£100 of Bitcoins in two thousand ten would be worth £4.3million today – but can it proceed and how do you securely invest?

The comebacks are amazing – but is it safe? This is everything you need to know about Bitcoin and getting began at investing in “cryptocurrencies”

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  • 12:47, four AUG 2017
  • Updated 13:25, four AUG 2017
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Bitcoin was the very first, and is the most famous, of a fresh type of digital money. The plan was to make a form of currency not managed by governments or businesses, that you could trade globally with no cost and without having to expose your identity.

It’s an idea that took off. There are now more than eight hundred “cryptocurrencies” in existence, worth more than £75billion in total.

And their value has soared too – in two thousand eleven you could buy a Bitcoin for $11, they’re now worth $Two,755 each. That means if you’d put just £100 into the currency in two thousand ten (when you could buy Bitcoins for 5p – or less if you timed it right) they would be worth £Four.3million now.

But are they safe to put money in, can the growth proceed and how do you get involved?

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How Bitcoin and other cryptocurrencies work

The idea is plain at its core – use maths to create a unique, verifiable, line of code and write down who possesses it on a ledger.

You can then sell it to someone else, they can check it’s real and the ownership switch is also recorded.

People can also create fresh coins by solving mathematical problems on their computers, up to a total limit of 21million with Bitcoin, and sell them on.

The ledger, known as a blockchain, is public and anyone can get involved – either checking and recording transactions or looking for fresh coins.

Coins can be bought and traded on exchanges – or even at some ATMs – and stored on an exchange, your computer or even offline (known as cold storage) if you want more security.

Once a coin is assigned to someone (this is done through a digital address, which you are given a private key to, so your name isn’t recorded) it can’t be used by anyone else. That means a fair few coins have been lost over the years, after people misplaced their keys to them.

The problem with digital ‘currencies’

Normally, the value of a currency is backed up by a country’s central bank – or in the case of the euro, a entire host of countries’ central bank.

That means that while it’s not protected, and values can switch, there is at least someone responsible.

With crypto currencies there is nothing backing their value at all.

That means prices are based solely on what people think they’re worth, and if something undermines that belief they can go into freefall.

Earlier this year Ethereum – the 2nd thickest cryptocurrency after Bitcoin – witnessed its value collapse from $317 a coin to $0.1 a coin in a day. It bounced back, and is now trading at $225 a coin, but the lesson is there.

Put simply – if something were to go wrong, you’d have no support.

The 2nd issue is that Bitcoins are what is known by traders as a “fool’s asset”. Because – unlike investing in a house that can be rented out or a company that makes profits – the only way to make money from them is to find a “greater fool” than you who’ll pay an even higher price than you will.

But they’re far from alone in this, with everything from art, to wine, to stamps all falling into this category.

And so far, the general trend has been up – especially if you managed to pick one of the winners – with the price of Bitcoins more than doubling this year alone.

The real profits are in the smaller coins. Pick something that’s cheap now – like Bitcoin was in two thousand ten – and you can see massive comebacks. With Ethereum the price went from $8 a coin in January to almost $400 a coin this year, before ripping off back down to “just” $225 a coin at the time of writing.

And it’s far from alone – the price of NEM coins, Dash coins, Litecoins and more have all soared this year.

Would you ever invest in Bitcoin?

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Another issue

The news this week has been about the split in Bitcoin. Because you need to check crypto currencies and register transactions, that means whenever people transfer them – to either pay for something or just cash in on their current value – there’s a blocker.

The people doing the checking aren’t necessarily interested in your transaction – and might be keen to keep prices high if they’re holding onto Bitcoins themselves.

Additionally, cryptocurrencies are generally designed to be open – so have certain aspects baked into them. In the case of Bitcoin, only one megabyte of fresh information can be added to the official register every ten minutes.

However, the people using them to buy something are keen for transactions to go through prompt.

Essentially, the people mining Bitcoin were at odds with the people using them and there were fears that this could cause large problem down the line.

That led to a split this week – with the fresh “Bitcoin Cash” launched for people who want quicker transactions. In just a day the fresh currency became the third-biggest cryptocurrency – albeit it has now slipped to fourth – with more than £4billion worth of the fresh coin in circulation.

The budge to the fresh currency has gone well so far, but it exposes a weakness in the system – where the people using the currencies to buy something are reliant on an entirely different group of people to make that exchange official.

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I’m still interested – how do I get involved securely?

For people wanting to test the water – or even dive straight in – we determined to speak to the experts to get some help.

“I’ve been involved for two years now, and we have seen explosive growth in these currencies, along with tremendous volatility,” said David Siegel, and internet pioneer and founder of blockchain innovation community 20|30 .

He thinks that the future is bright for crypto currencies, but it will be a bumpy rail along the way. Here are his ten rules for investing in them:

Put a puny amount of money, like $100, into an exchange account. Use a reputable exchange like Lykke , Coinbase , Kraken , etc.

Buy some cryptocurrencies to learn about them.

Go to YouTube and witness movies on crypto-investing, cold storage, security, talks at latest events, etc.

Dedicate no more than 10% of your entire investment portfolio to crypto-investments.

Diversify! Plan to buy at least ten coins/tokens. Learn about index investing at www.tokenfactory.io .

Carve out about one third of your money. Put this third into Bitcoin, third into ether, and one third into 3-5 other coins/tokens you like.

Wait and witness. The volatility will almost certainly present buying opportunities.

Work your way into your portfolio over time. If prices go down, buy more. Plan to be fully invested within 12-24 months.

After you buy, put your coins into cold storage . Don’t trade. Buy and hold for the long run.

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