Bitcoins seem to be of all the rage now and for all the correct reasons. When the world’s richest man, Elon Musk tweeted about bitcoins, calling them a good thing’, the world was immediately affirmed about their great value. Bitcoin prices have recently seen a huge surge and could reach the $100,000 mark by the end of this year. In this context of surging prices and bitcoin ascertaining its popularity, it may be important to know about it. What are bitcoins? What does bitcoin do? How do they work? What generates their value? Are they worthwhile investments?
What are Bitcoins?
Simply put, bitcoin could be considered virtual money. But it is a little more complicated than that. Bitcoin basically functions as software that is run based on a predefined set of protocols and processes. It could be called a digital happening and its entire existence is virtual. Bitcoin is known to record its transactions through a decentralized system f ledgers called the blockchain, which is yet another popular term. Therefore bitcoin functions as a currency in the digital mode through the system of blockchain technology. Bitcoin was invented into the market as early as 2009 under the name Satoshi Nakamoto. Since then, though many cryptographers have tried to invent newer forms of cryptocurrencies in order to match bitcoins, it has continued to maintain its perennial popularity. It has remained the largest and most capitalized cryptocurrency in the market. Since it is a virtual form of money, like any other currency it could be used to buy commodities or make investments and other transactions. However, most places have still not given bitcoin its entry into the market. Crypto is still not in circulation as a currency in many places but it does seem to have gained ground in a lot of other important places as well. This would primarily include the banking giant PayPal which has allowed users to buy and sell bitcoins and use bitcoins as means of making legitimate transactions. As per its valuation, bitcoin also seems to have a similar parallel to gold in terms of investment.
How does Bitcoin Work?
Every bitcoin is like a coin in the pocket, only the coin exists virtually and so does the pocket. The bitcoins are stored in a ‘wallet’ digitally and people can access this wallet through any mobile app, available on both iOS and Android. People can send each other these bitcoins over which gets stored in their wallets digitally. The wallets could also be of two kinds- the hot one and the cold one. The essential difference is that while hot wallets allow the user to access their bitcoins from any place by storing them in a cloud, cold wallets allow the user to manually download their bitcoins and carry them along, much like in the case of fingerprint devices which allows one to transact cash physically. It must be remembered that all of the transactions made from peer to peer or through the mining of the bitcoins are listed in the ledger called the blockchain. Therefore every single transaction gets recorded and hence, it is the most trusted form of currency transaction to ever exist before.
People normally obtain bitcoins through a few procedures- they have the option of buying bitcoins using real cash, they could also make transactions on the basis of bitcoins from peer to peer or they could mine bitcoins and obtain them. The third procedure requires machinery and is a little bit more complicated than the first two. Bitcoin mining typically includes the running of complicated digital rigs and solving complex puzzles. These solutions lead to the confirmation of a cluster of transactions which are known as blocks. If these efforts are successful every single block gets added to the elaborate ledger system of blockchain. The miners then get back a portion of the transaction in terms of bitcoins. Bitcoins can also be exchanged over crypto exchanges and other modes of cash for crypto transactions.
Are Bitcoins Worthwhile Investments?
Bitcoins are definitely worthwhile investments because they have been generating a lot of valuation in the stock market. Since all of the transactions made through bitcoins are recorded on the ledger of blockchain, faking this cryptocurrency becomes a task for frauds. Since bitcoins provide specific resistance towards fraudulent activities and theft of property, it has gained the reputation of being one of the safest investments in today’s world. However high profile theft situations have still been recorded and it is not completely bulletproof. Besides one could stand the risk of deleting their entire bitcoin wallet since it completely exists digitally and therefore, lose all of his/her investment altogether. But when compared to other investments, it is definitely a safer option in terms of protecting oneself from property theft.
But the fact that bitcoin isn’t regulated by governmental institutions or the fact that it does not exactly require governmental ratification in order to carry out its operations is preferred by some, and detested by others. According to the latter half, this very fact does not guarantee any safety against their investments made. However, for the former half, the lack of governmental intervention is exactly what makes the prospect of investing in cryptocurrency all the more attractive to them. It must be remembered however that bitcoins are extremely volatile when it comes to prices. Even earlier this year it had a huge crash, owing to its operational activities, and later it jumped back to a huge amount. This very mercurial nature makes bitcoins an ambiguous property to invest in. While it yields huge profits when the prices surge, according to many, bitcoins make them feel anxious and nervous.
Investing in bitcoins can prove to be an extremely volatile decision but at the same time, extremely profitable. It is important that a person knows exactly how bitcoins work or in general how does cryptocurrency works before he/she can invest in it. Investing in the stock market is a parallel that could be drawn in this case, because it generates a similar or lesser amount of thrill, but it must also be remembered that stock markets pose a lesser threat of losing money. Hence, investments in bitcoins must be done with complete prior knowledge of how bitcoin works. Bitcoin Investments should be done with extreme caution managing risk and diversification.