What is Bitcoin?

Bitcoin was invented by Satoshi Nakamoto, who designed it in the wake of the 2008 financial crisis as a way to get around traditional banking infrastructure.

Nakamoto wrote a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System," and is believed to own 5 percent of total Bitcoin holdings — which today hold a value estimated in the billions of dollars. Nakamoto's name is thought to be a pseudonym, and there is debate about the "real" person — or persons — behind Bitcoin.

But what exactly is Bitcoin itself? Put simply, it is a type of cryptocurrency, meaning it is a digital product with balances kept on a public ledger for all to look up.

Although the cost of a single Bitcoin can seem very high, it is possible to buy a small part of a Bitcoin. In fact, theoretically a person can buy as little as 0.00000001 (one one-hundred-millionth) of a Bitcoin (called a satoshi, named for Nakamoto). Bitcoin price history can get technical and complex, but fascinating.

How does Bitcoin fit into the cryptocurrency landscape?

Bitcoin is undoubtedly the most well-known cryptocurrency. One intriguing aspect of Bitcoin mining is that only 21 million can ever be mined; because of this, scarcity is driving demand, particularly in a post-COVID-19 world. Almost two million Bitcoins remain, with over 19 million already having been mined.

As governments flooded the global markets with money to boost spending in response to the pandemic, many believe the value of that money is eroding, leaving investors to look to Bitcoin as protection against looming inflation. Enthusiasts consider the cryptocurrency a safe path to portfolio diversification because it is a digital asset whose value cannot be directly controlled by the government.

Should Australian investors consider Bitcoin?

The big question is: Why invest in bitcoin? Bitcoin has historically been one of the most volatile investments, experiencing both extreme highs and lows. As with any risky investment, it's wise for investors to limit exposure to risk by only investing a fraction of their wealth into it — ride the highs without losing it all in the falls.

It's also worth noting that Bitcoin exchanges can fail, potentially creating problems for users. For that reason, it is advisable for buyers to have their own personal wallet outside of their exchange account.

How can Australian investors get started with Bitcoin?

Investing in Bitcoin is relatively straightforward and is not unlike investing in a company. Bitcoins can be purchased through a broker or by using a cryptocurrency exchange.

There are a number of ways for Aussies to purchase Bitcoins. Some of the Bitcoin providers in Australia include: Binance Australia, Bitcoin Australia, BTC Markets, Coin Jar, Cointree, Digital Surge, Easy Crypto, Etoro and Swyftx. All cryptocurrency exchanges in Australia must be registered with the digital regulatory body AUSTRAC, ensuring peace of mind for investors.

Other ways to gain access to Bitcoin include receiving them as payment for goods and services, or by mining Bitcoins, although with the competition from Bitcoin mining companies the latter option is much more difficult than before. Indeed, there are so many different Bitcoin providers that there is a platform to suit almost every investor type — even micro-investing app Raiz Invest is now offering a new portfolio called Sapphire that has a 5 percent target allocation for Bitcoin.

When it comes to using crypto, Coin Map allows users to view ATMs and merchants that accept cryptocurrency around the globe.

As a final point, potential Bitcoin buyers should remember that in Australia, cryptocurrencies are considered property, meaning they are subject to a capital gains tax unless used to pay for goods and services for personal use, or if the cost of the Bitcoins is less than AU$10,000.