What Is Bitcoin?
Bitcoin is digital currency without a central authority: no bank or government issues it. It operates on technology called blockchain.
Basic Facts
- Number of bitcoins: Maximum 21 million (approx. 19 million already in circulation)
- Irreplaceability: Bitcoin cannot be "fixed" - what happens is firmly decided.
- Without central authority: No one controls Bitcoin. It is a peer-to-peer network.
- Transparency: All transactions are public (but anonymous).
Bitcoin was created in 2009. Its founder is an anonymous person or group under the pseudonym Satoshi Nakamoto.
What Is Ethereum?
Ethereum is similar to Bitcoin but offers better functionality. Mainly, Ethereum enables smart contracts - programmes running on the blockchain.
- Bitcoin: Digital currency
- Ethereum: Computer without a central unit (decentralised computer)
Ethereum is used for DeFi (decentralised finance), NFTs and other applications.
Other Cryptographic Assets
- Litecoin (LTC) - Faster and cheaper than Bitcoin
- Ripple (XRP) - Focused on bank transfers
- Cardano (ADA) - A more scientific approach to blockchain
- Solana (SOL) - A very fast blockchain, popular for DeFi
Warning: There are thousands of cryptocurrencies. Many are scams. Invest only in the top 10-20 (Bitcoin, Ethereum, Cardano, etc.).
Why Invest in Crypto?
Potential Benefits
- High potential return: Bitcoin has delivered over 100% annual returns for years.
- New technologies: Blockchain is a technological innovation
- Inflation hedge: Like gold, it can be seen as a hedge against inflation.
- Diversification: Cryptocurrencies behave differently than stocks. They add diversification.
Risks and Disadvantages
- Extreme volatility: Bitcoin could fall by 30% in a week
- Regulatory risk: Governments may ban or regulate crypto.
- Technical risk: Security holes in the code are possible
- Psychological risk: Hard to stay mentally strong during a 70% drop
- Scam risk: Frauds, lies, fake projects
Recommendation: Cryptocurrency should make up only 5-10% of your portfolio. Never all of it!
How to Buy Crypto in the Czech Republic
Regulated Exchanges
The safest way is to buy through regulated exchanges. In the EU, the following are used:
- Kraken (kraken.com) - American, regulated, accepts CZK
- Coinbase (coinbase.com) - American, very safe
- Bitstamp (bitstamp.net) - European, quality
- Revolut - Available to Czech users, integrated in the app
Recommendation: Kraken, Coinbase or Bitstamp. They offer the best security and regulation.
Step by Step: Kraken
- Go to Začni Investovat and click "Sign Up".
- Enter your email and password, then complete KYC (identity verification).
- Transfer your funds via SEPA or local bank transfer.
- Go to the "Buy" section and select Bitcoin or Ethereum.
- Enter the quantity you wish to purchase, confirm: done!
Krypta Storage: Wallets
Hot Wallet (Online)
The wallet was connected to the internet (on an exchange, in a mobile app).
- Advantages: Easy selling and buying
- Disadvantages: Higher risk of hacking
Cold Wallet (Offline)
Hardware wallet or paper wallet: offline.
- Advantages: Highly secure against hacking
- Disadvantages: Slower purchases/sales
Recommended Strategy
- 80% in cold storage - Ledger Nano S/X (100-200 EUR)
- 20% on the exchange - For trading and sales
Never send your money to an address given to you by a stranger! They are almost always scams.
Accessing the Crypt: Practical Advice
- Start with a small quantity. E.g. 1-2% of the portfolio. Experience volatility without stress.
- Buy only Bitcoin and Ethereum. They are the most well-known and safest.
- Dollar Cost Averaging. Buying the same amount every month smooths out volatility.
- The wait is long. Long-term holding (5+ years) is more suitable than day-trading.
- Keep learning. Crypto is changing: read articles, follow forums.
- Don't put all your eggs in one basket. Diversify: stocks, gold, bonds, then crypto.
Red Flags: How to Spot a Scam?
- Promises a 100% annual return - That is not realistic even for the best investors.
- A new project on social media with a star rating - Usually a scam
- We ask that you send your money to some man or woman. - Scam (romance scam)
- Facebook groups where everyone makes a "mega profit - Pump and dump scheme
- Low-cap token with a "mere" 1000x potential - Rug pull (scam)
Basic rule: If it sounds too good to be true, it isn't.
Cryptocurrency Taxes in the Czech Republic
In the Czech Republic, profits from cryptocurrencies are taxable:
- Capital gain: The difference between the selling price and the purchase price is revenue.
- Tax rate: Usually 15% profit tax (self-employed) or according to the employee's tax rate
- Exception: If assets are held for longer than 3 years, certain tax benefits may apply.
Recommendation: Consult a tax advisor: cryptocurrency taxation is not straightforward.
Summary
- Bitcoin is a digital currency without a centre, Ethereum is a decentralised computer.
- Highly volatile: the risk of losing everything is real.
- They can be purchased on regulated exchanges (Kraken, Coinbase, Bitstamp).
- Store securely: a cold wallet for long-term holding.
- Cryptocurrency should make up a maximum of 5-10% of your portfolio.
- Learn: crypto is a fast-paced and volatile space.
- Beware of scams: if it sounds too good to be true, it is not.