Bitcoin, often abbreviated as BTC, is a digital currency and was created in the year 2008 by an unknown person, and its circulation is increasing day by day.
As mentioned above, it’s a decentralized currency, and the transactions are recorded in digital ledgers known as blockchains.
Nowadays, Bitcoin can be used to purchase various goods ranging from your essentials groceries to your dream home or apartment.
The CEO of Tesla, Billionaire Elon Musk, also announced that his company would accept Bitcoin as a mode of payment for their electric vehicles. Hence the acceptance rate of this new digital currency is bound to rise in the near future.
How does Bitcoin work?
So to break it down without much technical jargon involved, Bitcoin is a currency that is stored in a digital wallet on an electronic device like your mobile phone or PC.
People can send Bitcoins to retailers in exchange for the goods they purchase, and all the records are kept public in the blockchain.
There are various ways of obtaining bitcoins; some technical, some not so. These are the three major ways to obtain Bitcoins.
- Purchasing through an exchange- With time, a lot of exchanges have mushroomed, which, just like stock exchanges, trade bitcoins in exchange for your national currency, and similar to stock of a publicly listed company, the price of the BTC keeps on fluctuating with respect to time. Some reliable exchanges include BItstamp, Coinbase, and Bitfinex.
- Transferring Bitcoin Directly- Bitcoins can also be transferred or traded between two users directly the same way normal currency is traded through digital wallets.
Mining- Mining is much more complex than trading as one needs to solve complex mathematical problems using programming knowledge to get bitcoins. It also requires a decent setup which would cost a lot. But mining was the only way to get Bitcoins when it was not being traded at such a high frequency.
Pros of Bitcoin over other currencies
- User Autonomous Currency
Most of the Government regulated currencies are subjected to and linked to changing government policies. Hence they’re quite vulnerable.
On the other hand, Bitcoin is an autonomous user currency and isn’t linked to government policies of a specific nation, and the system just can’t crash, whereas a bank might shut any given day.
- Peer to Peer Transactions
People can send and receive Bitcoins and don’t require any kind of external approval until and unless they’re getting it from a regular institution or exchange.
- Bitcoin transactions do not incur banking fees.
Traditional currencies and payment methods do require some transaction fees, our minimum balance, or even maintenance fees, but Bitcoin is a completely free mode of transaction.
- Mobile mode of payment
Similar to most payment gateways, Bitcoins can be transacted remotely with the only condition of having an Internet connection—hence no need to carry physical currency or hard cash in your wallet. Your smartphone or desktop is all you need.
Cons of Bitcoin
- Irreversible Transactions
Unfortunately, Bitcoin transactions are irreversible, and at the same time, they’re not amended by any third party. If you transact by mistake, the only way to get your BTC back would be if you could somehow contact the recipient and ask him/her to resend the BTCs.
While the Internet being the only requirement for Bitcoin to operate, and that being a great advantage, its a disadvantage at the same time as only those with access to the Internet would be able to transact in Bitcoin, and that would leave a huge chunk of the population behind.
- Anonymity of Bitcoin
For long people have thought that cryptocurrencies like Bitcoin are completely anonymous, but that’s not the case; it’s actually much more complicated.
For example, it’s anonymous in the sense that with your crypto address, no one can link it or trace it down to you, the individual.
But at the same time, with the crypto address, anyone can find out your exact balance and details of all your transactions as all of them are publicly listed on the blockchain. Pretty weird, right?
Predicting Bitcoin Prices
To be honest, there’s no reliable way to predict Bitcoin prices as compared to conventional shares as the stocks or shares are very much dependent on the way the specific company or firm performs, while Bitcoin has no specific factor as such.
Simply put, the valuation of Bitcoin can be directly linked to its consumer demand. Hence the more people use it to transact, the more its price is bound to go up.
Other than that, there are also a few factors that have affected the price of Bitcoin. They’re as follows-
- Tesla and Elon Musk- Strangely enough, Elon Musk tends to drive the price of Bitcoin with his statements and tweets. For example, when he announced that Tesla would accept Bitcoin as a payment method, the price of Bitcoin skyrocketed.
2. Politics- Politics or Government policies have and will be affecting the price of Bitcoin. For example, when the Chinese GovernmentGovernment said that cryptocurrencies disrupt the economy, the price of Bitcoin fell drastically. Hence it’s important to keep track of government policies if you invest in Bitcoin.