What’s the Deal With Bitcoin?

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2017 has been the year of the cryptocurrency. Of course, the most famous is Bitcoin. It’s been all over the news recently, largely because its value has skyrocketed in a very short time. Since the focus of this blog has a lot to do with investing, particularly in alternative investments, I’d be remiss if I didn’t at least touch on the subject.

Now, making money from currency exchanges is nothing new. But with these new forms of technology, this exchange is happening at speeds never before seen, particularly because there is no government oversight. “What is cryptocurrency?” I hear you ask. Let’s break it down in this quick summary.

What is Cryptocurrency?

To put it simply, cryptocurrencies like Bitcoin are a payment system without a central network. With Bitcoin and others, there is no Federal Reserve–the currency only exists in a peer-to-peer network. The benefit of this is that exchanges can be completely anonymous and don’t require a bank. That was the initial draw, at least. Now that more mainstream investors are taking notice, cryptocurrencies have become an asset on their own.

Bitcoin, specifically, is stored in a “wallet,” which is like a bank account, but is simply a collection of your Bitcoins (or partial Bitcoins).

What is Blockchain?

You might hear this word thrown around whenever references are made to cryptocurrencies.

Blockchain is the technology behind Bitcoin and other cryptocurrencies like Ethereum and Litecoin. Think of it as a digital, public ledger that records all of the transactions involving each of these currencies. The ledger is kept on multiple servers called nodes and they're constantly communicating to make sure that everyone has the same record. This confirms that you have the rights to that “money” and you can use it for the purposes of an exchange. Several confirmations have to happen before any cryptocurrency is actually exchanged.

How Secure is It?

As with any online transaction, it’s possible for your cryptocurrency “wallet” to be hacked. The most famous of which is the story of Mt. Gox where hundreds of millions of Bitcoins went missing. Only a couple days ago, came this story where a hack resulted in $70 million worth of Bitcoin being stolen.

So if you decide to invest in Bitcoin, storing your currency in an encrypted location is very important. Currency can be stored online, locally (on a hard drive), or probably the safest, on a separate hardware wallet.

The transactions themselves (like when you pay someone), however, are considered quite secure.

Where Can You Buy It?

Well, there are numerous exchanges out, some of the more popular ones are Coinbase or Binance. Setting up an account is easy and free, and trading is fairly straightforward. Fees vary depending on the exchange, but some charge a base rate of 4% for all transactions.


Obviously, the greatest benefit of cryptocurrency, at least right now, is the potential for phenomenal returns. Over the past year, the price of a single Bitcoin has increased by more than $16,000. Other cryptocurrencies, like Ethereum and Litecion, have also increased in value over the last year significantly.

Then there’s the benefit of being able to use certain cryptocurrencies as actual currency, as more and more retailers–and even countries–are accepting them as viable tender.

Identity theft is also not really an issue with cryptocurrencies. With a normal credit card, it’s possible for that card to be stolen and/or misused. Bitcoin, for example, is based on a “push” system, only giving out the money that’s required.


As with any investment, cryptocurrencies come with risk. They are highly volatile, and while current trends are greatly positive, there’s no guarantee this will continues. Some financial experts say we’re in a bubble that will soon implode. Others, however, say that Bitcoin value could reach $50,000 by the end of next year. Really, though, all we have are educated guesses. After all, this kind of growth is unprecedented, even though some like to relate it to the dot-com bubble of the late 1990's and early 2000's.

So whether cryptocurrencies will revolutionize the banking system or flop due to not being backed by a government agency remains to be seen. But there are certainly very intelligent people in both camps.

Should You Invest and Should I Have Invested?

Now for the real question. Whether you should invest is entirely up to you, your financial goals, and your risk tolerance. Whatever you do, please do not invest something you can’t afford to lose. This is true of any investment, but even more so for cryptocurrencies like Bitcoin. I’m not the one to say, but should you be like this guy? Probably not.

You may be wondering if I personally have invested in Bitcoin. Well, I first heard about Bitcoin years ago and I really considered investing about five years ago. The whole concept seemed fascinating to me and seemed like an emerging technology play. So I set up my account, linked my bank account, and was about to invest $5000 in it. I was going for it. Then, I decided to do just one last round of research . . . and I got scared off.

Well, as I write this (BTC=$15,800 USD), that investment would have been worth 5.6 million dollars. Is there a little bit of regret there? Oh, absolutely. However, a lot of assumptions would’ve been made to get me to this point. Who’s to say I wouldn’t have sold it off long before it reached this point? Or maybe they would have been hacked and stolen? Or maybe I would’ve lost it or thrown it away and lost it like this guy?

So I've had to make a conscious decision not to purely chase out of regret and FOMO. I did decide to invest a small amount so that I could understand the market a bit. Nothing makes you learn something as when you have something at stake. I’ll talk about this in a future post.

At the end of the day, there are just way too many factors for me to even try to give advice on whether or not to invest. Again, I can tell you to not invest because of the hype. If you want to learn about it, that’s one thing. You have to be able to stomach the wild swings and be okay with losing it all.

Otherwise, you’re better off investing conservatively and continuing to focus on creating additional streams of income that provide steady cash flow.

How about you? Are you caught up in the hype? Feel like it’s a bubble about to burst or come crashing down? Or think it hasn't even come close to reaching its potential?


  1. I’d hazard a guess (and its a guess), that playing blackjack at the casino is less speculative than investing in bitcoin. I think of bitcoin as gambling rather than investing. I’m in tech and while I have the same thoughts in hindsight as you that I didn’t put a couple of hundred bucks into it and forget about it years ago, I also don’t regret not having done so 😉

  2. Great intro to cryptocurrency – thanks! Have you made any decisions about what will prompt you to either invest more in Bitcoin or to sell what you already have? Or will you use a “watchful waiting” approach?

    • I don’t think I can stomach investing more than a very small percentage of my portfolio. I understand the technology and the benefits/risks involved, and don’t know what would change to make me invest heavier. I put a little in, and I think I’ll just let it ride for a few years. Don’t want to get into the trading game.

  3. I’m curious — what did you read that made you back off from that potential $5,000 investment? If you had made it, would you have rebalanced and sold along the way, or do you think you would still hold it now?

    Hindsight is much better than 20 / 20. I remember hearing about it on NPR at least five years ago, but I never got remotely close to investing in it.


    • It was probably the same stuff people talk about today – chance for wallet to be hacked, wild volatility, and just the great unknown about its future. Looking back I would like to think I would have rebalanced, but perhaps I’d act the same way I did during the dot-com bubble, buy high and sell low (horrible).

  4. It’s funny how what I personally read about Bitcoin back in it’s infancy (before it was a $1 🙁 ) that scared me off is the same things that are still true with it: there’s a huge barrier to entry (made easier by Coinbase though), widespread adoption will be a long-road if any (still true) and mining isn’t the best use of resources. Those are what scared me off back then, but not other super-early adopters. The only things that have changed (to me) are the hype and the number of people also investing. I’m with you in wishing I’d put a small speculative amount in though.

    • The hype is real. My colleague’s 7-year-old son asked for Lightcoin for Christmas. It still fascinates me though and I’m willing to put a small amount in to ride along. We’ll see how it goes. Speculation hasn’t worked that great for me in the past so I’m realistic about it.

  5. Like you I had the opportunity to buy in about six years ago and said no. Even if I would have just put a couple hundred bucks in, the payout today would have been amazing! Oh well. At the time I didn’t not have money allocated for “alternatives”. Currently I still don’t, but plan to move 5% of my portfolio in to “alternatives”, whatever they may be.

    The buddy I knew 6 years ago who was telling me to get in to bitcoin has switched the majority of his crypto currency over to Ethereum (ETH) and Bitcoin Cash (BCH). He says bitcoin itself is “broken”. I haven’t looked in to it enough to have an opinion but based on volatility we are seeing with bitcoin now he may have a point.

    Once this bubble has popped and crypto reaches a steady state I will likely buy in to the safest means of entering the crypto market to have a small exposure.

    Great post!

  6. I learned my lesson yet again from my wife. Years ago I told her about facebook, google and apple. Heck I even convinced my mom to buy Apple in 1994, I didn’t buy any! My wife in return told me go all in(she is not risk adverse) and every time I hesitate. Then the price goes up and I hesitate. Then I go partially in and get crushed. Having not learned my lesson my wife told me about bitcoin on a plane ride and I brushed it off to something obscure and techy. Then I watched the documentary on Netflix called Banking on Bitcoin and I was blown away. So I my wife about it. After telling me I told you so, she told me to go all in. That was October 2017. So I tried the water with a $250 investment in each of the cryptos BTC, LTC and ETH. Then I told everyone I know about it. Many bought on my advice and I doubled my money. I then proceeded to watch it go bonkers and then experienced FOMO(fear of missing out) first hand and I drove me crazy, now I am too scared to go in. So the point is My wife is always right and when it comes to speculating, I am too faint of heart. Good luck to those going all in, personally I need the sleep. Great post!

  7. I bought some and I am up 7000% I would trade this using something called a free trade. My opinion:

    1. It’s not going out of business in other words it’s not going to zero
    2. I would only trade BTC A knock off Rolex is not a Rolex
    3. I don’t consider it a currency or a store of wealth but a means to transfer wealth without government friction
    4. I think it has a huge future because it’s peer to peer and digital. Imagine you are third world and want to start a business Using the internet and BTC you have the ability to do commerce at a very low overhead. In some EU countries if you use BTC as a means of transfer you don’t pay VAT
    5. It now has a futures market so if you don’t want BTC you can buy the futures which means you can do things like spreads strangles and strattles and such to reduce volatility
    6. It is capped at 21M coins. This is why I don’t think it’s a bubble per se’ Bubbles are things that grow in value like Beanie Babies and then production ramps up causing the bubble to pop due to oversupply

    You have to decide if you want to be on the elevator or make all the money. Making all the money has the most risk. If BCT drops 80% it needs 400% to get back to even. 400% is not infinite but risky.

    A free trade is when you make your investment and let the coin double or triple and then sell your original investment letting the profit ride. If that drops 80% you are still up 20%. So your risk is mitigated to the time period when your original investment is in the market. Numerically if you start with 5000 and let it grow to 15000 and sell the 5000 you are left with 10000 in the market if it drops 80% you are still 2000 ahead. If you put in your 5000 and it drops 80% you loose only 4000.

    • The idea of the free trade is great if #1 it goes up initially and #2 you’re disciplined enough to take it out. It’s basically playing with house money. Do you keep locking in earnings as it keeps rising? Meaning, do you keep selling after large gains?

  8. I’m up over 7000% so I didn’t pull any out. If it drops 80% I’m still up 1400%. It has dropped 80% 5 times in it’s history but never to zero or beyond 80%, so I’m just letting it ride BUT the proper way to invest is to diversify so I should pull out a fixed % and invest that into another asset and re-balance periodically, like 80/20 BTC:BRK.B This would further reduce the volatility, but also return.

    Personally I see no reason for it to not continue. I think it will have huge consequence on world wide trade especially third world trade. With BTC and a cell phone connection you can engage in commerce even from the jungle


    I live 13 miles from the SPACE-X launchpad and this is going to happen. Before medicine among other things I was a communications engineer and built a system out of a broom stick and some stiff wire and a tripod and a packet modem that could access this exact kind of satellite. Ham radio ops put up a few of these LEO (low earth orbit) satellites to experiment with. The technology has advanced to the point where this is close to off the shelf. If you got internet and peer to peer block chain accounting, you got commerce anywhere on the planet. If you live in a place where they are used to working for $5 a day with an effective commerce mechanism you become a capitalistic weapon. BTC is essentially a barter device where you trade one kind of property for another which is why it isn’t a bubble and it isn’t going to zero.

  9. Like you, PIMD, I also have a bad case of regret from not investing more in it 4 or 5 years ago when I really believed in it. I did put a small amount in, half of which I subsequently lost to a shady exchange. I’m sure it’s gone forever.

    I still like the potential for cyrptocurrencies, but Bitcoin has some major problems, not the least of which is the time to process transactions and the associated fees with them. The truth is, it’s technology is outdated and being outpaced by other coins.

    I’m dabbling in some others (XRP, Litecoin, Ethereum, XVG, and TRX) with some “just for fun” money. XRP, XVG, and TRX can be had now for pennies on the dollar, so why not toss $50.00 in the ring and see what happens?

    I’m not sure there will ever be another coin that reaches Bitcoin highs, but I do strongly believe that there is a future for cryptocurrencies, and some of the others I’ve mentioned have some very interesting goals. XRP in particular is one that I’m very hopeful about.

    Maybe we haven’t totally missed the boat yet.

    • Let’s hope we haven’t completely missed the boat. I’ve put a small amount into altcoins as well. Again, nothing that I can’t handle a total loss in. Sorry, about the shady exchange, that’s one of the biggest fears of potential investors. Thanks for the input!

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