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Making Money with Bitcoin and Various Options

April 28, 2017 by: 0

With traditional stock, currency and commodities markets worldwide witnessing wild swings, investors are increasingly looking at the bitcoin as an alternative investment.
Buying and selling bitcoins may not be as easy as you would imagine: It requires a deep understanding of the digital currency market including proper knowledge of how and when to buy or sell.

How do you define bitcoin?

Before we look at the pros and cons of investing , let us understand what is a bitcoin. The bitcoin made its appearance in 2008. It is not a stock or currency but some governments and regulatory authorities consider it as a commodity.
For example, in September 2015, the Commodity Futures Trading Commission of the US declared bitcoin and other digital currencies to be commodities as falling under its purview.
Can I expect good returns on my investment in bitcoin?
As a commodity, bitcoin has shown a rather good performance in the market, giving investors high returns. For example, it offered 9.6 percent more return on investment (RO) as compared to coffee, 15 percent over soybeans and a whopping 13 percent as compared to crude.
Bitcoin returns were better than those offered by gold by about 6.7 percent, according to statistics from the US commodities markets. Bitcoin however enjoys the status of a currency but it is different from regular currencies. It is not issued by any bank or government and is not regulated by any authority.
Bitcoin
How do I invest in bitcoin?
Broadly speaking, there are two types of investments you can consider in the bitcoin market.
Bitcoin trading:
You can open a trading account with any reputed bitcoin exchange, buy bitcoins when the price is low and sell them when the price increases. This is similar to trading in other currencies. The amount you wish to invest depends upon your budget. Some bitcoin exchanges offer free advise for investors, which can prove useful to a beginner.
Bitcoin mining:
The other type of investment is on bitcoin mining. You may wish to consider this only if you have excellent knowledge about computers, software and the Internet. Investments in bitcoin mining tend to be heavy since it involves buying very powerful computers that consume large volumes of electricity.
The most common form of investing in bitcoin is trade in this digital currency.
Is bitcoin trade so simple?
No. It is very complex. First, you need to study the bitcoin market and watch the price variations closely. Remember that bitcoin has no collaterals like gold and derivatives. There is no regulatory authority which guarantees your bitcoin is worth cash.
At launch in 2009, a single bitcoin cost US$1 and today the rate swings between US$ 800 and US$1,100. So you should have considerable amount of cash for investing in the bitcoin for a better profit.
How do I buy bitcoins and at what rates?
As discussed earlier, the bitcoin has no fixed price. Rates can swing wildly too. You will need to contact a reputed bitcoin exchanges online to find the rates at which you can buy. You might come across an exchange willing to sell you bitcoins at lower rate.
But check out their credentials since there are instances where online bitcoin exchanges have vanished overnight after duping customers of their investments. You must get complete idea before buying your first bitcoin otherwise you will be in a big loss.
How do I own bitcoins?
Bitcoins are fully digital. Meaning you will not receive paper or metal currency that can be stored safely. Before buying bitcoins, you need to get yourself a bitcoin wallet from any reputed source. All bitcoins you buy should be stored in this electronic wallet only and never kept lying with the exchange or seller.
What are bitcoin wallets?
Storing bitcoins requires special wallets. There are several types of wallets you can consider. Bitcoin wallets can broadly be classified in two categories- hot wallets and cold wallets.
Hot wallets: They are connected to the Internet or is constantly online with the exchange house or the bitcoin trading channel. These are popular among people who own small number of bitcoins and are trading frequently
Cold wallet: Cold wallets are those which are offline but can be connected to the Internet or other online systems whenever required. These are ideal for storing large number of bitcoins since the chances of hacking or illegal access is reduced.
Which wallet is ideal for me?
You can choose to use a hot wallet or cold wallet to suit your specific needs. All wallets offer the hot and cold facilities. Wallets that you can choose include:
1. Desktop wallets: Such wallets are downloaded on PCs and laptops and work on different operating systems including Windows, Mac OD and Ubuntu. A desktop wallet can be connected to the Internet when required.
2. Mobile wallets: They can be downloaded on any smart phone that uses the Android, Blackberry and IOS systems. Mobile wallets have the QR code system which renders it more safer. Mobile wallets are also useful for making instant payments.
3. Online web wallets: These are provided by third parties and can be accessed only when you go online.
4. Physical wallets: Comes in form of a special hardware that stores bitcoins safely. The hardware can be connected to the Internet when desired. Access is through user names and passwords.
You need to be very cautious about which software wallet you download or use. Some scammers include malware – which is capable of stealing your access codes and bitcoins. Do not trust any software wallets from unknown sources.
How stable is the bitcoin trading market?
The bitcoin market is on an upward swing but far from stable. There can be days when a particular online casino or business house, exchange or individual may decide to sell their bitcoins for cash. The high supply and low demand will cause a drop in prices.
On other occasions you may see a high demand and low supply which can send bitcoin prices soaring. Even if you buy when the prices are low and sell when they rise, the profits can take days to come into your account due to various technical reasons.
How much tax do I pay on profits made on bitcoin trade?
Bitcoins offer complete anonymity to buyers and sellers. Meaning, nobody can know that you own bitcoins. All trade will occur on your digital identity and address generated by the bitcoin software. The high level of anonymity provides for tax evasion.
But various countries are aware of this loophole and are working towards taxing profits made by bitcoin trade too. You may wish to consult your taxman or nearest tax office to get full details.
Are there any commissions I pay for trading in bitcoins?
The bitcoin is an open source software that can be accessed by anyone who is suitably equipped. Since there are no regulators, you may decide upon the amount of commission or service charges you wish to pay when buying or selling bitcoins.
Or you may choose not to pay at all. One flaw is that bitcoin miners who assist the trade process, tend to prioritize transactions with high commissions or service fees. Thus, the speed of your transaction can depend upon what you are willing to part with for the service.
How do I earn bitcoins?
There are no free bitcoins to be earned. The only known manner by which you can earn bitcoins free is- if somebody gifts them to you or, by becoming part of the bitcoin trading chain. This means, you need to become a bitcoin miner.
Who can become a bitcoin miner?
Anyone with basic knowledge of computing can become a bitcoin miner but your skills and type of computers you use will decide your profits. Remember, the bitcoin trade chain, called as the blockline, is operated and maintained by individuals and groups or companies.
The price of bitcoin has risen exponentially over the years. Therefore more people are now involved in the bitcoin mining and blockline process than ever before.
What type of computers do I need to become a bitcoin miner?
This is a very complex question. It boils down to the amount of money you are willing to invest. Bitcoin mining computers are called ‘rigs’. You can either design your own bitcoin rig, have one assembled to suit your requirements and budget or buy one directly from any provider.
What are the basic specifications of a bitcoin rig?
Bitcoin mining depends upon your Graphics Processing Unit (GPU) rather than your Central Processing Unit (CPU). Because GPUs can solve complex mathematical algorithms more faster than CPUs. The faster you solve the algorithm, the more bitcoins you can earn. A list of good GPUs and other specifications for a basic mining rig can be found at Bitcoin or LiteCoin.

Any other requirements?
Yes. You should ensure uninterrupted power supply for your rig. Using a high power line, inverters and back-up power supply sources can also help. Typically, a basic mining rig will use two GPUs and your computing power should be around 1,000 W or higher.
Again, these sites will provide you more detailed specifications for a bitcoin rig. Bitcoin and other crypto-currencies operate on what is technically called the SHA-256 algorithm, which can be processed only by a GPU.
What about the software?
As with any other computer or your PC, laptop, all software, especially drivers for the graphics card, anti-virus and other software should be fully updated. You will need to provide adequate space on your hard drive to accommodate as many updates and complex software. You can either operate with Windows of MacOS, depending upon your budget and ease of use.
Any specific software that I need to download?

Yes. There are two main types of software which you will need to download, update and maintain on your rigs. These are special software for bitcoin mining. Some of these are:
• CGMiner
• Poclbm
• Phoenix Miner (Linux)
• DiabloMiner (MAC OSX)
You will require a wallet to store the bitcoins you earn as a miner.
Is bitcoin mining really profitable?
This depends upon your skills and the type of rig used. You can more details about profitability of bitcoin mining can be found at 99Bitcoins.
How much money can I make from bitcoin mining?
A bitcoin miner can earn an average US $500 per month provided mining is done in a completely dedicated manner. However, this amount can increase or decrease depending upon your power consumption and fluctuations in bitcoin trade during any part of the year or for any reason.
With more people entering the bitcoin mining industry, profits are dropping. You will also have to consider costs of power, expenses on maintaining and upgrading your bitcoin rig and other charges.
Is income from bitcoin mining taxable?
As discussed earlier, bitcoins provide a very high degree of anonymity to the user. Taxation policies defer according to geographical areas. You may wish to consult your taxman or get details from the nearest tax office.
Are there ways to increase profits?
Working in groups as bitcoin miners increases profitability but does not reduce your operating costs. The total number of new bitcoins earned by a group, are divided among its members. You can consider joining such a group.
A word of caution: Most groups of bitcoin miners operate online and there are no known means to detect their physical identity and location. Some scammers pose as mining groups and offer big profits. They vanish with your hard earned bitcoins, without a trace.

 
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