How does Bitcoin work?
Bitcoin and other digital currencies such as Ethereum (ETH), Litecoin (LTC), or Ripple (XRP) are governed by an open network of users. Once you join a cryptocurrency network, you will join millions of other anonymous users who help verify peer-to-peer transactions.
For example, let’s say Party A wants to transact with Party B. Since these online transactions are completely anonymous, how do both parties know that they can trust each other and not be scammed or scammed out of money?
This is where the power of the Bitcoin network comes into play. When a transaction is made, the entire network of linked computers verifies that the currencies exchanged actually exist. No one can be cheated or scammed as the entire computer network verifies every transaction. Fraudulent transaction attempts will be flagged and not carried out.
So what are some of the benefits of investing in Bitcoin?
Bitcoin is an anonymous and decentralized digital currency. It comes with minimal transaction fees and has the potential to make a huge amount of money. Let’s start at the top.
- Finite supply of Bitcoin
The amount of Bitcoin is not an infinite number. There will only be 21 million Bitcoin in circulation. This rule will never change. This means that any currency you hold cannot fluctuate due to an outside party releasing more currency into circulation.
For example, governments like the United States will release more currency into circulation slowly over time. This outside manipulation can alter the value of the currency rather than allowing the market value to solely adjust on its own. Bitcoin and other cryptocurrencies create an unparalleled sense of transparency when you think of our Federal Reserve or gold-backed currency.
For one thing, fiat currencies, or paper money issued by our government, change based on government monetary policies. We have no idea how much money is being printed or will be printed in the future. Second, we cannot predict the exact value of gold either, as we could always come across huge gold mines that could drive down the price of gold.
Bitcoin is a decentralized currency. This means that no government or financial institution has control or influence over it. Instead, power is distributed throughout the network of users.
All Bitcoin holders are equal and on an equal footing. There is no single person or institution that is collecting transaction fees, censoring finances, or governing transactions. Instead, an ongoing public ledger that is based on blockchain technology is the governing body that makes Bitcoin work.
- Low fees
Bitcoin is not completely fee-free, however, the fees incurred when transferring Bitcoin are minuscule compared to traditional banks and financial institutions. The fees you contribute are currently between $1 and $2 per transaction. When you buy Bitcoin, cryptocurrency miners, or those who help validate your transaction, are rewarded for their efforts through these Bitcoin miner fees that are charged to you for each transaction.
This is a steal compared to traditional banks and financial institutions, where foreign exchange rates and international fees are added to international money transfers. These fees can add up to more than $35.
- High earning potential
Buying and selling Bitcoin is a great way to earn a large amount of money. There are countless people who have made it, especially when the price skyrocketed to an all-time high of $20,000 in late 2017. Just a year before that, a Bitcoin was $1,000. That’s a 20-fold increase in just one year!
Those who invested heavily in the early days reaped massive rewards. Lamborghinis and luxurious lifestyles were highlighted all over social media. Unfortunately, these fairy tale stories are not always like that. The price of Bitcoin can be quite volatile, which brings us to some of the risks you should be aware of.
Cryptocurrency is not as bullish as people like to think. Bitcoin definitely has some risks associated with it and you should proceed with caution before throwing large amounts of money onto the market.
- Bitcoin volatility
Along with atmospheric highs come depressing ones. The price of Bitcoin has shot through the roof and then crashed in a matter of days. Not everyone becomes a cryptocurrency millionaire overnight and you should not expect this to be the norm.
This volatility makes it a risky investment for those looking to make some money. Many financial experts are deathly afraid of cryptocurrencies and advise investors to stay away. However, many die-hards trust the revolutionary technology and see a bright future for digital currency.
- Cyber theft and fraud
Since Bitcoin is a digital base currency, it is susceptible to online fraud and cyber attacks. Crypto exchanges are vulnerable to cyber attacks where Bitcoin is traded. If your bitcoins are stolen, you have no way of getting them back. It’s just gone forever and you can’t do anything about it.
There are even fake Bitcoin exchanges that will try to lure you in, get you to send funds, and then disappear. Some cryptocurrency exchanges that you can trust include Coinbase or Binance.
Finally, if you lose or forget your digital wallet pin, you will not be able to get your funds back.No regulation
Decentralization and deregulation are great and all, but with this comes a sense of concern from financial pundits. Government agencies are struggling to figure out how they can tax and regulate the new kid on the block. It is also a breeding ground for shady business such as drug, arms and trafficking transactions as it is anonymous and unregulated.
Still in its infancy
Bitcoin is only 10 years old. In recent years it has experienced incredible volatility and growth. Many wonder how the technology will grow, how it will be used, and the rate of adoption around the world. Bitcoin has not been widely adopted by businesses and cannot be used to purchase everyday items in most stores. Many are skeptical and think that Bitcoin is just a fad that people use to make money. However, true believers see Bitcoin as an accepted currency and allow customers to use it to exchange goods and services.
Is Bitcoin a good investment?
Bitcoin is a promising digital currency and has huge potential from an investment point of view. However, you should always invest wisely and understand that Bitcoin and other cryptocurrencies are still very volatile.
It will be up to you to decide whether or not you think Bitcoin is a good investment. It wouldn’t hurt to learn how to get started and start investing in Bitcoin, but you should never invest more than you can afford. We do not recommend throwing your life savings into a cryptocurrency exchange in the hope of making it big and becoming a millionaire. Instead, consider it just one part of a diverse investment portfolio.
Financial experts generally recommend that you invest most of your money in low-risk investments like CDs and fixed annuities. The rest of your investment dollars, a much smaller percentage of your portfolio, can be put into riskier investments like Bitcoin and other cryptocurrencies.
Bitcoin price predictions will vary depending on who you ask. Some are optimistic when it comes to the price of Bitcoin and think that the sky is the limit. Others, like billionaire Warren Buffett, think it’s a dumb investment and shouldn’t be part of any investor’s portfolio.
Bullish or bearish market? It’s up to you.
We would be lying if we said that we can give you a clear prediction of how much Bitcoin will be worth a few months or a year from now. Just like playing the stock market, it will be your decision how to invest and what you are willing to bet on in this cutting-edge investment market.
We can tell you that Bitcoin is changing the entire financial system and has everyone scrambling to figure out what will happen next. You can decide to sit on the sidelines and watch it all unfold, or you can join the rush and start investing wisely with what you can afford.