Unlike traditional currencies, the bitcoins are online currencies, where the transaction happens in a distributed manner. The Bitcoins are also termed as up-coming Cryptocurrency, where there are reduced cost, quick transaction, and minimal transaction fee. This article discusses a few factors to know about bitcoins, before becoming a bitcoin owner in the following sections.
What is bitcoin?
Like you use the traditional currency for buying and selling goods or services, the bitcoins are also used for trading, which happens online in a virtual environment. So in what way bitcoin is different from the traditional currency? The factors that make a unique difference are:
- Decentralized: There is no middle for making bitcoin transactions, and hence there are rules and regulations for a bitcoin Cryptocurrency. The bitcoin owners are given full control to initiate a transaction, and the transactions are public and viewable to all.
- Digitalized: Traditional currency will be physical, which can be kept in a wallet and carried where ever you go. But bitcoins are not the physical entity they are composed of 0s and 1s which will be stored in a digital wallet. The digital wallet consists of the public key to receive the bitcoins and private keys to send the bitcoins. They are just a file that can be stored in the desktop, laptop, Smartphone, and tablets.
- Anonymity: The bitcoin transactions are stored as blocks in a transaction chain, which is public to all the users connected in the network. The other bitcoin users will be able to see the transaction history and bitcoin balance. But the wallet address’s unique user information will not be revealed, and once the blocks are added to the transaction chain, the block cannot be altered.
How to acquire bitcoins?
The bitcoins can be bought by credit card, debit card, bank wire, hard cash, and lots more. But to store the bitcoins, a wallet must be established, which is available by registering with websites or can download the wallet software and store in your computer system through bitcoinup website. The wallet can also be obtained using a vault service, where the wallets will be stored offline, ensuring security.
In a traditional currency system, the government will decide on when and how much to print the currencies, and there is no limit leading to inflation. But in the case of Bitcoins, anyone can mine the bitcoins by solving a complex mathematical problem and acquire bitcoins. But only 21 million bitcoins can only be mined and therefore, there is no question of inflation.
Factors to consider before investing in bitcoins
Before investing in bitcoins, investors must consider the following factors. They are:
Bitcoin mining is expensive
Mining bitcoin is not very simple. The miners have to spend lots of money on mining bitcoins. Only a computer genius can crack the 64-bit codes that pave the way for a single bitcoin. So, the software has to be bought to crack the 64-bit code, which will be quite expensive. Also, the bitcoin value will not be stable. If in the previous week, if the price value hikes, in the next week it will reduce. So, an investor must keep a note on this factor before they invest in bitcoins.
Bitcoins are unregulated
In the case of stock markets, people invest in any investment schemes, where they get an actual amount. But that is not the case in bitcoins. As the values get repeatedly fluctuating, making small investments will be a wise decision, where the bitcoin buyers and sellers will not meet any pitfalls and loss of money.
Limited bitcoins and high demand
Unlike traditional currencies, people cannot get mine bitcoins without any limits. There is a limit in the bitcoins that, totally only 21 million bitcoins will be mined. But as the bitcoin buyers and sellers increase to a greater extent, by 2040, no single bitcoins will be mined. Due to the rise of illegal activities, in the future, there is a possibility that the governments might take control of bitcoins, where the bitcoins will be reserved as gold with lots of rules and regulations.
Like the traditional currency system, bitcoin owners must not risk investing a large amount of money on bitcoins due to its volatile nature. Bitcoin owners should keep a limit on how much they can hold and how they are willing to lose, before investing in bitcoins.