How to Buy and Store Bitcoin

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Following my previous post on investing in Bitcoin, here are a few pointers on how to go about actually buying it if you have decided to do so. Obviously this is not investment advice, it’s meant as a practical guide:

Firstly, beware! Cryptocurrency is still relatively new and it is not well regulated. Scams abound and many people have seen their hard-earned money disappear simply from choosing the wrong place to buy and store it. Make sure you do your research!

Buying Bitcoin

The easiest way to purchase Bitcoin is to open an account with a reputable Bitcoin exchange. If you are expecting to be able to do this nearly anonymously and with a minimum of ID documentation, I’m sorry to disappoint you. You will need to submit a copy of your ID, passport is the usual but other government issued ID’s will work, and a copy of a utility bill or bank statement to prove your residential address. If you live in Japan and are using an exchange outside Japan, then this document will need to be in English. Although paper statements are a little old fashioned, I recommend having your bank at home send you one every quarter so you have an English proof of address available. You will need it for pretty much any international financial transaction these days.

If you are looking for an exchange in Japan, Bitflier seems to be the largest.

If you prefer to buy your coins overseas, then some of the well known exchanges that will accept residents in Japan and other parts of Asia are Kraken, Gemini, and Xapo. I was recommended Bitstamp as a popular European exchange but they took two weeks to “review” my application and then came back and said they hadn’t received the documents I had uploaded…

Buy Bitcoin Worldwide is a useful resource for finding exchanges in your country, along with a list of pros and cons for each exchange.

If you are looking to invest over $20,000 then Genesis Trading has a well connected OTC desk.

Storing Bitcoin Securely

It is not advisable to leave your Bitcoins sitting on the exchange after purchasing them. Although security is improving, almost none of them are insured against theft and hacks still happen fairly regularly. Online wallets are convenient for shopping with Bitcoin but they are also not a safe place to store your coins.

I stored mine with Xapo, whose vault service is currently free of charge. They store their private keys in multi-signature form in vaults in Asia, the United States and South America.

Hardcore Bitcoin enthusiasts will tell you to keep your private keys completely offline. Probably the most popular hardware wallet is the Trezor device. With this device a pin code gives you access to your coins, and if you lose it you can regenerate your wallet using the 24 word recovery code.

If you don’t trust any storage solution that can be plugged into a computer, or are looking for a near indestructible back up for your hardware wallet then take a look at Cryptosteel.

I hope this is useful. The prospects for Bitcoin going forward are certainly exciting, but as I’m sure you are aware, the potential upside comes with significant risk. Don’t invest more than you can afford to lose is still the number one rule.

 

 

 

Bitcoin – a worthy investment?

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“All I ever seem to hear about these days is Bitcoin.”

Someone said this to me the other day and I had to agree. Particularly in Japan, after Bitcoin was recognised as a legal payment method 3 months ago, resulting in a huge spike in trading, not to mention in price. So, if you’re sick of hearing about Bitcoin I apologise, but it’s hard to ignore it when discussing money and investments these days.

The purpose of this post is to consider Bitcoin, or other cryptocurrency, from a longer term investment perspective. Firstly, cryptocurrency is obviously a satellite holding. If you don’t understand what I mean by that, you may want to check out this post on Core vs Satellite.

As by far the dominant digital currency, there is incredible potential for Bitcoin technology to compete with existing infrastructure such as:

  • $2 trillion annual market for electronic payments
  • $1 trillion annual e-commerce market
  • $514 billion annual remittance market
  • $7 trillion gold market
  • $4.5 trillion cash market
  • $16.7 trillion offshore deposit market

There are also some significant risks associated with Bitcoin. The four most prominent being:

  • a better digital currency emerging and stealing the market lead
  • an undetected bug in the system
  • a hard fork (when some nodes in the network upgrade to software that is incompatible with previous versions) causing the Bitcoin payment network to split in two
  • a sustained attack by an organisation with substantial financial resources (e.g. a government)

Bitcoin enthusiasts have rebuttals for each of these risks, but they have to be taken seriously. That said, there is no sign of Bitcoin going away any time soon. If you think the potential upside is worth the risk, here are some simple investment guidelines:

  • Start with Bitcoin rather than other, less prominent cryptocurrencies
  • Don’t invest more than you can afford to lose. 1-2% of your total assets is a good guide.
  • Expect volatility – even people used to stock market volatility will find this a rollercoaster. Don’t invest if it’s going to prevent you sleeping at night.
  • Plan to hold for the long term
  • Consider dollar cost averaging to begin with
  • Study up on how to store your Bitcoins safely – don’t leave them sitting on an exchange
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