Finance boffins have become increasingly interested in Bitcoin over the last year – especially as the cryptocurrency can be so valuable.
Countless members of public have bought into this currency hoping to get rich quick.
What is Bitcoin?
Bitcoin is the world’s first decentralised digital currency – meaning there is no central bank or administrator.
Carl explained: “It is a form of ‘cryptocurrency’, a digital currency which is transferred between users with a value measured in US dollars.
“This currency can be ‘mined’ using computer power to obtain some of the 21 million Bitcoins, which is the limit of this cryptocurrency in existence.
“There is an underlying technology known as ‘blockchain’ which records each transaction, so that the receiver can ensure that the sender owns the currency, and also so that transactions can be verified without a central bank being involved.
“It is important to remember that Bitcoin is one of many currencies available.”
While it can be very lucrative, there is no guarantee that the value of Bitcoin won’t drop significantly.
Carl Reader revealed his top five tips.
Before investing money into any project, it’s important to do as much research as possible.
Carl advised: “There are plenty of sources of information online, and there are active investor communities, such as on Facebook, where you can join the groups and ask questions.
“Remember that other users are often biased towards their own investments.”
This often means backing it up and keeping your devices as security and anti-virus protected as possible.
Carl recommends: “Cryptocurrencies are open to security risks. Each currency is held in a digital ‘wallet’, and I would suggest that you use an official one for the currency that you choose to invest in.
3. Understand the fluctuations
As Bitcoin and other digital tenders are still in their infancy, investing time and money into them doesn’t guarantee success.
Reading up about these risks and learning more about fluctuations will help you stay on top.
Carl explained: “At the moment, cryptocurrencies are extremely volatile. It is likely that as they become more mainstream, the market will find it’s feet.
“As it stands, I would suggest that you be prepared to view it as more of a gamble than an investment.
“As with all assets, gains are made at the point of purchase at the right price as well as at the point of sale, so try to pick the right time to invest!
“And always remember – never invest more than you can afford to comfortably use, and don’t rely on one asset class to provide you with any form of long term return.”
4. Liquidity is key
Cryptocurrency can be completely useless if you can’t convert it into physical money you can spend in the real world.
Carl said: “Make sure that you can convert your chosen currency into traditional currency, and find out how much you can withdraw at any one time.
“You should also find out about the reliability of any exchange that you use, as some have been known to crash at peak times.”
5. Bet on the fundamentals
As the future of finance is constantly evolving, it’s advisable to keep a check on how different cryptocurrencies are developing.
While Bitcoin is one of the most talked about digital tenders of the moment, it may not always hold this position in the future.
Carl predicts: “The eventual winner of the various currencies will most likely be whichever currency has the best backing, and the best underlying technology.
“For a cryptocurrency to be able to truly replace our current currencies, the underlying system must be able to handle far more transactions simultaneously than the current blockchain technology, and the costs per transaction must become negligible.
“In fact, it is quite likely that the future mainstream currency, and the method of maintaining it, has not been invented yet.
“If you wish to invest now, look past any historic performance, and instead look at the fundamentals of each currency.”