Become Rich with Bitcoin? 3 Tips for Making Money

Cryptocurrency such as Bitcoin is booming and it is clear that a lot of money can be earned. Microsoft and Goldman Sachs invest in it and Putin seem to embrace the concept. That is why on this page the most important earnings strategies: investing (buy-and-hold), active action and mines.

What is Bitcoin?
Cryptocurrencies (also called cryptocurrencies, cryptos or simply coins) are cryptography-based digital coins. The first and best known is Bitcoin, but there are now many alternative coins (called 'altcoins'). Most altcoins focus on a specific niche or claim to be better than Bitcoin in certain ways, and try to derive their right to exist.

What all cryptocurrency has in common is that they are based on cryptography. These are digital encryption techniques that make it possible for crypto coins to have the following properties: money cannot be taken away or stolen, no inflation, full anonymity, and no transaction costs. Some people think that cryptocurrency might become more popular than traditional currencies such as the euro or dollar because of these properties.

As with traditional currencies, the value of a crypto coin is largely based on confidence in supply and demand: trust that in the future you can also exchange your money for (other things of) value. Many cryptocurrencies still have a long way to go, buying something in the store with Bitcoin is almost impossible. The main reason for many people to buy coins now is purely speculative; these people have the hope and/or expectation that cryptos can become even more valuable in the future.

Why do the prices soar?
If you think that a certain coin will be used more in the future, purchasing that coin is already interesting. Higher future demand means (if the coin cannot be printed on) that the future price will also be higher. What makes coins special is that the difference between current and future demand is potentially enormous. And in that case, the potential return is also enormous.

Because imagine that Bitcoin would be the most important world currency ever. Estimates are that currently, less than 1 in 2000 people have Bitcoins and in almost all of these cases, these people still have a much larger share of their assets in traditional currencies. If Bitcoin ever really became the most important world currency, then the price of 1 Bitcoin cannot be put aside at tens of millions of euros or dollars per coin. (1 Bitcoin can be divided into one hundred million pieces [called 'Satoshis'], so that does not mean you can not buy Bitcoin if you're not a millionaire)

Make money from crypto coins?
There are many ways to take part in the success of cryptocurrency. The most important ones are explained below. Note that all these methods are risky. If a coin turns out to be a bubble or something goes wrong technically you can lose all your money. Even if it seems more likely that you will regret over 5 years from not investing now, never invest money that you can not really miss.

METHOD 1: Investing (buy-and-hold)
Where Bitcoin was put away as a temporary hype several years ago, Bitcoin and altcoins now seem to stay here. Time and again it was said that Bitcoin is a bubble doomed to crash, but time after time it also turned out that investing in the long term still yields a lot. Yes, Bitcoin and certainly the many altcoins are volatile (which means that the price fluctuates strongly), but especially bitcoin has only gone up in the longer term.

The least risky way to try to profit from further success is to buy coins that you believe in and then keep on. In English, 'Buy and hold'. Buying and then just not looking back for a few more years. If the price should decline in the short term, do not panic but rely on your expectation that the long-term price will turn out higher than your purchase price.

Arguments why cryptocurrency may well rise a lot further:

Blockchain would now be in the same phase as the internet in the early 90s.
Gurus predict that Bitcoin's price can go to € 500,000 per coin.
Even companies like Goldman Sachs and Microsoft invest in Bitcoin and altcoins.
Technical problems (eg limited transaction volumes) can be resolved by software updates. ('forks' in the cryptocurrency world)
Where previously it was thought that the US or central banks would block growth, the opposite seems true: many countries (including China and Russia ) are embracing Bitcoin. Perhaps to create a new world currency as an alternative to the dollar, and thus limit the power of the US?
If you want to buy Bitcoin, do it best with Coinbase. The transaction costs are the lowest and you get $ 10 of free Bitcoin as soon as you have bought Bitcoin (or altcoins) for $ 100. More information about buying Bitcoin at Coinbase and the transaction costs can be found under the orange "Extra explanation" button at the top of this page on the left.

Disadvantages of Coinbase are that the site is in English, you have to verify your identity before you can buy coins, you can not pay with iDeal and you can only buy a limited number of altcoins. All disadvantages that do not apply to the Dutch Litebit. A disadvantage of Life bit, however, is that the transaction costs are much higher than at Coinbase.

After you have bought coins at Coinbase (or Lite bit), it is advisable to transfer your coins to your own wallet. The risk of having the coins on a platform like Coinbase is that such a platform can be hacked and that the hackers could take off with your coins. (That happened in 2014 at the 'Mt Gox' exchange.) By transferring the coins to your own wallet, you have full control over it and make the most of the cryptocurrency advantage that coins can not be taken away. On bitcoin.org you can find links to reliable Bitcoin wallets.

METHOD 2: Acting actively
Bitcoin and other cryptos are very volatile and that offers some potentials for active traders. If you want to earn money from rising and falling prices with active trading then eToro is a better choice than Coinbase. Advantages of eToro are that they accept Paypal and the transaction costs are even lower than with Coinbase (especially with active trading, every 0.01% can ultimately make a big difference).

Another advantage of eToro is the possibility to participate in 'copy trading'. That means you can earn extra money if other traders copy your strategy. More information about this can be found on the copy trading page.

The disadvantage of eToro is that you can not trade in real Bitcoin but you actually act in financial contracts that represent the value of Bitcoin's price on the world market. If the real Bitcoin increases in value, the value of those contracts rises exactly as much and with decreases also. This construction is advantageous if you want to trade actively because it makes faster and cheaper transactions possible. For a 'buy and hold' strategy, however, you are better off with 'real' Bitcoin bought via Coinbase or Litebit.

METHOD 3: Minus
The cryptography technique that most coins use is 'blockchain', which means in short that all rules for the completion of transactions and all transactions that have taken place since the establishment of the coin are all public and are shared by many computers at the same time. As a result, there is no need for a 'central bank', but crypto-currency is considered very safe. (as long as no one owns more than 50% of the participating computers;)

A fundamental part of Bitcoin blockchain technology is the concept of 'mines'. Mine refers to the cryptographic calculations that the participating computers have to solve in order to validate transactions and check each other. Because that requires a lot of computing power and the people who do so also have additional (electricity) costs, the miners are rewarded for their work: with small fees for the controlled transactions and with new coins that are slowly added to the system (until the maximum of 21 million Bitcoin has been reached, expected to be somewhere in 2140).

Although a lot of people here in the Netherlands have earned a lot of bitcoin with mines is the problem that it is technically complex and the amount of profit you can make by the day is smaller. Reasons for this are that the calculations are gradually becoming more complex and the number of Bitcoin that can still be 'freely' mined is getting smaller. As a result, with the passage of time, the costs are increasing, the yields are getting smaller and you now even need optimized special hardware, where you used to be able to make a profit with an ordinary home-garden-and-kitchen computer.

An alternative to buying hardware yourself is provided by Genesis Mining. There you can lease professional mining hardware capacity. You do not have to buy hardware yourself and also do not have to pay Dutch electricity prices. Again, however, this does not seem to be as profitable as it used to be.

Our general conclusion is that in the Netherlands we can not compete with the much cheaper electricity in China and the concept is so complex that it is not advisable as a business model for the ordinary layman.