In this day and age, no matter where you fall on the financial spectrum whether you’re a traditionalist who prefers actual cash or an investment devotee, you’ve almost surely heard about cryptocurrency and maybe even some of its benefits and drawbacks. Cryptocurrency has grown in popularity in recent years, with over 14% of the US population owning some type of cryptocurrency as of March 2021. Furthermore, Bitcoin is owned by an estimated 46 million people in the United States.
Bitcoin is one of the most well-known and widely used cryptocurrencies. It’s also where bitcoin newbies might contemplate putting their toes into cryptocurrency investing. So, if you’re wondering, “Is Bitcoin worth investing in?” knowing the benefits and drawbacks of Bitcoin will help.
What Is Bitcoin
Bitcoin is a type of digital currency that does not rely on central authorities like banks or governments. Bitcoin, on the other hand, relies on a peer-to-peer internet network to confirm purchases between users.
Satoshi Nakamoto, a mysterious developer, launched Bitcoin in 2009. Bitcoin (BTC) was the first and most valuable cryptocurrency.
Unlike services like Venmo and PayPal, which rely on the old banking system for permission to transfer money and on existing debit/credit accounts, bitcoin is decentralized: anyone, anywhere in the world, can send bitcoin to anyone else.
How Does Bitcoin Work?
Each Bitcoin is a file kept on a computer or smartphone in a digital wallet. To understand how bitcoin works, you’ll need to know the following words and some background information:
The Blockchain:
Bitcoin is based on blockchain, an open-source program that provides a shared public history of transactions grouped into “blocks” that are “chained” together to avoid manipulation. This system keeps a permanent record of every transaction and allows all Bitcoin users to work with the same idea of who owns what.
A Bitcoin wallet has two keys:
a public key and a private key that works together to allow the owner to begin and digitally sign transactions. This enables Bitcoin’s most important feature: safely transferring ownership from one user to another.
Bitcoin mining::
On the Bitcoin network, users verify transactions through a process known as mining, which is designed to ensure that new transactions are consistent with previous transactions. This prevents you from spending a Bitcoin that you don’t have or have already spent.
Also Read: Best App To Trade Bitcoin In Nigeria
How Does Bitcoin Make Money?
New Bitcoins are created as part of the Bitcoin mining process, in which those who operate computer systems that help to validate transactions are rewarded with them.
Bitcoin miners, also known as “nodes,” own high-speed computers that independently confirm each transaction and add a completed “block” of transactions to the ever-growing “chain” which contains a complete, public, and permanent record of every Bitcoin transaction.
Miners are compensated in Bitcoin for their efforts, which encourages the decentralized network to validate each transaction independently. Because the majority of miners must authenticate the legitimacy of each block of data before it is added to the blockchain, a process known as “proof of work,” this independent network of miners reduces the risk of fraud or fraudulent information being recorded.
Pros Of Bitcoin
Even though Bitcoin was launched in 2009, it is still regarded as a new type of currency with a lot of misunderstanding. Understanding the advantages of Bitcoin will expose you to discerning if it’s a good investment opportunity for you.
1. Liquidity and accessibility:
One of the most appealing aspects of cryptocurrency, and Bitcoin is no exception, is that it often seems no borders. Bitcoin has the advantage of being very accessible and versatile money. Because sending bitcoins to another user takes only a few minutes, it can be used to buy goods and services from the ever-growing number of businesses who accept it. This enables spending money in another nation and converting currencies easy, with the added benefit of low or no fees. Bitcoins are also easy to sell at any time.
2. Independence from the central government:
Bitcoin is a decentralized currency, which means it isn’t controlled by a single government or central bank. This implies that your coins are unlikely to be frozen or demanded by authorities. There’s also no method to tax Bitcoin practically. Because the pricing isn’t related to government policy, this theoretically provides users autonomy and control over their money. And, in general, cryptocurrency users consider this to be one of the most significant benefits of Bitcoin.
3. Transparency and anonymity for users:
Bitcoin users are recognized by numerical identifiers and can have several public keys, albeit they are not fully anonymous. This eliminates public tracking and prevents transactions from being linked back to the user. Even though the transactions are constantly visible, which provides transparency, blockchain technology ensures that they are safe from fraud. Furthermore, you, as the wallet owner, would be the only one who knows how many bitcoins you have.
Even if the address for your wallet became public, you could construct a new wallet address for greater security and anonymity. No extra personal information is necessary, unlike in a traditional money system where personal information could be leaked from a bank. Bitcoin transactions do not require any other personal information, which increases user privacy.
Cons Of Bitcoin
1. Volatility in prices:
While the value of Bitcoin has risen considerably over the years, investors’ fortunes have varied greatly depending on when they invested. Those who purchased Bitcoin in 2017 when the price was approaching $20,000, for example, would have to wait until December 2020 to recoup their losses. Even though Bitcoin had a fantastic year in 2021, it has since fallen significantly from its all-time highs.
2. Irreversible:
Another problem is the lack of security, as Bitcoin transactions are anonymous and unregulated. Because Bitcoin transactions are irreversible and final, there is nothing that can be done if the wrong amount or recipient is sent.
There’s also the possibility of losing money. Many Bitcoin users choose to store their money in a cryptocurrency wallet, putting their investments in danger if they lose access to their private key. Your cash could become inaccessible or gone totally in a matter of minutes if a hard disk crashes or a virus corrupts the data or even your wallet.
3. There are no government regulations:
Sure, a decentralized currency is one of the advantages of cryptocurrencies, but it can also be perceived as a drawback of Bitcoin because it means that Bitcoin investments are unregulated. Unlike a currency regulated by a central bank, Bitcoin transactions are unprotected by law and are often irreversible, making them vulnerable to fraud.
Also Read:5 Reasons Why People Want To Trade Bitcoin
Conclusion
Examining a list of Bitcoin’s benefits and drawbacks is merely the first step. It’s also a good idea to learn how cryptocurrencies and crypto wallets work, as well as the market’s accessibility and the accompanying expectations and hazards. If you do decide to invest, keep in mind that there are various tools available to assist you track your bitcoin investments, such as the Mint app.
Also Read: How To Convert Gift Cards to Bitcoin- Full Guide
