Over the last few years, you probably have heard of Bitcoin more than once. Bitcoin became widely known in 2017 when the price for one coin soared to $20,000. Since then, its price has come down considerably, but its epic bull run in the past has made many people start to think about way to make money with Bitcoin.
In this article, we will examine more about Bitcoin itself, its history, and how you can make money with Bitcoin.
Overview of Bitcoin
Bitcoin is a cryptocurrency that was created in 2008 by an anonymous person calling themselves Satoshi Nakamoto. The actual identity of Satoshi is still unknown, though a few people have claimed to be this person in the past.
Bitcoin was first introduced as a peer-to-peer digital currency that was not controlled by any government or central bank. Bitcoin is based on blockchain technology, which very basically is a technology for recording information in such a way that it is extremely difficult to hack or change retroactively. We won’t go into the details about blockchain in this article, but if you would like to learn more you can visit IBM’s blockchain page. For this article, you just need to know that blockchain was (and largely still is) an innovative new technology that offers many benefits for security in an increasingly digital world. In theory, this means that Bitcoin is much harder to steal than most money, which can be physically stolen from a bank or which can be stolen if someone gets your bank account information.
Bitcoin Original Idea vs Bitcoin Reality
When Bitcoin was created, the central idea was to create a brand-new currency that could be used like the Euro or the US Dollar. However, in practice Bitcoin has not been widely adopted as a new currency. Most people still value Bitcoin only by what they can exchange it for in government-back currencies, and few companies accept Bitcoin as a form of payment. In fact, in 2018 a Bitcoin conference stopped accepting Bitcoin as payment due to challenges with the currency.
Basically, Bitcoin is being treated by most people like any other security to be bought, sold, and traded. This is similar to stocks and commodities, which are also traded globally and valued by their price in government-backed currencies.
How Do People Make Money With Bitcoin?
So, if Bitcoin is not fulfilling its original purpose of being a new currency, how can you make money with Bitcoin? Well, in the same way that people make money trading stock or any other securities: by profiting from price changes.
In other words, you can make money with Bitcoin by ‘buying low and selling high’. Or, in more official terms, price arbitrage.
Making money with Bitcoin is dependent on the price of the currency changing enough for you to find an opportunity to buy and sell. With Bitcoin, that’s not too much to ask. The price of Bitcoin has ranged hugely over the past few years, from a low of under $1,000 to as high as $20,000. The basic idea is that you buy Bitcoin at a certain price, and then sell it when the price has increased. With so much volatility in the Bitcoin market, some people are able to profit in just a few hours.
Risks of Bitcoin
While this might sound very simple – and indeed ‘buy low sell high’ is one of the oldest ways to make money – it is not all that easy. There are still many risks when trying to make money from Bitcoin.
While it is true that many people make a fortune during 2017 when Bitcoin rose exponentially, many more people lost money when the price fell from $20,000. In fact, just a few days after its peak of $20,000 on December 17, 2017, Bitcoin lost almost 35% of its value to end 2017 at just $13,000. In 2018, Bitcoin dropped even further from $10,000 to just over $3,500 at the end of the year. Conversely, in 2019 Bitcoin almost tripled in value from $3,500 to over $10,000.
All this data shows that there have been some amazing opportunities to make money from Bitcoin, but there have also been many opportunities to lose money. One thing that is important to always remember is that the success stories get talked about a lot more than the failures, so you cannot see success stories at representative of everyone’s experiences.
Making Money With Other Cryptocurrencies
If you are interested in making money from Bitcoin, you should also take a look at some other cryptocurrencies. In fact, some other cryptocurrencies have actually had a better return than Bitcoin. For example, Ethereum has risen from about $2.31 in 2016 to over $180 at the start of 2020, a return of over 7,600%!
You can find a list of other cryptocurrencies here. As you will see from this list, you have literally thousands of options for buying cryptocurrencies.
Buying Bitcoin Is Not Investing
So, as you can see there is definitely the possibility to make money with Bitcoin – but it is risky. The most important thing to keep in mind is that making money from bitcoin is a form of speculation. Just like betting the price of gold or silver will increase, trying to make money from Bitcoin is speculating that the price will go up. This is not to say it’s a bad idea – many people have found success in speculating on gold, silver, and Bitcoin. However, it is important to realize what you are doing is speculation and not investing. Whatever money you but into Bitcoin, it should not be more than you are willing and able to risk losing.