Bitcoin is a cryptocurrency founded in 2009 by the mysterious Satoshi Nakamoto and their team. It is a digital currency that functions without any centralized management, bank supervision, or governmental policies.
Instead, it uses cryptography and peer-to-peer software. Bitcoin is based on a proof-of-work consensus mechanism; through this, all of its transactions are authenticated. Bitcoin now remains the first and most valuable protocol in the emerging class of assets known as cryptocurrencies.
As of now, there are seven decimal places in which a bitcoin can be divided: a milli is one-thousandth of a bitcoin, and a Satoshi is one hundred millionths of a bitcoin. It is also the smallest denomination of each bitcoin.
Functioning of Bitcoin
Every single Bitcoin is considered a digital asset, which can be stored in a digital wallet or on a cryptocurrency exchange. Therefore, every single coin represents the current price of Bitcoin. Also, an individual does have the option to own a partial portion of each coin.
Bitcoin is supported by blockchain technology, an open-source code; it offers a decentralized public history of transactions arranged into “blocks” and “chained” to prevent hacking. This blockchain technology maintains a permanent record of every transaction and also develops a path for every Bitcoin holder to function with the same knowledge of who owns it.
It is a process of developing new bitcoins by resolving extremely difficult arithmetic puzzles, allowing one to verify the transactions in the currency. Once this process is done, it means a bitcoin has been successfully mined, and the miner is rewarded with a predetermined amount of bitcoin.
The miners of Bitcoin are the holders of the high-speed computer that independently verifies each transaction and adds a finalized “block” of transactions to the chain, which is continually growing. As a result, every Bitcoin transaction is entirely transparent and permanently recorded in the blockchain.
Also, as this network of miners is independent, it further reduces the risk of fraud or inaccurate information being recorded. Since most miners must verify the authenticity of each data block before it is transferred to the blockchain, they use a method known as proof-of-work.
Since its launch in 2009, the coin has gained popularity and the attention of investors due to its price volatility and increasing value in the mark. With time, Bitcoin bloomed as a new investment option for big firms and investors with time.
In recent years, the price of Bitcoin has surged drastically, which has resulted in an increase in interest in Bitcoin mining. But for most people, the prospects for Bitcoin mining are not successful due to its sophisticated nature and high costs.
Bitcoin as an Investment
Investing is not everyone’s cup of tea, and investing in cryptocurrency exposes you to coins that are highly volatile. It’s always been said that one should never put all of his eggs in the same bucket; hence, with time, investing in this asset has also become an option for investors.
Bitcoin as an investment depends on the individual’s idea of investing; here are a few pros and cons one can go through before making any big or small investment in this asset class.
High and cost-efficient transactions: If you own a Bitcoin, you are now open to making transactions anywhere, anytime, decreasing the time and the potential expense.
Privacy: Transactions made through Bitcoin don’t have any personal information, like a name or card number. Transactions are usually more private than credit card transactions, even though it is still viable to identify a particular individual to a specified wallet.
Decentralized: This asset class is fully decentralized; if we see the Great Recession and the financial crisis in the past, investors were looking towards an alternative, a decentralized currency that is not under the control of governing authorities, banks, or any third body.
Potential: The current market and last year for whole cryptocurrencies have not been positive. But investors who bought and held bitcoin still enjoyed the profits of the asset. Moreover, investors buying Bitcoin and holding it are betting that once the whole market rebounds, Bitcoin will flourish majorly with more trust, and its widespread use will grow its value.
Highly volatile: The value of Bitcoin has grown dramatically over the years since its launch, but the investors’ net worth has varied widely depending on the year of the investment. The ones who invested in 2017, when the price was around $20,000, had to wait a long three years to recover their losses. The year 2022 began with a Bitcoin price of slightly over $47,000 per coin, but after a bad year for the crypto market, Bitcoin currently trades at around $17,000.
Hacking: Even though we might come across numerous statements claiming that Bitcoin is more secure than traditional transaction standards, there have been numerous high-profile cases of hacks. It is inevitable for governing organizations to interrupt and take preventive measures to safeguard people from hacking during online transactions. There is no denying that this could be the technology of the century, but exchanges and financial bodies are required to strengthen the core areas in which hacking could be a matter of concern.
No Insurance Coverage – There are bodies and corporations that have the responsibility to insure investors up to an extent on the basis of their investment in case a brokerage fails or funds are stolen. However, with cryptocurrency, there is no such safety or insurance. There is not anybody or agency that could assure investors that their funds stored in a crypto exchange would be safe.
Bitcoin has certainly emerged as one of the key contributing factors to the online economy and has managed to provide people with another option for the transaction. Moreover, blockchain as a technology has a lot of advantages and potential that will be realized in the near future. If we are somehow able to secure online transactions from hacking and any other kind of malicious activity, then Bitcoin will certainly have a significant impact on our lives.