Many people lose money because it is easy to make mistakes when investing in bitcoin. For every bitcoin millionaire, there are hundreds of people who lose money on the cryptocurrency.
These people lose money because they make common mistakes. You can lessen your risk of losing your bitcoin by understanding how it works and using highly rated companies like Luno as bitcoin wallet.
Here are some common mistakes most people do:
Thinking you can use Bitcoin like government-issued money, or fiat currency
Many people consider bitcoin a kind of money. Most businesses, banks, and governments; however, do not consider bitcoin money, and refuse to accept it.
There are a handful of businesses, a few automatic teller machines (ATMs) and online merchants that accept Bitcoin. There are usually only one or two bitcoin ATMs in a large city, for instance.
Most businesses, peoples, banks, and institutions will not accept bitcoin because it is not government-issued. Private individuals create bitcoin; and most other cryptocurrencies, through a process called mining.
You must sell your bitcoin for fiat currency such as dollars; or Euros, to make most transactions. That process can be expensive and cumbersome.
Believing that Bitcoin is the only cryptocurrency or the most popular cryptocurrency
Bitcoin is just one of over 2,094 known cryptocurrencies. A cryptocurrency is an encrypted digital currency built from a kind of software they call the blockchain. There are so many altcoins because anybody can use the blockchain to create a cryptocurrency.
Bitcoin is the best-known cryptocurrency because it was the first known cryptocurrency. At one least one cryptocurrency; Tether (USDT), is more widely traded than bitcoin. Tether had a 24-Hour Market Volume of $20.533 billion on October 21, 2019.
Bitcoin had a 24-hour Market Volume of $16.809 billion on the same day. The Market Volume is an estimate of the number of trades in a day. Tether is more popular with traders because it theoretically pays transactions in United States dollars.
Bitcoin is still the most valuable cryptocurrency because it had a Market Capitalization of $147.84 billion on October 21, 2019. The Market Capitalization is the value of all the Bitcoin (BTC) in the market.
Many cryptocurrency experts consider other altcoins; such as Ethereum (ETH), Ripple (XRP), and EOS (EOS), superior to bitcoin because their technology is newer and more advanced. None of those cryptocurrencies has the value of bitcoin, however.
Thinking Bitcoin is secure, private, or safe
Bitcoin will not protect your money from all criminals. Instead, bitcoin will only keep your money safe from criminals that do not know how to steal cryptocurrency.
Bitcoin is an encrypted digital currency built from the blockchain or cryptocurrency. That means bitcoin is harder to crack and track, but not impossible to crack and track.
Smart criminals crack bitcoin’s security and steal bitcoins all the time. In 2014, hackers stole 840,000 bitcoins; worth $450 million, from the Mt. Gox Bitcoin Exchange in Japan, Big Think reports. In August 2016, hackers stole over 120,000 Bitcoins; worth $66 million, from the Bitfinex exchange.
Your money will probably be safer in a government-insured bank account than in bitcoin. In the United States, the Federal Deposit Insurance Corporation (FDIC) insures many bank deposits for up to $250,000 per depositor.
That means you will get your money back if hackers drain your bank account. Nobody insures cryptocurrencies; so, any funds you invest in bitcoin will disappear, if the bitcoins get lost or stolen. Ensure you use a trusted bitcoin wallet will plenty of positive reviews on the Apple or Android store, and make sure that the development team is responding to customer concerns in the comments.
Not realizing how long it takes to spend or sell Bitcoins
The most frustrating aspect of bitcoin is its lack of speed. It can take an hour to transfer a bitcoin. Exchanges like CoinBase can take several days to deposit the proceeds of bitcoin transactions in bank accounts.
Bitcoin is slow because of all the security measures and encryption they build into it. All the encryption limits the amount of data they can send through the bitcoin blockchain.
Many online merchants refuse to accept bitcoin because their payment apps could crash if they try to process over two or three bitcoin a second. The payment interfaces could crash because bitcoin is too large and complex to process quickly.
This means it will usually take two or three days to convert bitcoin into fiat currency. There you cannot spend the bitcoin right away, even at many cryptocurrency exchanges.
Putting money that you could need right away into Bitcoin
A major mistake ordinary people with limited incomes make is putting money they could need quickly in bitcoin. It is so slow that cash could not be available for emergencies – such as paying unexpected bills.
Bitcoin is often useless because it can take several days to cash it out. Therefore, putting money you know you can live without in bitcoin is a wise idea. It is still best to keep money that could need quickly in an investment account like a money market or a CD.
Bitcoin is an interesting piece of financial technology, but its limitations are far greater than most people realize. Only people who can afford to lose money should invest in bitcoin and other cryptocurrencies.