An Overview of Bitcoin
Well, if all this hype about Bitcoins and cryptocurrency is something you have no clue about, it’s time that you should get some idea on this subject. Most of us have heard the term ‘Bitcoin’ but mostly have a vague idea about it. This article would help you understand the basics of Bitcoins. So the first question which arises is – what is Bitcoin? Bitcoin is a decentralised digital currency which was created after years of research in cryptography in January 2009 by Satoshi Nakamoto following the housing market crash.
Well, now to elaborate on the term ‘digital currency’. Digital currency can be thought of as a money like asset which is primarily managed and exchanged on digital systems over the internet. There is no physical existence of bitcoins. They are just balances kept on a public ledger that everyone has a transparent access to. Bitcoins unlike other government issued currencies are operated by a decentralized authority and they offer the promise of the transaction fees then traditional online payment mechanism.
Another interesting fact about Bitcoins is that El Salvador became the first country in the world to adopt Bitcoins as legal tender. This event took place after the country’s Congress on June 9,2021 approved President Nayib Bukele’s proposal to accept the cryptocurrency.
Bitcoins are created to reward a process known as mining and can be exchanged for other currencies, services or products. You can also say that through the process of mining Bitcoins are circulated. However, the real-world value of Bitcoins is highly volatile. Elon Musk, the Chief Executive Officer of Tesla in February, 2021 announced that his electric car company had invested $1.5 billion in Bitcoin and later in March, Tesla began accepting Bitcoins as payment which resulted in a hike in the price of the Bitcoins. But later he tweeted that he fell out of love with the world’s top cryptocurrency and that he would stop accepting Bitcoins because of the potential environmental damage that results from Bitcoin mining. This announcement resulted in the price of Bitcoin falling below $50,000. This was also a huge setback for all the other cryptocurrencies.
Mechanism Behind Bitcoins
Bitcoins run through a collection of computers which are referred to as nodes or miners which in turn run bitcoin’s code and store it’s blockchain. Each block is a collection of transactions. Each computer running blockchains have the same list of blocks and transactions which enables users to transparently see new blocks being filled with new bitcoins transactions. This enables a clear transparency to be maintained. Users can see real time transactions occurring. There are around 10,000 nodes of bitcoin as of June 2021. The number is growing at a very fast pace.
Bitcoin Whales
A Bitcoin Whale is an individual who owns large amounts of Bitcoins. Their movements impact the Bitcoin market. This can happen through either increased volatility, decreased liquidity or a combination of both. Some of the biggest Bitcoin Whales of the world Satoshi Nakamoto, Winklevoss twins, and venture capitalists like Tim Draper and Barry Silbert.
Advantages Of Investing In Bitcoins
Now the question arises why should one invest in Bitcoins? Well, there are quite a number of advantages of investing in digital currency like Bitcoins. These are:
- Bitcoins are fast and inexpensive. It takes only a few minutes to exchange money regardless of the amount or destination. Any transaction from one part of the world to another through the traditional banking methods generally becomes extremely expensive. However, when done through Bitcoins, the cost is negligible. Bitcoins do not have any geographical limitations and are combined with the assurance of protecting the user’s rights.
- Bitcoins are a decentralized issuance and cannot be regulated or valued by any government or Central banks. The currency is depoliticized. There is no third-party interference. No one can freeze, charge or demand your coins. These coins cannot be stolen and neither the government can seize them on the any circumstances. It does not necessitate the disclosure of any of your confidential information.
- There are lower fraud risks and a great sense of transparency in the complete concept of Bitcoins. Just like any digital cash, Bitcoins cannot be accessed by hackers. There is a sense of anonymity of the users which is beneficial to them because all the data is kept confidential using the blockchain technology. Transparency on the other hand helps the users to conduct the transactions with complete freedom and fairness.
Disadvantages Of Investing In Bitcoins
There are both sides to a coin and so to Bitcoins. Now if you’re taking the risk and investing in Bitcoins make sure you keep these aspects in your mind:
- Prices of Bitcoins are extremely volatile and subjected to rise and fall at rapid rates. In case you’re speculating profit from it, you can invest in Bitcoins. Cryptocurrency laws and taxes are different for different countries and are often ambiguous or contentious. In case of lack of regulations frauds and scams can take place.
- You must have deep knowledge about the technicalities of the Bitcoin market. Without proper ability to assess the rise and fall of the price in the market you will not be able to get profitable returns.
- There is a risk of loss of your Bitcoins. In case a hard drive crashes or a virus corrupts the existing records, your wallet file gets corrupted and there is no way that can get you your coins back. There is no means of recovering and you might just go from potential wealthy Bitcoin investor to a bankrupt in a matter of seconds. You cannot safeguard your Bitcoins from human or technological errors.
- The Bitcoin framework might have social bugs which have not yet been discovered. This is because the scheme of Bitcoin is relatively new. In case Bitcoins are widely implemented and a bug gets discovered. It might result in an enormous exploitation of the Bitcoin economy. There is no governing body in charge of the functionalities so you cannot complain about your concerns or problems to anybody.
There is a huge confusion amongst investors in choosing their digital currency investments. With newer ones springing up every now and then, the competition is getting tougher. However, bitcoin has a huge lead over others because of its brand recognition and venture capital money.
