After its creation in 2009, it is safe to say that the Bitcoin ‘experiment’ has stood against all odds. In November 2021, it was worth more than $1 trillion in market cap. Its value exceeds some top echelon companies like Tesla, Google, and Meta; Facebook’s parent company.
However, Bitcoin doesn’t represent a country or entity. It is a digital currency whose price is volatile. It is not controlled by any bank or financial institution. Rather, it employs an encrypted decentralized system. Its price spikes and falls with demand and supply waves.
What Is Bitcoin?
Bitcoin is an electronic value storage and payment method that relies on cryptographic hash, instead of trust. It is the first blockchain technology created in 2009 by Satoshi Nakamoto. Since then, it has seen a spike in price.
Unlike fiat currencies where people store their money and make transactions with a trust, usually a bank, Bitcoin uses a network of encrypted technology that stores money and ensures transactions. The encrypted system is called a blockchain.
It is made in such a way that no one has the power to tamper with the transactions. Transactions are recorded in a public ledger. They are not tied to the identities of the owner, which makes the system transparent and devoid of individual influence. Its price is largely controlled by supply and demand waves.
Each blockchain has a native currency. Bitcoin’s currency is BTC. BTC has grown in value since its creation. The BTC coin reached an all-time high (ATH) of $68,000 last month.
How Does Bitcoin Work?
The spine of any cryptocurrency network is its Blockchain. Bitcoin’s Blockchain is built on a distributed ledger. Its networks are units of data linked together. The units are called blocks. These cryptographic blocks contain all the transaction information including when the transaction happened, its total value, which node buys, and which sells.
These blocks are tied together in chains. Anytime a new transaction is made, its information block is tied to the chain.
Blockchain is a distributed ledger that is not controlled by a single entity. Anyone can buy and sell it at any time. It has no bank control or government censorship. It stands on its own. While this may seem like a weakness, it is Bitcoin’s biggest strength.
Being an encrypted and decentralized and distributed technology, no one can tamper with its transaction histories and information.
Bitcoin Mining: The Bedrock of Its Security
Another great aspect of Blockchain technology is how it confirms transactions. After transactions are recorded in cryptographic blocks, each block has a random cryptographic number called a hash.
Miners across the world seek to solve this hash. The successful miner validates transactions in the process of mining and receives a new BTC token as a reward.
To mine new coins, you have to deploy heavy machines called mining rigs to solve these complex mathematical hashes. Prospective miners are on the increase, as as the cryptographic hash becomes harder, the lesser the chances of mining new coins.
This reward-tied validation mechanism keeps the network’s integrity safe. With this, there would be no instance of double-spending.
How Can You Buy Bitcoin?
Investors can buy Bitcoin on cryptocurrency exchanges. With these exchange platforms, they can buy, hold and sell BTC tokens. You can start by opening a crypto exchange account. Then, you provide your identity as well as your source of funding. It could be a debit card or bank account. Major Bitcoin exchanges include:
Though expensive, Bitcoin buying provides a solution for both small-scale and large-scale buyers. You can buy fractions of Bitcoin from registered Bitcoin exchanges. It’s worth noting that you’ll be charged a percentage of your transactions as fees and also that Bitcoin is also a very slow network whose transaction validation can take up to 20 minutes before it is updated in your portfolio.
After buying Bitcoin from these exchanges, investors need a crypto wallet to keep their Bitcoin assets safe; a reputable wallet is essential for keeping your Bitcoin safe. There are two types of wallets; hot wallets and cold wallets.
- Hot Wallet: A hot wallet stores Bitcoin in an online or cloud storage provided by the crypto wallet agency. Popular online wallets include Mycelium and Electrum. Online wallets are risky because, if the hacker hacks into the wallet provider’s system, all of the user’s Bitcoin assets are gone.
- Cold Wallet: A safer storage option is a cold wallet. Unlike a hot wallet, a cold wallet stores the Bitcoin in offline storage, probably on a flash drive, making it inaccessible to hackers. Cold wallet service providers include Ledger and Trezor.
Investing in Bitcoin
There are many approaches an investor can take to invest in Bitcoin. Some investors buy and hold long term, some sell it after a significant price hike while others use Bitcoin for futures trading. Whichever one you use, always have a mapped-out trading strategy and how you will achieve them.
Another way of investing in Bitcoin is by buying its shares. Grayscale Bitcoin Trust (GTBC) shares can be bought by investors. However, the opportunity is only open for accredited investors who have a net worth of $M 1at least or make $200,000. Due to this restriction, the majority of investors cannot buy GTBC shares in the USA.
Uses of Bitcoin
Alternative Investment option: In today’s world of inflation, hedging and diversifying is essential for keeping and multiplying wealth; Bitcoin provides that. Instead of investing in stocks, Bitcoin could be an alternative option to diversify your portfolio.
As Form of Payment: it can also be used as payment like fiat currencies. Even though it is not widely accepted, reputable companies like Whole Foods, Microsoft and PayPal, have led the line by accepting Bitcoin payments.
Credit Card Alternative: one other notable use of Bitcoin is that it can alternate with debit or credit card payment. Companies that provide such services will convert Bitcoin to dollars in seconds and you can use it for real-time transactions. Bitcoin can be converted to dollars on Crypto.com, CoinZoom and others.
As A Store of Value: There is a reason why Bitcoin is called the digital gold, it has the ability to be a reliable store of value. Instead of converting cash to gold or silver, investors can convert it to Bitcoin while it appreciates over time.
As A Hedge Against Inflation and Government Censorship: Some governments control their citizens through their currency. The government determines the currency in circulation, thereby, causing inflation and deflation at their own will. They can even restrict individuals from receiving fiat in other currencies through the bank.
Bitcoin is the perfect hedge. As holders store their BTC in the Blockchain, no government or central institution can access it. The asset is not tied to the holder’s identity and they can also have a key to access their assets.
This greatly undermines the government’s efforts to control the state’s currency through banks and other financial institutions.
Disadvantages of Bitcoin
Price Volatility: Bitcoin has a high price volatility rate. It can witness major spikes and falls within days or even hours — its price is never stable, which can go either way for investors.
For example, Bitcoin’s price was trading around $20,000 in 2017 before plunging. It only rose back in December 2020 and the 2021 crypto bull run. Even though it has since traded at over $45,000, nobody can predict its future price accurately.
Security: Bitcoin is never short of prospective hackers as the largest cryptocurrency in the world. Although the network is very secure, it could witness any form of attack in the future.
The largest crypto exchange, Binance took a significant loss after hackers stole $40M worth of Bitcoin from its platform
No Insurance Protection: Bitcoin is not insured by an insurance company. If your Bitcoins are stolen, that is the end. There’s no insurance coverage. holders cannot expect a refund of their Bitcoin assets.
While few of these myths later became true, the majority of them remain myths. Bitcoin has overgrown all the criticism and is seeing more adoption by the day. With inflation and other looming economic conditions, it is safe to say Bitcoin has not yet reached its peak. It is going to appreciate over the next few years. It solves too many monetary-related problems in the modern world to be disregarded — even governments are beginning to take a chance on Bitcoin!