Whether you’re just getting started with Bitcoin or you’re an experienced investor, you need to understand how it works in order to make the most of your virtual currency holdings.
The good news is that understanding Bitcoin—or at least its potential downsides—is as easy as understanding the cryptocurrency market itself. While Bitcoin has its own unique problems and risks, it is also the best tool for those looking to invest in block chain technology.
Here are some important pros and cons of Bitcoin.
What Is Bitcoin
Bitcoin is a digital currency that is created and distributed exclusively through computer processing power—no central bank or government controls it. The process of creating and distributing new Bitcoins is called mining. Mining is a process that uses computers to solve complex math problems that are difficult to fathom and verify.
The first person to solve the mathematical problem is rewarded with new Bitcoins. This is how it works; all you have to do is find out more about bitcoins and the block chain technology that underlies them.
Why Does Bitcoin Exist
There are a few different theories as to why Bitcoin exists:
To make the world’s financial system more efficient, to reduce money laundering, as a store of value, and for a whole host of other reasons. One thing’s for sure, however, is that the idea of a decentralized, digital currency that’s not subject to governmental control is a compelling one.
How Does Bitcoin Work
Bitcoin works by using computer processing power to solve complex math problems that are difficult to verify and verify thousands of times each day. When a Bitcoin miner solves a mathematical problem, they are rewarded with new Bitcoins.
The amount of Bitcoins rewarded to miners varies depending on how much computing power they’re able to muscle into action. The Bitcoin network mines these coins so that new coins can flow through the economy and be exchanged for other currencies or used to purchase goods and services in the marketplace.
Potential Problems with Bitcoin
There are a few potential problems with Bitcoin:
As with most new technologies, it’s still being developed and tested by the community. There’s no guarantee that the technologies behind it won’t be developed and used to circumvent or undermine the very foundations of the system.
The other potential issue is financial instability. As more and more people start to use it and start to buy products and services, the value of the currency will rise and fall with the strength of the market. This could cause more problems than it solves though — volatility in the value of Bitcoin could lead to more volatility in the market.
Pros of Investing in Bitcoin
The advantages of investing in Bitcoin include:
Low risk — If the market goes in a certain direction, then you can buy into that direction. If the market goes in the opposite direction, then you can just walk away from the investment with no damage done. No middle man — No banks, no Go back to the 80s — This one’s pretty obvious, but it’s still important to understand — By purchasing goods and services through the Internet, you’re not connecting to a walled garden of different products and services that might have different set of rules and regulations.
With Bitcoin, you’re connecting directly to its distributed network — This is the biggest advantage of all. You can pay with Bitcoin and get goods and services directly from manufacturers without facing middle men.
Cons of Investing in Bitcoin
There are some potential disadvantages of investing in Bitcoin: volatility in the value of Bitcoin could cause more volatility in the market. The amount of Bitcoins rewarded to miners is set to halve in 2017; this is set to happen as the network scales, but it also means that more work needs to be done to solve the math problem and make new coins. Another potential issue is that the technology is still in its infancy, and it might not be as secure as modern-day cryptography would suggest.
The other issue is that there are currently no investment funds dedicated to the growth of Bitcoin. As more people start to invest in the block chain technology that underlies this virtual currency, demand for Bitcoin will rise, which will cause its value to rise as well.
The bottom line is that investing in Bitcoin is like investing in the future of technology itself. It has its own unique problems and risks, but it’s also the best tool for those looking to invest in block chain technology.