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Bitcoin was the first, and is the most famous, of a new type of digital money. The plan was to make a form of currency not controlled by governments or businesses, that you could trade globally with no cost and without having to reveal your identity.

It's an idea that took off. There are now more than 800 cryptocurrencies in existence, worth more than 75billion in total.

And their value has soared too - in 2011 you could buy a Bitcoin for $11, they're now worth $2,755 each. That means if you'd put just 100 into the currency in 2010 (when you could buy Bitcoins for 5p or less if you timed it right) they would be worth 4.3million now.

But are they safe to put money in, can the growth continue and how do you get involved?

The idea is simple at its core use maths to create a unique, verifiable, line of code and write down who owns it on a ledger.

You can then sell it to someone else, they can check it's real and the ownership change is also recorded.

People can also create new coins by solving mathematical problems on their computers, up to a total limit of 21million with Bitcoin, and sell them on.

The ledger, known as a blockchain, is public and anyone can get involved either checking and recording transactions or looking for new coins.

Coins can be bought and traded on exchanges or even at some ATMs - and stored on an exchange, your computer or even offline (known as cold storage) if you want more security.

Once a coin is assigned to someone (this is done through a digital address, which you are given a private key to, so your name isn't recorded) it can't be used by anyone else. That means a fair few coins have been lost over the years, after people misplaced their keys to them.

Normally, the value of a currency is backed up by a country's central bank or in the case of the euro, a whole host of countries' central bank.

That means that while it's not protected, and values can change, there is at least someone responsible.

With crypto currencies there is nothing backing their value at all.

That means prices are based solely on what people think they're worth, and if something undermines that belief they can go into freefall.

Earlier this year Ethereum the second biggest cryptocurrency after Bitcoin saw its value collapse from $317 a coin to $0.1 a coin in a day. It bounced back, and is now trading at $225 a coin, but the lesson is there.

Put simply - if something were to go wrong, you'd have no support.

The second issue is that Bitcoins are what is known by traders as a fool's asset. Because unlike investing in a house that can be rented out or a company that makes profits the only way to make money from them is to find a greater fool than you who'll pay an even higher price than you will.

But they're far from alone in this, with everything from art, to wine, to stamps all falling into this category.

And so far, the general trend has been up especially if you managed to pick one of the winners - with the price of Bitcoins more than doubling this year alone.

The real profits are in the smaller coins. Pick something that's cheap now - like Bitcoin was in 2010 - and you can see massive returns. With Ethereum the price went from $8 a coin in January to almost $400 a coin this year, before dropping back down to just $225 a coin at the time of writing.

And it's far from alone the price of NEM coins, Dash coins, Litecoins and more have all soared this year.

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The news this week has been about the split in Bitcoin. Because you need to check crypto currencies and register transactions, that means whenever people transfer them to either pay for something or just cash in on their current value - there's a blocker.

The people doing the checking aren't necessarily interested in your transaction and might be keen to keep prices high if they're holding onto Bitcoins themselves.

Additionally, cryptocurrencies are generally designed to be open so have certain aspects baked into them. In the case of Bitcoin, only 1 megabyte of new information can be added to the official register every 10 minutes.

However, the people using them to buy something are keen for transactions to go through fast.

Essentially, the people mining Bitcoin were at odds with the people using them and there were fears that this could cause huge problem down the line.

That led to a split this week with the new Bitcoin Cash launched for people who want faster transactions. In just a day the new currency became the third-biggest cryptocurrency although it has now slipped to fourth - with more than 4billion worth of the new coin in circulation.

The move to the new currency has gone well so far, but it exposes a weakness in the system where the people using the currencies to buy something are reliant on an entirely different group of people to make that exchange official.

For people wanting to test the water or even dive straight in we decided to speak to the experts to get some help.

Ive been involved for two years now, and we have seen explosive growth in these currencies, along with tremendous volatility, said David Siegel, and internet pioneer and founder of blockchain innovation community 20|30 .

He thinks that the future is bright for crypto currencies, but it will be a bumpy ride along the way. Here are his 10 rules for investing in them:

Put a small amount of money, like $100, into an exchange account. Use a reputable exchange like Lykke , Coinbase , Kraken , etc.

Buy some cryptocurrencies to learn about them.

Go to YouTube and watch videos on crypto-investing, cold storage, security, talks at recent events, etc.

Read about new developments on Bitcoin Magazine , CoinDesk , Brave New Coin , etc.

Dedicate no more than 10% of your entire investment portfolio to crypto-investments.

Diversify! Plan to buy at least ten coins/tokens. Learn about index investing at http://www.tokenfactory.io .

Carve out about one third of your money. Put this third into Bitcoin, third into ether, and one third into 3-5 other coins/tokens you like.

Wait and watch. The volatility will almost certainly present buying opportunities.

Work your way into your portfolio over time. If prices go down, buy more. Plan to be fully invested within 12-24 months.

After you buy, put your coins into cold storage . Dont trade. Buy and hold for the long run.

Read the rest here:
100 of Bitcoins in 2010 would be worth 4.3million today but can it continue and how do you safely invest? - Mirror.co.uk