Bitcoin is not just a buzzing word but a financial and technical revolution. Read on if you have yet to learn about this term, what it does, what it means, and why it is a sensation.
What is Bitcoin?
Bitcoin was the first ever member of the emerging class of assets called cryptocurrency. It is a digital currency that aims to create a better worldwide payment system and eliminate the need for regulation from central authorities like banks. Bitcoin uses blockchain technology to support P2P transactions between users on a decentralized network. The central bank and the government control and govern our traditional currency. But, cryptocurrencies have no single entity controlling them. Hence, no single entity can manipulate or destabilize the network.
“BTC: Abbreviation for Bitcoin.”
Who created Bitcoin?
The story behind the origin of Bitcoin is shrouded in mystery. Since the first information or paper on Bitcoin emerged, Satoshi Nakamoto has been the only name (Psuedo name) associated with its invention. Fifteen years later, it is still being determined if Satoshi is one or a team of people who worked together. But what is clear is that it has stirred the world, resulting in the development of various Altcoins.
How does Bitcoin work?
Bitcoin is a digital asset stored in a digital wallet or cryptocurrency exchange. Each coin is a representation of the current value of Bitcoin. Interestingly, you can own partial shares of each coin too. Simply put, you do not necessarily need to buy 1 Bitcoin; you can buy 1/4th, 1/8th of it too. The smallest denomination of one Bitcoin is called a Satoshi, named after its creator. Each Satoshi is equal to a hundred millionth of one Bitcoin. Here is how Bitcoin works.
- “Blockchain: Bitcoin is powered by blockchain technology, which creates a shared public history of transactions stored into””block”” and is””chained” to prevent tampering. The technology is tamper-proof and transparent, with no room for alterations. It provides a permanent record of every transaction to all the users and enables them to operate with the same understanding. “Blockchain: Bitcoin is powered by blockchain technology, which creates a shared public history of transactions stored into “blocks” and is “chained” to prevent tampering. The technology is tamper-proof and transparent, with no room for alterations. It provides a permanent record of every transaction to all the users and enables them to operate with the same understanding.
- Public and Private Keys: A Bitcoin wallet contains public and private keys enabling the owner to digitally sign and initiate transactions.
- Bitcoin mining: Bitcoins are generated through a complex process called mining. Users on this network verify transactions through mining, solving complex mathematical problems to ensure that new transactions are Consistent with prior, completed transactions. It also provides you not to spend a Bitcoin you don’t own.
Highlights and Challenges of Bitcoin
Now that we know Bitcoin let us browse its challenges and key highlights.
Highlights
- Decentralization: With significant risk comes great reward. However, post the global financial crisis; the world looked forward to an alternative investment opportunity. The development of Bitcoin provided its investors with a decentralized currency that is free of control from any third party.
- Cost-efficient and faster transactions: When you own Bitcoin, you can transfer it anytime, anywhere, thus reducing expense and transaction time.
- Privacy: The transactions are more private than regular credit cards or net banking systems. It doesn’t contain personal information, like name, credit card number, customer id, etc. It is still possible to link a particular person to a specific wallet.
- Finite Supply: It is observed that nearly 80% of the total Bitcoins have been discovered and are in circulation. Satoshi is said to have set the network up to ensure the number of bitcoin never exceeds 21 million, ensuring scarcity. It will spike in value with a finite supply and assumed unavailability after 2140. Especially if the government accepts it and starts buying Bitcoin as a foreign currency reserve.
- Growth potential: The growth trajectory of Bitcoin so far is no mystery now. Despite the massive run-up, many investors believe Bitcoin will gain more trust and value with widespread acceptance and awareness.
Challenges
- Price volatility: Bitcoin’s value has dramatically grown, increasing buyers’ fortune depending on their investment time. From 2017 until now, Bitcoin has been through incredible highs and has hit massive lows. The price volatility etched to it makes it a risky investment for investors with a low-risk appetite or those wanting to be safe.
- Legality Issue: Cryptocurrency has not yet been declared as a part of legal tender or regulated. However, the growing acceptance from the government in terms of taxing it is a good sign. But whether or not it is illegal is still debatable.
- Hacking concerns: While many say blockchain technology is safer than the traditional electronic transfer of money, there have been instances when more than $40 million worth of Bitcoin was stolen from several high-profile accounts. Even though the cryptocurrency exchange covered the losses, it doesn’t negate the fact that it may be hackable.
Is Bitcoin the new money?
Bitcoin has gained popularity as an asset class, store of value, and medium of exchange. Bitcoin’s global acceptance in the cashless world makes it prominent. With easy transaction ability, you can now pay anyone worldwide at any given time. You are not charged any transaction fees or imposed arbitrary limits.
Moreover, when you pay with Bitcoin, there is no need to provide personal information, like bank details, name, etc., to the merchant. The transaction history contains information other than the amount and the Bitcoin address. The recent development to Bitcoin’s network has been the BRC-20 tokens, adding to Bitcoin’s functionality beyond being used just as gold. The launch of BRC-20 tokens led to a storm in the crypto world, bringing DRC-20 and LTC-20 tokens into circulation and simultaneously booming the Bitcoin, Dogecoin, and Litecoin networks.
Is Bitcoin a good investment in 2023?
A panel of crypto enthusiasts and financial technology investors predict Bitcoin to show a good run-up this year, peaking at $42,000 or more. However, these are just projections and should not impact your decision. Cryptocurrency is a volatile asset class, and buying cryptocurrency exposes you to more volatility.
With Bitcoin’s ability to provide fractional ownership, it becomes an easy investment with a tiny portion of your wealth. However, studying the market and making an informed decision is always recommended. The details mentioned above will help you analyze whether or not it is a suitable investment for you.
