January 24, 2019

How to Make Money with Bitcoin

Read more about Investing

Millions of people are already making money off of Bitcoin. You could be too. Here's how.

© CreditDonkey

From a humbling 3 cents per coin in 2010 to a whopping $19,000 in 2017, it's not surprising people are eager to ride the Bitcoin roller coaster. But making money with Bitcoin isn't as easy—or straightforward—as it seems.

In this article, we'll guide you through the best ways to get started.

TRADING

Since Bitcoin's inception in late 2009, trading has been the primary method people use to make money. You can trade Bitcoin much like you trade stocks, but Bitcoin is not a stock.

Did you know? Bitcoin is one of over 1,500 digital currencies in existence? Many are designed for specific industries or exchanges. Some companies like Kodak and JP Morgan have looked into developing their own cryptocurrencies as well.

The name of the game is simple: Buy low, sell high. But you may need to wait years to see real profits.

Consider: In early 2011, the price of Bitcoin was $1. In early 2012, the price had risen to just over $5. Holding onto a Bitcoin for one year would have net you just over $4 in profit. If you had held on to that $1 Bitcoin for 5 years—to when the price was $430—you could have made a profit of $429.

The price hasn't always increased for Bitcoin. One year ago, the price reached a peak of $19,000. In October 2018 it was around $6,500. People who bought Bitcoin during its high price experienced a loss.

Here's how to get started.

Picking An Exchange

Because Bitcoin is a digital currency, exchanges happen over an online network. This gives you options to participate in trading anywhere you have access to the internet.

There are actual hubs you can physically go to where trading occurs. These are known as Bitcoin ATM's, and they appear in busy public places like airports and malls.

Each exchange has different features that impact how people trade. Some let you buy and trade with multiple currencies, others don't. Some focus on certain countries and regions, while others are global.

Most exchanges are accessible 24/7—a huge difference between Bitcoin and stock market exchanges. This makes trading across time zones fairly simple.

What most have in common, is that they are active during typical stock market hours and their corresponding location. For example, a US-based Bitcoin exchange would be most active between 8am and 4pm Eastern Time, Monday - Friday.

Here are several popular exchanges to choose from:

  • CoinBase: One of the easiest to use. Computer and mobile support. One of the most popular exchanges.

    Pros:
    • Credit/debit card integration
    • Intuitive and easy
    • Multiple Digital Currencies

    Cons:
    • Bank transfers take 5 days
    • No anonymity
    • Few available currencies

  • BitQuick: A cash deposit-focused exchange. They have good customer support. There's a flat 2% fee for all purchases.

    Pros:
    • Cash deposits offer security
    • Intuitive design
    • fast purchasing options
    • No fees for the seller

    Cons:
    • Only works with Bitcoin
    • Cash only
    • Only in the US

  • Kraken: Largest exchange in Europe, though it supports the US and Canada as well. It offers users the ability to customize trade deals.

    Pros:
    • Multiple ways to pay
    • Large user base
    • Highly secure
    • Multiple digital currencies

    Cons:
    • Difficult interface
    • You can't be anonymous
    • Expensive deposit fees

  • Gemini: US-based exchange that operates in Canada, the UK, and Asian-Pacific regions. Offers trades with Bitcoin and Ethereum.

    Pros:
    • Highly regulated and secure
    • Fast buying options
    • Multiple digital currencies.

    Cons:
    • Can't be used in Hawaii
    • Not very intuitive
    • Slow withdraws

  • Wall of Coins: A popular exchange that operates throughout North America and most of Europe. They have a large number of payment options.

    Pros:
    • Low fees
    • Large user base
    • Allows for anonymity

    Cons:
    • Few high-volumne trades
    • Variable transaction speeds

  • BitStamp: One of the world's largest and oldest exchanges. Used primarily by experienced traders.

    Pros:
    • Lots of payment options
    • Low "high-volumne" fees
    • Multiple Digital Currencies

    Cons:
    • Not very secure (data breaches in the past)
    • High "low-volumne" fees
    • Difficult interface

You can expect to pay a transaction fee, usually a percentage of any Bitcoin purchase or trade. Fees usually hover around 1-2%.

Pay attention to your trading habits. If you are trading internationally and your exchange has a high international fee, then you're cutting into your profit. This is a sign to switch exchanges.

All exchanges will show you the current price of a Bitcoin. Don't be intimidated by the large price-per-unit. You have options to break up a Bitcoin and start small. The smallest increment of a Bitcoin is called a Satoshi, and it's a miniscule .00000001 of 1 bitcoin. Although, there is usually a minimum purchase size of around a few dollars (it depends on the exchange).

The price of Bitcoin changes slightly depending on which exchange you're using. This is the bread and butter for a strategy called Arbitrage. We'll discuss that below.

Other Ways to Trade

Short-term trades and day trading can be a great way of making some money over a much shorter period of time.

  • Day Trading: The goal of day trading is the same: Buy low, sell high. It just happens more frequently and with smaller increments.

    Since prices are updated every minute, there are lots of opportunities to make a substantial amount. Earning a dollar here and there might not seem like much, but it adds up. The average day trader makes 50-100 trades per day.

    You also don't have to stick to one currency or one exchange when trading. Jumping from currency to currency and exchange to exchange is part of a larger strategy called arbitrage. Keep reading to see how you can potentially profit from it.

  • Arbitrage: This is the act of using different price values across different markets to your advantage.

    Let's say that the price of a single Bitcoin is $6,500 on the CreditDonkey exchange (don't get excited, there's no such thing). We notice that on the European exchange Le Crédit-âne, Bitcoin is selling for $6,700.

    Buying Bitcoins on the CreditDonkey exchange and selling them on the European exchange would net us a profit of $200 for each Bitcoin sold. This is arbitrage in its most basic form.

    FYI: Many arbitrage strategies take advantage of not only the differences in the market values of asset, but also different currency values. Strategies sometimes involve jumping from the US dollar, to the Euro, to another currency, then back to the US dollar.

    There are quite a few factors to take into consideration with an arbitrage strategy:

    • The exchange rates between multiple exchanges.
    • The time it takes to complete a trade on an exchange.
    • The time it takes for prices to change across markets.
    • The time it takes to transfer Bitcoins or funds into your wallet.
    • The different fee rates between exchanges.

    Time is the biggest factor for arbitrage strategies. The Bitcoin market is constantly changing—and often by large amounts.

    Since crossing exchanges with your assets takes so long, an arbitrage opportunity can quickly vanish before you have the chance to act.

  • Trading Bots: The most popular trading tool is a bot because bots will do all of the actual trading for you. They achieve this through preset parameters. In other words, they trade at specific prices, trends, and times of the day.

    Bots can do what people can't—be attentive and active in the market 24 hours per day, 7 days a week.

    Sometimes you can set these parameters yourself. But some bots are designed with complicated algorithms automatically telling them exactly how to react to the market.

    Because of the sheer number of trades a bot will do, there is a higher chance that you'll see positive gains faster.

    Using bots can be a great way to maintain consistent gains and mitigate loses. But you lose out on opportunities to gain big fast, since they are poor at making risky trades.

    Bots also cost money to run. A monthly subscription can be anywhere from $20-$100. They might also take a percentage of your Bitcoins earned.

Trading not your cup of tea? Keep reading for other ways to earn money from Bitcoin.

MINING

Mining involves obtaining Bitcoin without going through an exchange.

It might eliminate the risk that comes with currency trading, but there are other costs to consider. The largest of which is it's quickly becoming very inefficient.

We'll detail it's inefficiencies as we talk about the different mining methods. To start, you'll need to decide whether to individually mine OR join a mining pool.

Individually Mine:

Technically, you can mine Bitcoins by yourself using your own computer. You can also technically drop out of medical school to become a street juggler. Is it a good idea? No. This is because the energy required to effectively mine Bitcoins is extremely high.

Just like how gold needs to be mined from the ground, Bitcoins need to mined from digital blocks. Each block contains a set number of Bitcoins—which is currently 12.5.

The number of Bitcoins a block contains gets cut in half every time 210,000 blocks are mined. Soon there will be only 6.25 Bitcoins contained in each block.

Blocks are linked to hashes. A hash is a large series of randomized digits. If your computer is able to randomly guess the hash (or a hash of lesser value), then you win the block.

But you're also competing against other miners for the same block. If someone else guesses first, you lose the entire block. It's all or nothing.

Places like China and parts of Europe, where electricity is cheap, have set up enormous mining hubs consisting of hundreds of computers. You can try to mine by yourself, but you'd be competing against these giant hubs.

Mining Pools:

A mining pool is a large group of people that combine their computing resources to mine more efficiently.

The larger the pool, the more computers you have working for you. Which means your chances of earning Bitcoin dramatically increase.

However, in pools, you split the earnings. You may only receive a small fraction of a Bitcoin if a block is successfully mined. Still, your chances of earning anything are much better in a pool.

It's good to approach pools with a bit of caution. Some are scams that will use your computer to help mine for Bitcoins but won't pay out if they are successful.

PICKING A MINING CLIENT

Either way you choose to mine, you'll need to link your computer to the Bitcoin network through a mining client. Some digital wallets let you do this, but otherwise, you'll have to download a client.

Picking a mining client is a bit different from picking a Bitcoin exchange. Clients are usually free with a few exceptions. Because of this, most have a very basic user interface that doesn't have mobile versions or works well on Mac systems.

Pools usually have a specific client that they run. If you a join a pool, make sure you get the right client for the pool.

Once you've downloaded a client, you select when you want your computer to mine and let it do its work.

Mining doesn't have the same risks that follow typical trading. But the high energy costs and low probability of return make it a difficult strategy.

You can use other, simpler methods to earn money from Bitcoin. Keep scrolling to learn more.

Other Ways to Profit from Bitcoin

There are simpler methods of earning Bitcoin—Micro jobs and Loans.

Micro Jobs: Micro jobs are simply jobs that pay you in Bitcoin. They are some of the only jobs around that do this.

They are called "micro" because they pay out a very small amount of Bitcoin for completing a very small tasks. These tasks are usually marketing and advertising related and often include:

  • Watching video advertisements.
  • Filling out surveys.
  • Visiting certain websites.
  • Clicking on advertisement banners.

Each task pays out a tiny amount of Bitcoin. The more tasks you complete, the more you get paid.

Websites that act as a platform for multiple jobs are often called Bitcoin Faucets. Many people rotate between faucets instead of using individual websites.

Typically, people only make about $1 - $2 per day in Bitcoin using Micro Jobs. These tasks are best suited to be completed in your free time over a long period of time.

Don't quit your day job. The time investment required to make any decent amount of money is astronomical. Many sites that pay in Bitcoin make promises of riches. Don't be fooled.

LOANS

Just like with a normal currency, Bitcoins can be loaned to others with the promise of payback with interest.

Bitcoin loans have high interest rates to help mitigate price fluctuations. This system is done through a lending platform, NOT a typical exchange or digital wallet.

Most platforms are peer-to-peer. This means one person requests a loan and another sets an offer with an interest rate. Sometimes, deals are made on investment potential (e.g., the creditor will receive 40% of the profits from a successful investment).

Some lending platforms allow for business loans. This gives you the ability start a business using Bitcoin as capital. Bitcoin-focused businesses, such as developing a new digital wallet, are the most common businesses that utilize Bitcoin loans.

Generally, lending platforms are meant for people with a large number of Bitcoins. Small loans aren't typically seen as viable, making this strategy difficult when starting out.

If you do try your hand at Bitcoin loans, take some caution. The lack of federal regulation in the world of Bitcoin means that if someone doesn't pay you back for money you lent, there's a good chance you can't take legal recourse to get your money back.

INTEGRATING INTO YOUR OWN BUSINESS

If you own a business and want to start accepting Bitcoin as a method of payment, you can. It doesn't matter if your business is based online or as a traditional brick-and-mortar setup.

You can accept Bitcoin no matter what industry you're in. But you're more likely to experience a positive response if your business falls into one of the following categories:

  • Online shopping
  • International trading (especially in countries with unstable currencies)
  • Gambling
  • Charity work
  • Music and other creative work

Getting Started:

Online payment methods are the easiest to setup. Like PayPal, many digital wallets have a widget or digital button you can embed in your website to accept Bitcoin payments.

Coinbase and BTC are two that will do this for you. They will also automatically change the amount of Bitcoin charged as the Bitcoin price fluctuates.

If you want to earn $40 for a pair of shoes you're selling, the digital wallet will automatically take into account the exchange rate between the Bitcoin and the Dollar, and charge the appropriate number of Bitcoins.

Because of market fluctuations, it's important to note that on some days you can receive more Bitcoins than others even if your sale price remains the same..

Accepting Bitcoin through a traditional brick-and-mortar store is a bit more complicated. There are two main methods for accomplishing this:

  1. Mobile: For most digital wallets with a mobile app, you can accept payments directly through your phone. Entering in payment information manually is effective but tedious.

    Thankfully, QR codes are also a common feature. If the customer has a mobile digital wallet, they can easily pull up a QR code that, when scanned by your phone, completes a Bitcoin transaction.

    QR codes can work across multiple wallets, so customers won't have to use the same wallet as you in order to pay in Bitcoin. However, this means that you will typically have two different payment systems running at the same time.

  2. Point of Sale Integration: Many services can integrate Bitcoin as a method of payment though a typical Point of Sale (POS) system. These include:

    • Credit card scanners
    • Tablets with touch screen payment options
    • Self-checkout stands

    Certain companies make the hardware and/or software capable of providing ALL of your payment and POS needs, including for Bitcoin.

    This means you can invest in one system that accepts all of your desired forms of payment instead of trying to tack-on a Bitcoin payment method onto your existing POS system.

    Do your research and see if integrating Bitcoin into your business will be favorable. You don't want to disrupt the effective POS system you already have in place for the sake of trying out a new payment option.

You need to follow the same tax laws and principles with Bitcoin as traditional payments. Payments made with Bitcoin are taxed both on a state and federal level.

BOTTOM LINE

You can take a number of paths to start earning money with Bitcoin. Your personal goals and financial capabilities are key to figuring out the right one for you.

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About CreditDonkey®
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