Bitcoin is the most unbelievable tale of money-making for investors in the 21st century. The digital token has become the epitome of investment in technology and witnesses the power of compounding over the years.
The total Market capitalization of Bitcoin is over $615.8 billion, which is more than the GDP of most of the countries of the world, including Sweden, Poland, Belgium, UAE, Norway, Hong Kong, Singapore, and others.
Bitcoin is the best-known digital currency amongst users across the globe. It is not only the first-ever virtual token, but also the most traded, used, and renowned cryptocurrency. The fictional token has made real fortunes for many investors, who made a smart move.
However, before one just hops onto a crypto platform and starts investing in crypto coins, investors must understand the crypto trading is not regulated and is highly speculative. Also, there is a risk to lose your entire investment overnight as the cryptocurrency market is a 24×7 phenomenon.
History of Bitcoin
Bitcoin was the first established digital asset with cryptography and can be used as a medium of exchange. However, due to its technological advancement and backing, the term cryptocurrency came into existence.
When exactly Bitcoin was found is unknown. However, digital currency was first made public in 2009. The anonymous Satoshi Nakamoto, whose real identity is still unknown, is behind the development of Bitcoin. It can be a person or a group of individuals.
‘Satoshi’ is the smallest or one-hundredth unit of Bitcoin, which was built using technology with the goal to create a new electronic cash system that is completely decentralized with no central authority or geographical boundaries.
Not more than 21 million bitcoins can be mined. Mining bitcoin requires a heavy amount of energy, which is as much as the amount of energy consumed by many small European countries. Nakamoto shared the source code and domains with the Bitcoin community. There has not been any communication from Nakamoto since then.
What is Bitcoin actually?
Bitcoin is a digital or virtual currency and there are no coins or notes printed. There is no government, financial institution, or regulatory body involved in controlling the asset. The owners, buyers, sellers, all are anonymous. There are no account numbers, social codes, or names allocated to the Bitcoin owners.
Bitcoin uses blockchain technology and encryption keys to connect buyers and sellers. And, just like diamonds or gold, a Bitcoin gets ‘mined’ by anonymous cryptographers.
Return on Bitcoin
Bitcoin came into the retail limelight in 2013, when its price was around $135. In four years, bitcoin delivered over 50x return to the investors, making them filthy rich. However, it entered a long phase of consolidation for about the next three years, reaching the value of about $6,000 in March 2020. Interestingly the cryptocurrency surged more than 10 times in just one year, and then crashed to half.
The data showed that Bitcoin has delivered about 500 times return since 2013 when it was used among the small users. It turned the investment of Rs 10,000 in 2013 to Rs 50 lakh during its peak. However, the net return so far is 250 times and the value of investment of Rs 10,000 would have been Rs 25 lakhs.
However, the actual return is very very humongous. Investors who put their bet in the digital token, back in 2009, the value of investment of Rs 1,000 would have crossed Rs 32 crore so far. However, such returns are only in textbooks.
How Bitcoins are mined?
Bitcoin mining requires an extremely high amount of energy, as already mentioned above. Super intense computers are used to mine these tokens. According to the reports, more than 16 million Bitcoins have been mined so far and about 5 million more can be mined. The total possible mined capacity is capped at 21 million Bitcoins.
The mining process involves computer solving, an extremely challenging mathematical problem that progressively gets harder over time. Every time a problem is solved, one block of Bitcoins is processed, and the miner gets a new Bitcoin.
A user establishes a Bitcoin address to receive the Bitcoins they mine, sort of like a virtual mailbox with a string of 27-34 numbers and letters. Unlike a mailbox, the user’s identity isn’t attached to it.
Interestingly, Bitcoins are stored and protected in digital wallets, which are as good as digital safe boxes. However, Bitcoins can be stolen from digital wallets.
How to use bitcoin
You can earn Bitcoins in various other ways apart from mining them. Bitcoin is widely accepted as a medium of exchange, as good as a tender (not legal though) to make payments for goods purchased and services availed.
Digital payment service provider PayPal is among the leading platforms, which accept Bitcoin as a medium of exchange. It also allows users to store, track and spend the digital currency to its users. However, such services are provided by a third party which in this case is Coinbase, the leading cryptocurrency trading platform.
Also, various websites offer Bitcoins as giveaways or rewards on the completion of a specific
task. Bitcoins can be lent to others and earn more.
The growing interest of investors and broad trading opportunities will lead to the launch of Bitcoins’ future, which is as good as equity futures. They are a legitimate asset class.
Investors can trade Bitcoins on Bitcoin exchanges, with Japan handling more than 70 percent of all Bitcoin transactions. Various websites accept Bitcoin as dealing.
What are the risks involved?
On the face of it, Bitcoin might appear as a lucrative opportunity to make money, but there are several risks attached to it, losing your entire investment can be one of them.
The anonymity factor of Bitcoin leads to its appeal in illegal, criminal, and terrorist activities. Bitcoin is another medium of money laundering across the border.
Also, the lack of a regulator makes it prone to fraudulent and cheating activities. It is very difficult or next to impossible to solve the theft and other similar issues. There is no reversal of the transaction. Once a transaction hits the blockchain, it is concluding.
Since Bitcoin is merely a decade-old concept, there are still many unknowns, and its value is very volatile and can change significantly daily. However, many analysts assume that Bitcoin as the technology continues to grow and mature.
Also, Bitcoin is very volatile. The bull run in the crypto market is very secular, moving only northwards in a brief span of time. However, when the beers take charge, the falls are more drastic and steep.
In the recent episode, tweets and commentary from bigshots like Tesla boss Elon Musk caused mayhem in the crypto market. The tweets of the mercurial technocrat shot the value and price of bitcoin to record highs, which is now almost half of it after Musk entered the denial mode.
Bitcoin as a legal tender?
In June 2021, the South American nation El Salvador became the first country in the world to adopt bitcoin as legal tender after Congress on Wednesday approved President Nayib Bukele’s proposal to embrace the cryptocurrency, a move that delighted the supporters of the currency.
Bukele has touted the use of bitcoin for its potential to help Salvadorans living abroad to send remittances back home while saying the U.S. dollar will also continue as legal tender. In practice, El Salvador does not have its own currency.
Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes.