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.
History of Bitcoin
Bitcoin was the first established digital asset with cryptography and can be used as a medium of exchange. 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.
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. However, it does not exist in physical form.
Return on Bitcoin
Bitcoin is also a currency that is also traded and its value is like that of other commodities. It is also determined through trade but is not propelled or diminished by the action of any bank instead directly by the actions of its users. Its supply is also limited. Its assumed value is like all other currencies, which are based on utility and trust. Its value is controlled by the network based on booms and busts. Bitcoin is not a new thing in the creation of currency, but it is certainly a new way for money to be created.
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 transaction is verified through a peer-to-peer network of computers that takes place and undergoes the verification process. When 1 MB of data is confirmed through the proper procedure a block is created and the transaction is completed and Bitcoin is generated and miners are rewarded with Bitcoin currency or token and this way coins are released and are circulated. Each block is interlinked to the previous block to create the blockchain and making it impossible to alter without modifying all of the previous blocks. Bitcoins are stored and protected in digital wallets, which are as good as digital safe boxes. However, Bitcoins can be stolen from digital wallets.
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.
Whenever you buy or make any transaction in Bitcoin, your money goes into your digital wallet. You can fund the currency, or virtual coins, via an exchange such as Wazirx, Binance, Kubercoin,etc.
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.
Advantages of Bitcoin
Conventional currencies are subject to monetary policies of governments and international banks but not decentralized bitcoins.
The transactions, which take place in Bitcoin, are fictitious which means they are not completely anonymous. The transaction, which takes place under this form, can only be identified by the IP address. Every individual has their own IP address which varies from one person to another and it will only help us to make transactions in Bitcoin. The user should not share their password with anyone else because there are chances to misuse the account. So any individual can be identified only by his or her IP address in this blockchain.
The transaction made in Bitcoin is peer to peer which means it is encrypted end to end and no one can keep a watch on others personal transactions.The user can send and receive payments from one account holder to another without any need for identification. The only thing needed is the receiver’s IP address and the transaction can be easily conducted or transferred without taking any permission from legal bodies.
No Banking Fees
Bitcoin users are not subject to the entreaty of traditional banking fees associated with fiat currencies. There is no need to maintain the account.
Nominal Fee and speed of transaction
Fees and exchange costs are involved in foreign purchases and transfers but in Bitcoin transactions, there are no government bodies nor intermediaries involved so the transaction cost is automatically lower than banking fees. Therefore transactions can be transferred fast and easy.
As we make other online modes of payment, Bitcoin users can pay from their coins anywhere where they have Internet access. In this way of transactions, the coin holder need not have to travel to a bank or a store to buy a product. There is no need to share any personal information to complete any transaction.
One of the major advantages of Bitcoin’s blockchain is that it is immutable. Therefore, transactions using the blockchain are irreversible and do not involve any third party, such as a central government or financial institutional agencies. If a Bitcoin is sent to a person incorrectly, it is not possible to file a charge-back for a Bitcoin sent to someone else. The only way to reverse, in a manner of speaking to the person who received the Bitcoin transaction and can be received by having the recipient send back the original bitcoin.
Bitcoin is not a physical currency. Therefore, it is impossible for thieves to steal from digital wallets. Hackers can steal a person’s cryptocurrency if they know the private keys for the wallet. The cryptocurrency exchange has information about and reports of hackers.
The transaction can be easily completed using any smartphone, tablet, or laptop and without involving a third party.
Disadvantages of Bitcoin
Not widely accepted
Very few suppliers or entrepreneurs accept Bitcoin as money for the goods and hence is not accepted completely in every aspect of the business. There is also a possibility that governments might force vendors to not transact in Bitcoins as it makes the track of the transaction of the holder of the coin.
Loss of wallet
If the wallet file is damaged or destroyed due to virus or hard drive crashes then the Bitcoin will be lost completely and there is no other way to recover the coin back. This can bankrupt a Bitcoin holder within a fraction of seconds and the coin the investor-owned will be lost permanently.
There is a peak fluctuation in the currency in digital coins constantly. This major fluctuating nature makes other sites increase or decrease the price of the coin. It also causes a lot of confusion among the investors and if a refund for a product is being made it becomes very difficult to give back the principal amount of the product.
Lack protection of buyer
When goods are purchased, using Bitcoins the buyer pays the current amount using a digital coin, and if the seller does not send the promised goods, it becomes very difficult for the buyer to get back the money and so nothing can be done to reverse the transaction.
Risk of an unknown technical defect
The Bitcoin technical system could contain unexploited blemishes. It is a new system and there are possibilities of the technical defect and if a defect is found, it could give tremendous money to the exploiter at the cost of destroying the Bitcoin economy.
No Physical Form
As there is no proper authority or norms or form is followed while transacting Bitcoins it cannot be used in normal stores. The holder of the coin has to always follow the procedure to convert it to other currencies and therefore users would be forced to convert Bitcoins anyway unless a universal system is proposed and implemented.
No return value
Since there is no central authority or governing bodies or financial institutions involved due to its decentralized system, in Bitcoins no one can guarantee its minimum valuation.
Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes.