you consider traditional remittance companies like Western Union charge extremely high fees.
ii) It’s The Market Leader. This of course, is no guarantee of success: Friends Reunited was a hugely popular social network in the UK until Facebook came along and wiped it out.
However, of all the digital currencies in existence today (here’s a list of some of them), bitcoin is the only one that has enough critical mass for large scale adoption.
iii) Bitcoin Investment. Bitcoin has been called “digital gold” meaning it’s an asset investors put their money into as a safe haven (similar to gold or the Swiss Franc).
Calling it digital gold is currently a bit of a stretch in my mind but still, I’m certainly not the only person buying and holding bitcoin purely for investment reasons. If its momentum continues then its attractiveness as a financial asset will improve.
Not only that but unlike gold, it can actually be spent on real goods and services.
The total value of Bitcoins in circulation is currently around $10 billion (see chart here). Sounds a lot but compare that to gold’s estimated total value of several trillion. Now consider more money buying bitcoin for investment purposes and you see the potential for significant price increases.
iv) Transaction Volume Growth. This is really important in my opinion because it’s a proxy for the number of users and generally how many buyers and sellers there are in the market (called “liquidity” in financial language).
If and when this plateaus I might reconsider my positive view on bitcoin.
Here’s a chart showing the growth in number of transactions
v) Competition From “Establishment” Finance. The technology behind bitcoin is called “blockchain” and since bitcoin’s rise, major banks have started to invest heavily in it, including through a consortium called R3.
You can see some of the companies involved in R3 on Wikipedia here
To me this creates a very healthy and powerful force of competition: Bitcoin MUST continue to get better, grow and become more widely accepted otherwise it will be wiped out by the banks’ proprietary blockchain systems.
I’m betting bitcoin will thrive because it’s decentralised, no one owns it, there’s a large amount of smart people constantly working on it and huge amounts of money flowing into related technology that in turn boosts bitcoin itself.
A bit like the World Wide Web in the 1990s perhaps which thrived against “privatisation” attempts by some corporations.
vi) It’s Robust. Bitcoin has survived several dips, bumps in the road and potential disasters.
Examples include the Silk Road “dark web” scandal, collapse of bitcoin exchange Mt Gox and even comments from a former bitcoin software developer (he left to work for the banks!) saying the bitcoin “experiment” has already “failed”.
What doesn’t kill you, only makes you stronger.
vii) The Total Number Of Bitcoins That Can Exist Is Limited. Unlike regular fiat currencies like dollars, pounds, euros and yen which are subject to devaluation as more money is created naturally in the banking system and by central banks printing more through quantitative easing, there will only ever be 21 million bitcoins produced (or “mined” in bitcoin speak).
Currently there are around 16 million in circulation and the increase in supply is fairly steady over time (total bitcoins in circulation chart here) making bitcoin an encouraging defence against inflation over time.
4. Some Other Random Things I’ve Learned About Bitcoin
– It’s Not Anonymous
Before my research I thought it was and I suspect most people think it is too.
Lots of technical reasons for this and I don’t claim to understand them but one thing is that to transfer bitcoin to and from your local currency you usually need a bank account, card or something else which identifies you.
– It Has Transaction Fees
Again, I was surprised. The fees are very low though.
– It’s (Still) Quite Technical
There are a lot of esoteric terms and concepts. Unless it’s just me being dense (entirely possible!) even basic transactions take quite a bit of learning to have confidence that what you are doing is correct and secure.
– It’s Easier To Buy Than To Sell And Cash Out
If you want to buy bitcoin no problem – how many do you want?!
But transferring your bitcoins back into your local currency can be a bit tricky.
The site I use in the video above (Circle.com) makes it easy to do this but a lot of other similar services don’t seem to be that straightforward right now.
Again, something which should (and absolutely needs to) improve in order to open up bitcoin to a wider audience as we move forward.
– The Communities Behind Bitcoin Fall Out A Lot
Bitcoin is “open source” meaning that it’s developed by a community of software programmers rather than a company. A bit like Wikipedia being written by volunteer contributors.
This has wonderful advantages of course but on the other side people do fall out and pull in different directions.
This is a very real risk to bitcoin’s future, but one that I’m comfortable with.
– Bitcoin Will Never Take Over The World
Digital currencies becoming highly used and viable everyday alternatives to pounds, dollars and euros is entirely possible in my opinion.
But digital currencies like bitcoin will never replace traditional currencies because governments will always insist that taxes are still paid in currencies that they control.
5. Be Careful
Did I mention that you should never invest more than you’re prepared to lose?
Oh yes, I think I did.
But seriously, be careful, do your research and take responsibility.
I think it’s a fascinating area to keep track of but do keep your wits about you.
I’d love to hear your thoughts (including if you want to call “scam” on this whole thing!). All your thoughts, good, bad and ugly welcome, as always. Please drop a comment below and let me know… Cheers, Rob 🙂
A very interesting video. I have had a passing interest in Bitcoin without understanding how it worked (mainstream media always gave the impression it was only used by terrorists, criminals and whistleblowers!).
Anyway, I have opened an account at http://www.circle.com and will test the water.
Thanks for your comment, glad the post gave you some inspiration and enjoy your journey into the “crypto world”!
All the best, Rob.
Thanks for sharing your experience with Bitcoin. Very useful info. I have heard about it from someone who is investing in it and I am interested to try it out.
Your blog is so easy to understand, whereas his manual was complicated.
Thanks and have a great weekend.
Thanks Grace, glad you found this interesting 🙂
Enjoy your weekend too!
I’ve been following Bitcoin for a long time and it is a really interesting space. As you’ve seen there are tons of different crypto-currencies that have spawned since Bitcoin’s release but there are only a few with any real valuable point of interest. Bitcoin has stood the test of time so far and been through many ups and downs but continues to tick along proving itself. The main other area of interest to me is also in Ethereum which is having some struggles at the moment so may not be the best short term outlook but adds a whole new layer of programmability on top and provides many more possibilities for so called smart contracts and issuing other tokens than the original Bitcoin protocol. However you look at it, it is pretty likely the core Blockchain technology is going to find its way into a lot of systems around the world and there is a good chance that Bitcoin will be still be ticking along in some fashion when that happens. If you ever have any questions feel free to reach out as I tend to read far too much in this area!
Fascinating – thanks for your offer and taking the time to share your thoughts here, appreciated 🙂
All the best, Rob.
Hi Rob, I followed the mechanics of your Bitcoin transactions (I think) but what was the point?
Did you just lose 8p or did you make some money?
It’s not clear why I would want to indulge in Bitcoins.
Thanks for your comment 🙂 The point of the the video is purely to show how to buy, sell, send and cash out, nothing more. I’m not suggesting you should invest in bitcoin but some of the reasons I am doing so are outlined in the blog post.
All the best,
From my understanding, there is crypto currency and digital currency. Bitcoin is a crypto currency, many of the others are digital currencies. The value of Digital currencies are controlled by a group that can set its value. The value of Bitcoin, as a crypto currency, varies as people move in and out of it as an investment. If more people want to hold bitcoins as an investment, the value rises; when they sell, the value falls, like a stock.
Companies, like amazon, take bitcoin in payment, but never hold it. To them bitcoins are a medium of exchange, not an investment vehicle. The exchange rate is set by the daily or momently value of bitcoin.
Bitcoins are transacted through computer verifications . This is called “mining.” Anyone can mine bitcoin and they are paid a small percentage of a bitcoin for their computer usage in the mining process. This was very profitable in the beginning, especially when bitcoin was new and catching on as an investment. But as the value of bitcoin fell, the percentage value earned by mining dropped to the point where the electricity used to mine bitcoins was more expensive than the bitcoin earned and many individual miners dropped.
This left large mining farms of servers to the task, but even they began to drop out of the mining game too when profits began to shrink.
There was a plan to develop a huge bitcoin mine farm in Iceland where electricity is free, but I don’t know if this ever happened.
Hi Kirt, thanks for sharing some interesting points there. Appreciate your comment 🙂
Thanks very much Rob for your video on bitcoin. I was always interested in knowing about this and you have explained it a lot better than anyone else. I really think it has potential to make a lot of money for people who get in early. But as you say only use money you can afford to lose if things don’t work out so beware. I hope to hear a lot more from you regarding this.
Thanks for your kind comments and feedback. Great to hear you you found it helpful. I may post again on this topic – this is really a test to see if anyone is interested at all because it’s quite different from the internet marketing stuff I usually cover!
I am glad that I saw this as I was just starting to look for a bitcoin wallet.
I agree that fiat currency will always be around because it is a tool for trade. It is needed to fractionalize commodity money such as gold, silver, oil, grain and precious gems for example. You cannot feasibly buy a stick of butter for a bar of gold for example. Also, you need a way to keep track of the value fluctuations of commodity money.
Now bitcoin is unique because it is a commodity money like gold and silver, but it can be fractionalized just like fiat currency thus having the characteristics of both. People can certainly use it to protect their wealth, but at some point in time you will need a fiat currency to liquidate it and spend it and for comparison, to keep tract of its current value
Very interesting points Bryan, thanks for taking the time to share them with us 🙂
Fascinating, thanks Rob.
It’s a pleasure Marie, glad you found it interesting 🙂
I am amazed at your insight into how an online business should be run and now, with your Bitcoin blog, how you can manage your cash and transfers to best effect.
Thank you again for the information!
Hi Henriette and Kobus, glad you enjoyed it 🙂
Great article and video which I’m sure will benefit a lot of people Rob.
I got into Bitcoin fairly recently after reading a book which I won’t promote but is on Amazon and contains the words ‘Cryptocurrencies’ and ‘Dummies’ in the title. It’s a short but very interesting read which explains where we are (and how dangerous) fiat money is in it’s present form as well as an introduction to cryptocurrencies and their evolution to date.
If people realised what a perilous state most fiat currencies were in they would likely be paying more attention to the likes of Bitcoin and even be prepared to give it a dabble as you clearly demonstrated in your video.
It’s not as difficult as people think and as more and more online companies adopt Bitcoin I’m quite sure it will become increasingly mainstream as time goes on.
Many thanks for posting Rob.
Hi Vanessa, you’re very welcome and thanks for your informative comment 🙂
Hi Rob, I’ve read quite a few articles on Bitcoin over the last 18 months and the age of the cashless society becomes more of a reality every day and in fact it is what the banks are striving for so that they have complete control over the money market (your money). With only electronic/digital money available you can’t hide those £50 pound notes under your mattress any more, as they are not legal tender, you can’t run to the ATM to take out your hard earned cash, if a bank comes under extreme duress and people want to take their hard earned money out, quite simply the bank will just pull the customer’s electronic feed to their systems, thereby holding on to the money and stopping a run on the bank. A bit Orwellian I know but some very smart people are predicting this is the way we are heading… That aside in all the articles I have read none have ever thought to show how to actually buy/sell in practice, they’ve only written about it. I have never seen the buying/selling of bitcoin in practice and I found your video extremely useful and as you say quite easy if you have used something like Paypal, Skrill etc… in the past. Thank you
Thanks Tony, really glad you found it useful in that regard. Buy/sell is the most basic transaction but it took me a while to figure it out which was the motivation for the video as I figured other people might be struggling in the same way.
Appreciate your comment and thoughts 🙂
Good post Rob and very timely. Bitcoin will IMHO become more important. I nearly invested in it 4 years ago. Thankfully deferred my decision because the price had risen too quickly & it subsequently had its own dotcom bust.
However, the banking world is in a parlous state and its only a matter of time before there is another crash. We need to protect our money from Governments who will thieve it (as per Cyprus) esp when Deutsche Bank and the Italian banks need mega bail-outs.
Bitcoin has survived and now seems to have a more secure future. If we have money in Bitcoin, it could be one of the safest ways to store money and use it in small denominations. Gold & silver will be too valuable for transacting.
As Gvmts stupidly print money, reducing the value of every note already in existence, Bitcoin and other crypto currencies will increase in value because, like gold, there is a finite supply and therefore the value will be affected by supply & demand, not Gvmt overspending.
How did you decide on Circle?
Thanks for your thoughts on this Ian, much to think about there.
Circle was one of the few sites I found that worked fully in the UK for buying and selling. Right now there seem to be restrictions on others such as Coinbase etc. That said, I’m not particularly attached to it and as ever things are evolving quickly so I’d advise everyone to do their own research.
Thank you for your interesting and informative video.
Beautifully executed as always.
I have been watching the development of Bitcoin and Block Chain Technology for sometime.
However, having a bit of a background in Banking and Trading and being acutely aware of the downside risks – as with any currency or derivative trading …I have remained on the sidelines to date.
Nevertheless, despite you adequately pointing out the risks, you make a compelling case to put ones toe in the water !
I guess it comes down to having a ‘fundamental and technical’ view, as is the case with any Investing/Trading and having an understanding of your own Risk tolerance.
as you say …only invest what you are prepared to lose !
I will open an account and test the waters
aka Namchok GHG
Thanks for your comment Philip, great to get your thoughts.
As I alluded to, for me Bitcoin is really a speculative investment hence my small allocation to it. I’m not worried if it collapses but equally I think there is a good long term case for it going up massively if it becomes more widely used as an alternative safe haven asset. So unlike equities, funds, bonds etc I’m not too concerned about nailing down the finer details of it.
Again not advice of any kind, just my take which could turn out to be horribly wrong of course!
All the best, Rob.
Thank you Rob .. yes I agree ..
I will have a small speculative flutter and watch it with interest
I watched the new video on your progress with Bitcoin etc. and then went to last years video where you use circle.com. I was sorry to hear that you can no longer transfer Bitcoin using circle.com as I already have an account which I use to transfer money to my son.
You mention that you now use Coinbase.com to make Bitcoin transfers. Is the process similar to what you show on the video or would it be worth recording a new video.
Thanks for your question Reed. Yes it is similar although as I implied in the video it’s been a while since I did any transactions. So I’m probably not the best to advise you of the best platform. Remember you can always send currency from one system to another so hopefully it shouldn’t be too tricky. Cheers, Rob.