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An Introductory Guide to Bitcoin: Part 3

22/01/2018


​​After reading part 1 and part 2, hopefully you have developed a clearer understanding of what bitcoin is and why it continues to be so exciting, yet so controversial – at least on a high level. If you decide to engage in a riveting conversation about cryptocurrencies, we hope we’ve provided enough background to weigh in with some insightful commentary while thoughtfully considering alternative point of view. At the very least, we hope we’ve sparked your interest enough to begin considering whether this brave new world is worth further exploration.

Taking the Plunge

After weighing the pros and cons, maybe you’ve decided the only way you can truly understand bitcoin is to get involved yourself. Now you’re wondering how to do that. We will conclude this series by explaining how you can get started – including some best practices to consider and common pitfalls to avoid.

Considering the potential risks and rewards, choosing whether to invest in bitcoin (or other cryptocurrencies) is a very personal decision. The following information is far from exhaustive and is intended only to help you start. Should you choose to become more intensely involved in the cryptocurrency space, we recommend you speak with a financial professional who can help you make the best decisions given your investment goals and risk tolerance.

Bitcoin for Beginners

Like trading on the stock market for the first time or learning a new hobby, expect a steep learning curve at first as you become familiar with the new language of cryptocurrencies, the online tools and resources and the other many nuances of getting involved.

Buy a Wallet: The first step to getting started with bitcoin is to get yourself a safe wallet – a digital repository where your cryptocurrency will be stored. It is advisable to purchase an offline version to protect your funds against hacking, viruses or computer failure. Though there are hundreds of options on the market, a popular option is Trezor​.

Trading Units: You might be thinking to yourself, “bitcoin is currently trading over $10,000 CAD, I can’t afford that.” But just as currencies such as dollars also break down into smaller increments (cents), bitcoin and other cryptocurrencies also have smaller denominations you can buy. In the case of bitcoin these are called “satoshis”, or one one-hundred-millionth of a bitcoin. You can buy anything from a single satoshi to multiple bitcoins per transaction, depending on your finances and how heavily invested you want to become.

Now you have your wallet and know how much you want to buy. The next step is to decide how you will acquire your bitcoin. There are currently three ways to do this. The method you choose will depend heavily on your time, risk tolerance and resources at your disposal.

Mine It: This requires a great deal of computing power and the ability to solve complex math problems. Effectively, you would be approving existing bitcoin transactions within the blockchain (the public ledger and driving force behind cryptocurrencies) and be compensated with bitcoin payment for your contribution to the collective market. In most cases, this is impractical for the average user as it is extremely resource intensive and requires specialized hardware. There are ‘mining pools’ that individuals can invest in to share the cost and split mining rewards for those that want to mine but can’t afford to go it alone.

Coin Exchange: The most direct way to acquire bitcoin is to purchase directly from an online exchange such as Coinsquare or QuadrigaCx (both suited for Canadian investors). You can link your bank account directly to the site and convert Canadian dollars into bitcoin (or several other cryptocurrencies) easily within minutes.

Invest: Finally, you can invest in a bitcoin fund, managed by professional investment broker, or through futures contracts which have just recently been introduced. Just like you would purchase traditional investment products, you set up an account with a broker and transfer money so that they purchase and sell bitcoin on your behalf.

This article and the previous part 1​ and part 2 of this series are intended as a basic introduction to bitcoin and other cryptocurrency offerings for businesses and individuals new to this space. All explanations are high level and non-technical in nature. A series of more technical articles will soon be available on MNP.ca.

For further information about bitcoin and other cryptocurrencies or to arrange a Lunch and Learn session for your team, contact Brian Beveridge, Partner, Technology Solutions at 204.775.4531 or [email protected].