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How to Start Investing in Bitcoin And Other Cryptocurrencies

ZUU Online SG logo ZUU Online SG 11/9/2018 ZUU
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In December 2017, cryptocurrencies became a subject of discussion due to the sudden highs and lows in their prices. As of January 2018, Bitcoin, a representative cryptocurrency, has entered its tenth year and the continued influx of investment into the currency is expected in the future.

It can be said that in Japan, people who have holdings in cryptocurrencies are still in the minority. However, users are increasing year by year, and it is gaining attention rapidly. This article will explain how to start investing into cryptocurrencies for those who have interest in the subject and those who would like to begin investing now.

Reviewing the Basics of Bitcoin

Bitcoin has become known as a representative cryptocurrency because it has the largest amount of capital in circulation out of all the cryptocurrencies. Cryptocurrencies, Bitcoin included, are made up of electronic data; the distribution of the currency and sales transactions are performed via a distributed network called a peer-to-peer (P2P) network. A centralized management organization like a central government or a central bank that manages currency that does not exist.

The currency units are, “BTC (bitcoin)”, “mBTC (millibitcoin)”, “μBTC (micro bitcoin)”, and the base unit of a bitcoin is called a “Satoshi”.

1 mBTC = 0.001 BTC (one thousandth of a BTC), 1 μBTC = 0.000001 BTC (one millionth of a BTC), 1 satoshi = 0.00000001 BTC (one billionth of a BTC).

A Satoshi is the smallest unit of Bitcoin. It is named after its founder, “Satoshi Nakamoto”. After its introduction in 2009, the value of Bitcoins has risen with each passing year. In 2011, the value of a bitcoin surprised the world with a sudden temporary soar from 0.3 USD to 32 USD. At one point in December of 2017, the price of one bitcoin skyrocketed to 19,800 USD, which will be discussed in the second half of the article.

Creating a Cryptocurrency “Wallet”

To get started with cryptocurrencies such as Bitcoin, one must first acquire a storage location. If one was to compare cryptocurrency to regular currency, this is the equivalent of a “bank account” with the equivalent of the account number being a “Bitcoin address”. A “Bitcoin address” is composed of 27 to 34 alphanumeric characters.

There are three options available when creating a wallet. One can use a “personal computer”, “smartphone” or create one “online (on a cloud)”. To create a wallet with a personal computer or smartphone, you need to place the account in a “local environment” that can be disconnected from the internet. Creating a wallet online in a cloud will result in a wallet that is always connected to the internet.

The Disadvantages of Each Wallet Environment

Let us begin by considering the disadvantages of each wallet type. The biggest disadvantage of creating a wallet on a personal computer or smartphone is that in the case when the device is lost or broken, that account can never be used again. Infections from computer viruses is also a risk.

When creating a wallet online, it is installed to a site that is managed by a vendor that provides cryptocurrency operations and management services. The biggest difference between wallets placed on personal devices and those on clouds is that online wallets allow vendors, asides from the owner, to have administrative authority. In other words, the possibility of poor management on the side of the vendor may also be an issue.

As a result, the administrator you choose when creating an online wallet is extremely important. Furthermore, if the website managed by the vendor is shut down for some reason, there is a possibility that all the cryptocurrency managed by the vendor will be lost. Having a wallet on a cloud through a management service also comes with the concern of damages as a result of hacking.

Storing and Managing Multiple Cryptocurrencies

Having begun by explaining how to create an account or “wallet” to store cryptocurrency on a personal computer, smartphone or online, let’s focus by introducing the actual wallets that are currently available. The key points to compare are the “type of cryptocurrencies supported” and “security countermeasures.”

There a number of different cryptocurrencies aside from Bitcoin, so it is much more convenient to be able to manage and handle multiple cryptocurrencies with one wallet. Cryptocurrencies other than “Bitcoin” include Ethereum, Ripple, LiteCoin, IOTA, and Dash. It is said that there are already between 1000 to 1500 different cryptocurrencies in the world.

For example, one online wallet service, “bitFlyer”, supports a total of seven cryptocurrencies: Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, LiteCoin, and MonaCoin. BitFlyer was the first online wallet in Japan and also has Japanese language support, making it popular and easy for Japanese people to use.

BitFlyer is also strengthening its security measures. In addition to having a highly secure communication environment using the latest cryptographic systems and encryption technology, it implements through measures such as a 2-step authentication process and login history management in consideration of the security of its users.

Furthermore, by restricting which IP addresses can connect to the system, unauthorized use by third parties is prevented.

An Online Wallet That Supports 13 Varieties

Coincheck, with its recent focus on advertising, has been rapidly increasing its presence. It has a good reputation with its users in terms of operability, among other things and is expected to acquire more users in the future.

In terms of security, it uses a 2-step authentication process with SMS and a certified application provided by Google. Some of the cryptocurrency owned by the user can be managed in an offline environment that is cut off from the Internet, thereby enhancing safety.

The online wallet, Zaif, aside from supporting Bitcoin, also supports “MonaCoin”, a cryptocurrency that came out of Japan in 2013. Zaif is unique in such a way that the transaction fee for buying and selling cryptocurrencies at Zaif exchanges is -0.01%. The fact that the commission is a negative value means that the value of the cryptocurrency will increase little by little when it is traded.

Therefore, it is important to make preliminary comparisons and consider the different characteristics of each online wallet. It is also recommended to periodically check the latest information posted on the websites of each service.

The “Mining” Process with a Complete Local Wallet

This section talks about “local wallet”. Local wallets manage cryptocurrencies within the local environment of a personal computer or smartphone. There are two kinds of local wallets, the “complete type” and “simple type”. Both have dedicated software and applications that are installed and used on a personal computer or a smartphone. Let’s start with the “complete type”.

A complete type wallet immediately downloads and manages all transaction data from the start of cryptocurrencies. As a result, the space taken up on the hard disk (HD) while installing is higher. It also takes time to download. On the other hand, the simple type can be used without downloading past transactions.

At first glance, the simple type seems easier to use. However, there is something that only the complete type can accomplish: “Mining (excavation)”. Mining is one way to acquire cryptocurrencies. Mining, in simple terms, refers to a cooperative process that secures and manages cryptocurrencies using the computing power of a computer.

As for mining, which is one of the ways to obtain cryptocurrency, the number of venture companies entering the field is increasing at an accelerated rate. This is also true for major and mid-sized companies in various countries throughout the world.

Some companies have started “mining factories” and “mining bases” in the face of an abundance of financial and technical capabilities, and have continued to obtain cryptocurrencies by using computers to their full potential. On the other hand, the cost of the monthly electricity bills required to operate these computers is high. Mining will be explained in more detail later on in the article.

Comparisons by Ease of Use and Security Level

For a complete local wallet, wallets like “Bitcoin Core” and among others, are well known. While Bitcoin Core is compatible with the Japanese language and is easy for Japanese users to use, it also has some downsides such as not being able to use the same wallet with multiple personal computers.

In addition, the wallet “mSIGNA” is also a well-known complete wallet. Though it does not currently have Japanese language support, it has been said to be superior to Bitcoin Core in terms of security. Bitcoin Core uses a digital backup system whereas mSIGNA uses a paper system.

In general, data security is higher when cryptocurrencies are managed on paper. This is because the risks associated with hacking are not present. The method of storing cryptocurrency offline is called “cold storage”. On the other hand, however, there are other risks associated with the paper system such as the deterioration of paper and ink and loss due to fire.

Comparisons of Simplified Local Wallet

As for simplified local wallets, “Copay” and “airBitz” are well-known and also have Japanese language support.

Copay has a feature that allows multiple users to view and manage the same wallet. On the other hand, when remitting cryptocurrencies, confirmation from each of the multiple users is required. This is one of the reasons for its popularity. For those who want to manage the same wallet as their family and friends, Copay should be on their list.

When choosing a local wallet, it is also necessary to choose one that supports the type of cryptocurrency that is being used. For example, the simple local wallet “MyEtherWallet” is suitable for the storage of Ethereum and Ethereum Classic. In terms of distribution volume, Ethereum is the second largest in the world after the Bitcoin.

When considering which local wallet software to choose, one must keep their needs in mind and make careful comparisons before making a decision.

Five Ways to Obtain Bitcoins

Up until now, the article has discussed a “setup guide” on how to get started with Bitcoin. At this point, it will discuss a “practical guide” on how to actually acquire and trade bitcoins. “Mining”, a term that has already appeared several times in the article, is one of the ways in which one can acquire bitcoins.

There are five main methods of obtaining bitcoins, which are: trading (purchasing) at cryptocurrency exchanges, acquiring them from third parties, purchasing them from a store, receiving them as compensation for mining and obtaining them through point sites.

Let’s take a look at each and discuss in detail.

Mining Bitcoins is Difficult for Individuals

These days, it has become very difficult for individuals to acquire bitcoins through mining. This is because mining is basically a competitive field, that is, “first come first served.”

Although it is a bit technical, mining refers to the connecting of the transaction record of the cryptocurrencies to “blockchains” (distributed ledgers). Since only one person can receive compensation for the mining of each transaction, mining must be done faster than other miners. In other words, large companies that already have the capital and technical capabilities have already entered the market, thereby making it difficult for individuals to compete with them.

In as much as electricity bills are generated by continuous mining, the cost of updating hardware is also large. One must keep in mind that the circumstances surrounding mining have changed considerably ever since Bitcoin was first released.

At the same time, there is also a service called “cloud mining”. By using this service, rewards for mining can be received without having the required facilities. Users pay a fixed amount to a company that is engaged in mining and ask the company to mine on their behalf. The amount received by the user is the amount obtained after deducting the expenses such as the cost of electricity, labor, facilities, and maintenance.

Buying and Selling Cryptocurrencies at an Online Exchange

Obtaining bitcoins at cryptocurrency exchanges is one of the most standard ways to get them. Such methods have already been discussed in this article. Some are well-known for having integrated exchanges such as bitFlyer, Coincheck, and Zaif.

The structure of an exchange is similar to that of the stock market. At exchanges, bitcoin transactions are made, and it is possible to confirm the “price of a single 1-bitcoin (BTC)” as well as the “amount sold and amount purchased.” It is structured to allow purchases and sales.

Whether buying or selling, one must acquire cryptocurrency to begin trading. To start trading, create a wallet at an exchange and deposit the actual currency such as Japanese yen or US dollars, and then trading can finally kick off.

Since the characteristics of each exchange differ, it will be a good idea to decide on which platform to use after examining the most recent information regarding the leverage and margin trade ratio, future trades, and other various fees.

Acquisition from Goods and Services

Here is a brief synopsis on how to obtain cryptocurrency from a third party. In short, it involves the acquisition of cryptocurrency as compensation for product sales and provision of services. It is basically the same as a cash-based system.

Shops and websites that accept bitcoins as payment continue to increase with each passing year in Japan. Among these integrated sites is DMM.com, which deals with DVD rental and video distribution, as well as online mail order sites and online sites that sell Japanese products overseas.

Actual stores that accept payment in bitcoins for products such as home appliances, foodstuffs, interior items, beauty products, cars, motorcycles, as well as at bars and restaurants in the service industry are increasing. Properties that accept bitcoin as payment for rent are also surfacing.

Normally, shops that conduct such business in Japan convert the obtained bitcoins to Japanese yen as payment for products provided or services rendered. Though it is possible to retain the bitcoins as they are, in most cases, it is necessary to convert them into actual currency to pay out expenses like purchasing costs.

If Bitcoin becomes more popular in the future, a time may come when all sales and purchases will be made using bitcoins.

Buying Bitcoins from a “Sales Office”

Another way to obtain bitcoins is by purchasing them directly from a “sales office”. Many vendors that offer Bitcoin wallet services are also engaged in the sale of bitcoins. Unlike exchanges, these sales offices offer a fixed rate at any given time depending on the amount of coins purchased.

Can Bitcoins Be Obtained for Free?

In this article, the ways to obtain bitcoins such as mining, exchanges and sales offices, and receiving them in exchange for goods and services, have been discussed. The final way in which bitcoins can be obtained is from the use of internet point sites.

For example, at the point site “Moppy”, points can be earned by reading leaflets, participating as a monitor, or by winning them in draws. The accumulated points can be traded for bitcoins at exchanges such as bitFlyer and Coincheck. It is difficult to say whether or not this method is efficient, but it is a way to diligently accumulate bitcoins.

Aside from this, there is a service called “Earn Bitcoin”, which is provided by bitFlyer. It allows one to accumulate bitcoins by answering questionnaires and participating in free campaigns. Only users with a registered bitFlyer account may use the service.

2017- The Year of Cryptocurrency

This article has discussed the preparations required to get started with Bitcoin and the five methods of actually obtaining them. As a final note, here is some information regarding the latest Bitcoin news.

The price of Bitcoin increased significantly and reached its highest ever recorded value of 19,800 USD in December of 2017, then dropped to 1,400 USD a week later. Although in the long term, the price of Bitcoin has risen steadily with each passing year since its introduction in 2009, the possibility of its extreme fluctuations has once again been reaffirmed by the news.

2017 has been called the year of cryptocurrency. In the revised fund settlement law enacted in April, the so-called “virtual currency law”, a system that registers cryptocurrency exchanges for cryptocurrencies like Bitcoin, with the Financial Services Agency, has been put into place. By December 2017, 15 companies (12 from Tokyo and 2 from Osaka) had already registered.

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