Making Profit with Bitcoin: The Definitive Guide [2020]
Ways of making profit with Bitcoin have been growing in size since the launch of this revolutionary digital currency over a decade ago.
In the earliest times of the life of Bitcoin, there were a relatively limited number of options, but today, as the market has grown and the number of people involved in cryptocurrency continues to grow exponentially, there are more options than every for how to make money with the world’s #1 cryptocurrency.
While some of these methods are quite simple, others require knowledge and resources in order to execute, and are not suitable for every, but for those it does suit they can be extremely profitable.
So with this we’re going to take a look at what Bitcoin actually is, including how it was created and how it works, then we’ll be taking a closer look at what Bitcoin Trading, Bitcoin Investment, and Bitcoin Mining are, and the type of person that they suit.
What is Bitcoin?
How was Bitcoin Created?
Bitcoin is the most famous cryptocurrency in the world today, as well as being the first to be ever created, and the largest by prices and total value.
Bitcoin was created in 2008 when an anonymous group of individual called “Satoshi Nakamoto” released a document known as the Bitcoin Whitepaper, which outlined the concept of creating a new type of digital currency that they name “cryptocurrency”, as well as the first cryptocurrency they would create, “Bitcoin”, and a new technology to allow cryptocurrencies to function called “blockchain”.
Nakamoto released the Bitcoin Whitepaper in late 2008, and then in early 2009 the Bitcoin blockchain started with the mining of the first block in the Bitcoin blockchain, known as the Genesis block.
From that time onwards, Bitcoin has produced a block every 10 minutes on average, and has progressively handled more and more transactions and a higher amount of value transmitted by the network every day.
How Does Bitcoin Work?
Bitcoin is a type of cryptocurrency, and while all cryptocurrencies don’t use blockchain to function, the vast majority do, and it was the factor that made cryptocurrencies both as successful as they’ve been, as well as providing the way for them to operate at all.
Blockchain is a technology that acts as a digital ledger of transfers, for cryptocurrency, but is also being used in dozens of different industries such as banking and finance, supply chain management, and online retail in order to create sharable networks of value transfer, as well as data management systems that are secure and immutable.
Blockchains can be either public or private, with Bitcoin being an example of a public blockchain — one everyone can access, and a network between banks to allow them to settle interbank transfers being an example of a private blockchain — with only the banks that have permission being allowed to access the network.
Blockchains are simple data structures, but ones that use a range of different mechanisms to allow for some pretty important benefits.
Blockchains are comprised of a group of temporally-organised (time-based) blocks of data, that are linked in a chain — hence “blockchain”, and the way they are linked is using cryptography — hence for currencies using blockchains, they are called “cryptocurrencies”.
Each block is hashed using something called a hashing algorithm, turning any text into a string of letters and numbers of a certain length that is unique to the text input.
The “hash” is then stored in the next block in the blockchain, along with all of the transactions records of that block. What this means is that if the previous block is edited by anyone, the hash that is produced will be different to the one that is stored in the next block — showing that someone is trying to corrupt the blockchain.
Because this mechanism is in place for all blocks and their preceding blocks, it means that if any previous block is changed, it will create a chain reaction throughout the blockchain with the final hash being different if any of the previous hashes is different — protecting the entire blockchain from counterfeiting.
Why Does Bitcoin Have Value?
But why is this even important?
It’s important because mechanisms like this and others are processes that are normally provided by a bank or a payment processor.
We trust a bank to know which transactions are valid, and if someone tries to steal our money that is stored in the bank, the bank will give it back to us if we lose it.
It’s their responsibility, and they manage the entire value and information system in a centralized way — they are the central nexus of all trade that moves through them and they have central control.
In a highly revolutionary way, cryptocurrencies created a system for the first time where blockchain could replace the role of a bank. An algorithm that is running completely autonomously could do what Paypal or Western Union was doing, except that the algorithm is 100% publicly viewable and transparent.
As well as this huge advantage over using centralized systems, many cryptocurrencies are much faster than a lot of banks and payment processors with regards to international transfers, and sometimes domestic payments as well.
On top of this, cryptocurrencies are generally very cheap to use, with transfers of hundreds of millions of dollars of Bitcoin famously costing $375.
Cryptocurrencies allow users to have complete control over their funds, and provide cheap and fast ways to transfer value to anyone in the world.
Bitcoin Trading
What is Bitcoin Trading
Bitcoin trading is the process of creating strategies that employ a cycle of repeated Bitcoin buy and sell cycles in order to generate profit overall.
My far, trading Bitcoin is the most common way that people globally are using it today with there being millions of Bitcoin traders and hundreds of Bitcoin trading platforms.
Bitcoin traders develop strategies that consist of purchases at the opening of positions and then the closing of positions at later points in time.
Open positions can be longs or shorts, with the difference being that longs generate profit when the price increases and shorts generate profit when the price decreases.
Traders will use one of more trading platforms to access cryptocurrency markets. These trading platforms are places where many traders come to try to generate profit from Bitcoin and other cryptocurrencies.
Where are the Best Places to Trade Bitcoin?
PrimeXBT
PrimeXBT is the world’s largest multi-asset margin trading platform and throughout the past few years this platform has grown faster than any other to go from launching to handling up to $950 million per day in trades.
Unlike many other platforms, PrimeXBT provides access to both the cryptocurrency market, and traditional markets around the world with leverage of up to 100x on all cryptocurrencies and leverage of up to 500x on assets like metals, commodities, forex pairs and stock indices.
The platform is known for having excellent security, with a wide range of advanced security features ensuring that throughout its life PrimeXBT has never been hacked or breached at all by hackers and malicious actors.
There are many options for profiting at PrimeXBT, including trading and investing on the platform, but also taking part in their 4-tier referral program that has netted the top 3 participants more than $1 million in 2019.
PrimeXBT also keeps its fees low, at just 0.05% on all trades. This is substantially lower than much of the rest of the market, and even the other platforms on our list, with Binance being up to 10x more expensive for example.
Binance
Binance is one of the most well-known cryptocurrency exchanges on the market, and over the years they have built their exposure using a combination of their native token, BNB, as well as the extensive use of social media by their CEO.
Binance provides an easy to use interface for trading, and a wide range of cryptoassets to select from, ensuring that all traders can get signed up and engage with crypto markets quickly.
Binance does have some questions to answer regarding their security following the hack of $40 million from the platform in early 2019 by hackers, and although there have been upgrades made its unsure whether this could happen again.
Binance has positioned itself as a crypto-only trading platform, avoid fiat trading until recently and requiring traders to already have cryptocurrency to trade onto their platform.
Kraken
Kraken is one of the oldest platforms in the crypto market that are still functioning, and unlike Binance, Kraken has a very good reputation for their security.
Mt.Gox was at one point the largest cryptocurrency exchange in the world, handling up to 70% of all Bitcoin trades. In 2014 the exchange collapsed after being hacked for hundreds of millions of dollar of Bitcoin, and two of the analysts brought in to look at Mt.Gox’s security after the implosion went on to launch Kraken together.
Because of this Kraken has never been hacked over its long lifespan, and this is something the platform proudly touts.
Kraken did deal with many issues surrounding their trading engine until recently, with traders complaining that in busy trading periods that they were unable to make a trade or cancel open trades.
This largely seems to have been handled now, and Kraken is a good option for trading at.
Who Does Bitcoin Trading Suit?
Bitcoin trading suits those people who can detach their emotions and think logically about situations, because the potential for winning and losing large amounts of money often creates high stress situations which many people react to predictably.
By reacting predictably this allows large traders to develop strategies that monopolise on these mistakes, and as a result it is very important to be able to maintain cognitive composure if you are to be successful when trading.
Traders come from all countries in the world, and there is no limit to anyone who would like to trade other than access to the internet, some investment to begin with, and a knowledge of both cryptocurrency and trading.
The greater your knowledge, the more chance you have of being able to develop high profit strategies.
Bitcoin Investing
What is Bitcoin Investing?
Bitcoin investing is somewhat different to trading, but also is similar in many ways.
Investors typically deal with larger amounts of investment, and also look more at the long game instead of trying to profit from daily fluctuations in price.
Where traders will generate multiple trades per day often, and sometimes each trade can last for less than 1 second, investors often create trades that are open for days, weeks, months or even years.
Investing focuses more on the fundamental value of cryptoassets, as well as the fundamental health of the crypto industry as a whole.
There are a fewer number of Bitcoin investors than there are Bitcoin traders, however they control a much larger collective amount of the total trade volume of cryptocurrency each day.
What is the Difference Between Bitcoin Trading and Investing?
Bitcoin investing is a process of predicting long-term entry and exit points that will generate a profit, such as shorting Bitcoin at the top of the 2017 bull run around the price of $20,000 and then closing the short position later in the year when the price was much lower.
Bitcoin investors may use some technical analysis, but what is primarily important is the fundamentals of the assets and the market.
This determines the overall, long-term trends that will likely play out, as well as comparing the current value of a cryptocurrency with a price that would be considered fair to understand if it is overpriced or underpriced.
Bitcoin trading, conversely, is the practice of trading based on the fluctuations of the market over the course of an hour, a day or a week.
Bitcoin may be fundamentally oversold, but that doesn’t necessarily mean that within the next day the price will go up — in fact it could easily go lower, making a decision on a short term trade of Bitcoin at that point incongruent with its fundamental metrics.
Who Does Bitcoin Investing Suit?
Bitcoin investing suits those who easily digest data, and that understand traditional fundamental analysis seen in stock and forex trading.
There is not such a concern for stress or composure under pressure because the ideal Bitcoin investment will be planned far in advance, with plenty of time to develop an appropriate strategy.
Bitcoin investors should be capable of doing deep financial research, using the tools and mechanisms needed to truly understand where the market is at, and the resources to research potential investments thoroughly.
Also an investor must be prepared to take short term losses sometimes, as there is never any guarantee that a long term trade will be profitable throughout the entire life of the trade.
Bitcoin Mining
What is Bitcoin Mining?
Bitcoin mining is one of the earliest ways to make money with Bitcoin, and is an integral part of how the Bitcoin ecosystem functions.
The way that Bitcoin is originally created is by thousands of computers competing to solve a cryptographic puzzle once every 10 minutes.
The winner of the competition is awarded some Bitcoin, with the original amount being 50 BTC, and the current amount being 12.5 BTC.
Bitcoin mining has been highly profitable, but requires large investments of electricity costs and hardware costs in order to establish.
Previously, anyone with a laptop could profitably mine Bitcoin, but today huge farms or big groups of miners in partnership are needed because of the increased competition.
What are the Different Ways to Mine Bitcoin?
Bitcoin can be solo mined, farmed, or mined in a mining pool.
Solo mining is the process of setting up a small Bitcoin mine in your home and then mining Bitcoin normally.
Today it is unprofitable because of the competition between miners meaning that much large hash rates are needed in order to have a chance of winning.
Bitcoin farming is the creation of huge Bitcoin mines, sometimes worth millions of dollars in hardware in remote factories, which then compete for Bitcoin on a large scale.
Although the costs of establishment are very high, the profits can also be extreme with some of the largest Bitcoin mines in the world generating more than $1 million per week in revenue.
Bitcoin pool mining is the process of joining a large group of other solo miners in order to generate Bitcoin together.
Although revenues can still be small, there is a highly increased likelihood of successfully mining Bitcoin which is then shared amongst all of the winning miners.
Who Does Bitcoin Mining Suit?
Bitcoin mining is suitable for those who are technically proficient or that can invest in developers and computer engineers.
The two aspects of mining that are required are a knowledge of computer hardware and a knowledge of computer software.
Bitcoin mines are large groups of computers that have the Bitcoin software running on them and so they need to be setup first, and then programmed to mine.
As well as this, miners should be able to accurately calculate the costs of electricity and the cost of hardware, and then understand whether they will be profitable or not.
Many miners have mined only to realise that they were losing money all along, and so this is an important consideration.
In Conclusion: Making Profit with Bitcoin
Making profit with Bitcoin is now a diverse range of different activities, and now instead of only a small number of traders being involved, there are millions of people around the world all trading together every day.
We listed the best platforms for trading and investing, which stand out amongst the rest for the professional services they provide, and their features and varied listings for their clientele.
Although Bitcoin trading and investing are similar, they are also separate types of activities, and each one can suit very different kinds of people as well. If you are more suited to trading, then choosing to invest could be a huge mistake, and visa versa.
And although trading and investing are the two most widely used methods of making money with Bitcoin, Bitcoin mining is also another viable options for those with a technical background and resources to set up a mine.
