What is Bitcoin
What is Bitcoin
What is Bitcoin ? How to invest ? is it safe ? alternatives to Bitcoin? All questions answered.
Bitcoin: All Questions Answered
When the world's most prominent business tycoon pledges $1.5 billion for a virtual currency, you know something big is about to go down. Elon Musk has not only made a big investment but Tesla has also hinted at plans to accept Bitcoin as a payment method. When the world woke up to this news, the value of Bitcoin skyrocketed.
With all the buzz around Bitcoin, it's only natural that you want to get the best
Here are the questions we address to satisfy your curiosity:
- What is Bitcoin?
- How does bitcoin work?
- What is the value of Bitcoin derived from?
- Is bitcoin safe?
- How can you buy bitcoins?
- What are the top 3 alternatives to Bitcoin?
What is Bitcoin
Bitcoin is a cryptocurrency or virtual currency that was launched in 2009. Simply put, it's decentralized money in a digital format much like cash in your bank account, you can make purchases using your bitcoins. But due to lack of acceptance it is not fully possible now. To complicate matters further, some countries have imposed complete bans on cryptocurrencies.
Bitcoin essentially replaces financial intermediaries such as governments and banks with a combination of peer-to-peer technology and software-driven cryptography. Much like paper currency is backed by a central bank, a cryptocurrency is only backed by a code.
How Bitcoin Works
What is Bitcoin ? Bitcoin serves as a low-cost payment method. You can instantly transfer your Bitcoin payments through a computer.
Interestingly, Bitcoin is classified as a fixed asset. Why? Well, there are currently only 21 million coins. That being said, Bitcoin has virtually unlimited potential for growth due to fission.
Along with Bitcoin came another interesting innovation – Blockchain. Also known as distributed ledger technology (DLT), blockchain has immense potential to change the landscape of business operations and financial settlements. DLT maintains a track of ownership and facilitates instant bitcoin transfers.
What is the value of Bitcoin derived from
Bitcoin's value is derived solely from its demand. Since demand and supply can vary greatly from time to time, the price of Bitcoin tends to be quite volatile.
Other than miners, most people buy Bitcoin to profit from the currency's price fluctuations. In essence, they believe the price of a bitcoin (in USD or any other currency) will rise in the future. However, this is a risky bet.
Is bitcoin safe?
Well, not entirely.
The good thing is that every Bitcoin transaction is publicly documented which makes copying and counterfeiting difficult.
However, you may accidentally delete your Bitcoins and lose them permanently, or you may lose your Bitcoin wallet. Also, thefts have been reported from websites that allow you to store your bitcoins remotely
Security concerns are not limited to safety, though. Bitcoin is a highly volatile asset which means it is not the most ideal store of value. If the value of these volatile assets declines (which is quite possible), investors may lose a large portion of their invested amount.
How you can buy bitcoins
Bitcoin can be purchased through the following 4 methods:
broker
What is Bitcoin ? Robinhood was the first broker to facilitate Bitcoin trading. However, there are several other international as well as domestic brokerages that allow Bitcoin trading such as eToro, BitMEX, Binance, and PrimeXBT.
exchange
The largest exchange that allows you to trade Bitcoin and 30 other cryptocurrencies is Coinbase. There are several others like WazirX, BuyUcoin and Zebpay.
Peer-to-peer shopping
This is the most basic form of Bitcoin transaction that involves buying Bitcoins from someone who already owns something. To make peer-to-peer purchases, you need to use tools like Localbitcoin, Bitquik, and Bisk.
mining
Although it is possible to earn Bitcoins through mining, it requires technical skills and a powerful computer. These factors put this procedure out of reach for most people.
Which are the top 3 alternatives to Bitcoin
Although Bitcoin was the first cryptocurrency to be introduced to the world, many others have followed suit. Few of these cryptocurrencies are as promising as Bitcoin, if not more so.
Ethereum
Ethereum is second only to Bitcoin in terms of market capitalization. If you've ever invested in a cryptocurrency, you're probably familiar with Ethereum.
Ethereum was first created by Vitalik Buterin in 2013 as a cryptocurrency, the scope of which expanded beyond the transfer of currencies to each other. Ethereum consists of 3 components: Ethereum Virtual Machine (EVM), underlying currency Ether (ETH), and fuel (gas).
Note that when we refer to Ethereum, we are actually talking about Ether (ETH) - which is Ethereum's underlying currency.
Ripple
Ripple is the third largest cryptocurrency by market capitalization Ripple has a deal with American Express – quite an achievement. Ripple aims to become a global settlement network that enables people to make international transfers in seconds with minimal currency conversion costs.
Ripple has established a protocol that allows banking and other financial institutions to incorporate Ripple into their existing systems, enabling their customers to use Ripple.
Over time, Ripple hopes to completely devalue systems like SWIFT and WU as it aims to establish Ripple as the underlying currency for all intercurrency transfers.
Litecoin
Developed and introduced in 2011 by Charlie Lee, a former Google employee, Litecoin was created with a 2.5-minute block generation time and a hashing algorithm that differs from Bitcoin.
Lower block generation times translate into faster transactions, resulting in higher transaction volumes. What's more, the relatively fast block generation makes Litecoin twice as difficult to hack.
Litecoin's current market cap is $11.625 billion, so you certainly can't ignore its existence. The cryptocurrency written in C++ is accepted everywhere that accepts Bitcoin and can be traded on exchanges just like Bitcoin.
final thought
Bitcoin continues to provide huge returns to investors. However, you must consider your risk appetite when deciding whether Bitcoin is a good investment for you. If the past is any proof, Bitcoin fluctuates aggressively and can wipe out a large chunk of your investment overnight.
If you're chasing alpha returns, it might be worth your while to invest in bluechip stocks of established companies. It provides higher returns than debt instruments while maintaining a relatively low-risk portfolio. Still, it's always best to talk to your financial advisor to see what works best for your age, income and other variables.
