SO YOU’VE finally decided to buy bitcoin — join the queue.
As the price of the red-hot cryptocurrency continues to march inexorably higher, most of us are sitting around wishing we’d bought some a year or even a week ago.
Assuming bitcoin isn’t about to crash — and that’s a big assumption — and the fear of missing out has finally gotten too much, what exactly do you do?
“The most popular way is to find an online exchange, where you would then need to register, create an account and upload 100 points of ID,” said Martin Davidson, co-founder of the Melbourne-based not-for-profit Blockchain Centre.
“You then transfer Australian dollars to your exchange account, and you’ll be able to buy bitcoin or any of the cryptocurrencies on that exchange.”
The most commonly recommended and largest exchange is CoinBase, based in San Francisco, but the site has been slammed by “unprecedented” traffic and new account sign-ups causing error messages, login problems and even a temporary outage on Friday.
Mr Davidson said there were better locally based options including Australia Crypto Exchange, CoinJar, CoinTree, Independent Reserve and BTC Markets.
Each exchange charges slightly different fees, with some charging per trade and others taking a percentage when you cash out.
“These are some of the most reputable exchanges that have been around for a few years, they’re members of local industry groups, the standards are known and they offer high-quality service,” he said.
“I would advise people to use those providers first before going to any of the overseas options and sending their money internationally.”
Once you’ve signed up and taken the plunge, the exchange will then create a “crypto wallet”, the virtual address which exists on the blockchain and holds your bitcoin.
Each wallet has a public address, like a bank account number, and unique private cryptographic key, sort of like your PIN.
If you lose your key, your bitcoin is gone forever.
While the exchanges listed above are reputable, there is always the possibility they could be hacked — and they have no insurance — so it’s not a good idea to leave your crypto on an exchange platform.
Once you’ve bought your bitcoin — or more realistically, fraction of a bitcoin — Mr Davidson recommends moving it to a mobile wallet app like Airbitz, or for extra security using an offline “hardware” wallet like the Trezor.
Due to limitations of the network, transferring bitcoin between wallets is not instant — it can take anything between 10 minutes to an hour — but you can monitor all blockchain transactions in real-time by going to Blockchain.info and pasting in the address you’re sending to or from.
“Bitcoins can be divided to eight decimal places, so you can have a 100-millionth of a bitcoin,” Mr Davidson said.
“One bitcoin can be made up of several smaller transactions, each having their own private key attached to the different wallets.”
Mr Davidson said it was important to remember that despite the vast amounts of money pouring into bitcoin and other cryptocurrencies, it was experimental technology and the future price was “in no way guaranteed”.
But he pointed out that it was “not just the crazies, crooks and drug dealers” who were backing the currency, with the likes of Richard Branson, the Winklevoss twins and Silicon Valley venture capitalist Tim Draper — who bought $US30 million worth of seized Silk Road bitcoin in a US government auction when the price was $US500 — all seeing the long-term potential.
“It’s not like stocks where you determine the value based on annual sales,” he said.
“The potential for cryptocurrencies’ future value is unbounded, because potentially every man, woman and child that has access to the internet can also use crypto.”
Meanwhile, another day brings another raft of dire bitcoin warnings.
In its latest “Outrageous Predictions” report, SaxoBank has tipped bitcoin to peak in 2018 above $US60,000 with a market capitalisation of over $US1 trillion, led by a “groundswell” of activity off the back of the Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME) launching futures trading this month.
Bitcoin futures, which will allow investors to bet on the rise or fall of the currency, will add a layer of regulatory oversight and allow larger institutional investors to begin pouring money into the sector.
But in SaxoBank’s scenario, bitcoin before long “finds the rug torn out from under it” by Russia and China moving to “deftly sideline and even prohibit non-sanctioned cryptocurrencies domestically”.
“Russia officially enters the cryptocurrency mining space to influence protocol developments and shift the focus away from bitcoin in an effort to keep more Russian capital onshore,” SaxoBank analysts write.
“China makes a similar move, cracking down on cryptocurrencies by banning the mining of the most popular ones within China, citing energy waste and environmental concerns, but likewise fearing the risk of bitcoin as a vehicle for capital flight.
“Instead, China launches an officially backed cryptocurrency that entails less energy-intensive mining.
“The smoother functioning of the state-run protocols for actual payments and price stability, as well as the heavy hand of state intervention, drives a decreasing interest in all cryptocurrencies and completely sidelines the bitcoin and crypto phenomenon from a price speculation angle even as the technological promise of the blockchain gallops on.”
“After its spectacular peak in 2018, bitcoin crashes and limps into 2019 close to its fundamental ‘production cost’ of $US1000,” SaxoBank warns.
It came as Royal Bank of Scotland governor Sir Howard Davis joined the anti-bitcoin chorus.
“Put up the sign from Dante’s Inferno — ‘Abandon hope all ye who enter here’ — I think that’s probably what’s needed,” he told Bloomberg TV.
He argued the Bank of England should co-ordinate with the US Federal Reserve, the Securities and Exchange Commission and the European Central Bank to tackle the problem, arguing bitcoin futures were a bad idea.
“I’m not quite sure that [the exchanges] know enough about what [bitcoin] is,” he said, adding it would be “a very risky move in reputational terms”.