Early this year I bought $2,000 worth of Bitcoin. In this post I wanted to share with you my experience – why, I bought Bitcoin, how I bought Bitcoin, and what I learned through the process.
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What this post is not
It’s important that I start with what this post is not. It’s not an explanation of blockchain, how crypto currencies work, or the history of Bitcoin. There are a million YouTube videos that you can take a look at to cover that off.
It’s also certainly not me recommending that you buy Bitcoin or cryptocurrencies. I’ll get into why I did shortly, but the purpose of this post is simply to share with you the mechanics of how it happens, because I know from speaking to many people that the actual getting it done is a bit of a puzzle.
Why
So why did I want to buy some Bitcoin? My profession and my expertise is in advising people on building wealth and gaining choice. Some expertise can come from reading and research, but there’s no substitute for actually doing the thing yourself and experiencing how it works. In the investment world it’s not possible for me to personally undertake every investment option, but wherever I can, I try to get an early experience so that when I’m asked by a client for my thoughts I can speak with authentic knowledge. Now clearly, I’m far from an early adopter when it comes to cryptocurrencies. But I know that it’s not a mainstream investment at this point.
So the number one reason why I bought some Bitcoin was to learn how it all works first hand. The second reason though is that I’ve noticed it’s been gaining attention from increasingly influential and legitimate thinkers in the financial sector. I’ve got no idea whether Bitcoin will grow into something that has widespread acceptance or whether it will fade out into oblivion, but I certainly don’t discount the possibility that it could be here to stay, that it could be the modern-day equivalent of gold, a store of value that governments can’t simply create more of. I get the logic, I’m just not equipped to know whether the potential hyped by the crypto enthusiasts, will ever be a reality.
And so whilst the investment I made was small, and if it goes to zero it certainly won’t be life changing, I’m not someone who willingly flushes money down the toilet. I am hopeful that one day this investment does pay off. Time will tell.
The final reason why I bought Bitcoin is that I don’t want to be one of those crusty old buggers who dismisses anything new that comes along as rubbish because it’s either inconvenient for them, or it scares them. I like innovation and technology, and I want to participate wherever I can in new developments. I want to always have an open mind. Maybe crypto currencies will become an important thing in the coming years. I’ve got no idea. But I’m certainly not prepared to dismiss the possibility.
How
You can’t buy Bitcoin through your normal share market broker. At least in Australia, there’s no ETF that gives you coverage. I certainly looked, and had this option existed it’s something I would have done months if not years ago.
So the first thing I needed to do was open an account. After a little bit of Googling, I went with Coinspot, (includes affiliate link) primarily because they are an Australian based operation, and so I figured if something went wrong, I’d have a better chance of the authorities helping me than if I was dealing through a web site in Estonia or something. I haven’t done a whole lot of due diligence into Coinspot, so please don’t take this as any sort of endorsement, they were just the one I landed on.
The opening process was pretty simple, much like opening a bank account. I was able to do most of it online. I had to send ID separately, but it all went quite smoothly.
When I was ready to buy I transferred money from my bank account through regular internet banking, and it showed up in my Coinspot account within a minute or two. From there I placed an order very much like using a regular online broker to buy shares.
The next bit was the most interesting. With your online broker, your shares show up there, but they’re actually registered on the chess system. Now my very limited knowledge of cryptocurrencies is the equivalent here for Bitcoin is that my interest is registered on the blockchain. I don’t understand how that works but from what I read, and from Coinspot themselves, the recommendation was to not leave your Bitcoin in your Coinspot account. When you leave your Bitcoin in an online account, they call it a hot wallet, which means your Bitcoin is live and traceable online. The issue apparently is the potential for theft or fraud. The recommendation is instead to transfer your Bitcoin off the web and onto a USB connected dongle, about the size of a USB flash drive.
I ordered one of these on Amazon, it cost me about $100. It had quite a process to set up. One of the most interesting was that it provided you with a 24 word password. And you couldn’t choose those 24 words either, they are given to you, and you need to write them down. Through this mechanism if you’re dongle was ever stolen or got destroyed, apparently you can reclaim your Bitcoin provided you can reproduce this 24 word password. The flip side to that is that if you lose your dongle and you can’t recall your 24 word password then your Bitcoin is never accessible again. You’ve lost it forever. Quite incredible really. It’s hard to perceive of how a company like Tesla can put apparently 1.5 billion dollars into Bitcoin with confidence. But the fact that they can I guess implies confidence in the blockchain system.
So I set up my USB dongle, known as a cold wallet, and then I transferred my fraction of a Bitcoin from my Coinspot account onto it. That was a simple process, though i noted that Coinspot did skim a little bit off in the transfer which I thought was a bit cheeky given they already charged a fee when I purchased the Bitcoin.
I’ve put my cold wallet somewhere safe, and I’ve made a couple of copies of my 24 word password which are stored elsewhere. Importantly I was advised to have no electronic record of that password, so no photo of it, no storing it in Evernote or somewhere else. It’s a completely offline arrangement.
And that’s where things sit right now. My understanding is that if I wanted to sell or somehow use the Bitcoin, I simply plug in my cold wallet via a USB port, enter my details, and transfer the Bitcoin. Given how easy it was to get the Bitcoin onto my cold wallet, I’m anticipating that getting it off will be similarly easy. For now it’s just a digital safe.
Learnings
What have I learned through this process? Well firstly, buying was pretty easy. Certainly if you’ve had familiarity buying shares online, I don’t imagine buying Bitcoin will cause you too much difficulty.
Interestingly although a single Bitcoin is currently worth about AUD65,000. You can buy any fraction of Bitcoin that you want. So you could buy $100 worth if you like. The fact that you don’t have enough to buy a whole Bitcoin is no problem. That’s quite different to shares where you typically need to buy a whole share. Of course shares aren’t typically worth $65,000 each either.
I found the storing of the Bitcoin afterwards a bit painful to be honest. It would have been much easier to just leave them on the Coinspot website. But everything I read suggested that wasn’t wise, and given that a key part of me doing this was to learn as much as possible, I wanted to try the cold wallet and understand the process and how that worked.
It does concern me that if I got hit by a bus my family might never be able to recover this Bitcoin, even though I have explained it to my wife and told her where the key pieces are. It just all round feels less secure than a normal investment. The very fact that the platform through which you purchase them advises you not to store them in their platform doesn’t instil massive confidence. It seems like it relies on participants all around the world doing the right thing. There is no regulator or police to prevent someone with bad intentions taking advantage of others. The crypto lovers of course respond that the blockchain solves all this, but for me that feels like a bit of a black box that I just have to take on faith.
I’m glad to now own some Bitcoin and to have gone through this experience. Whether Bitcoin does indeed become an important part of our financial system or not, I don’t especially care one way or the other. But if it does, it’s nice to know I’ve got a tiny bit of it, and at least when somebody asks me, I can now talk with a small amount of knowledge and experience.
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