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Benefits and risks of investing in Bitcoin

Benefits and risks of investing in Bitcoin

As Bitcoin is garnering too much press attention, should it be a part of an average investor's portfolio? Investors and traders are thinking of bitcoin as the best cryptocurrency, and if you want to become a trade, you must check out https://bitcoin-up.live/.

For that, let's first understand what does Bitcoin means.

Meaning of Bitcoin

Bitcoin is a cryptocurrency and a payment system that is global and decentralized. It does not operate under the sight of a central bank of any particular nation. It uses Blockchain technology as its platform to transact with each other in bitcoin, and there would be no requirement of any intermediary. Bitcoin is the cryptocurrency that is the first most prevalent across the world. This has received the most voluminous transactions amongst all other currencies like Ethereum etc., that are noteworthy. 

By providing the processing power to computers and solving the mathematical equations, you can mine Bitcoins. New Bitcoins are provided as a reward to the owner of the computer who solves the equation. The share of Bitcoin will depend upon the processing power that is offered to the user.

The criteria for any cryptocurrency to get categorized as a real digital currency - The currency should be used as a store of value, medium of deferred payment, mode of Exchange, and mode of value measurement. And Bitcoin meets all these criteria, and therefore it is recognized as a currency. The feature of the store of value drives the speculation in Bitcoin, and this is the reason for its booming prices.

What are the advantages of Bitcoin?

The most significantmerit of Bitcoin transactions is its lower costs. As there is no intermediary involved to carry out Bitcoin transactions, there are no fees to be paid; therefore, its prices are lower. Anonymity in the transactions is another significant benefit. There is no requirement of mentioning the personal information of the user while transacting in Bitcoin. This feature of Bitcoin has proved out to be a demerit for it as this has led to making it a popular asset in Black markets. As it is hard to trace the user's identity since there is no identity detail required in Bitcoin, it has become the preference of criminals and such enterprises to carry out their transactions. 

The Demerits of Bitcoin

The prices of bitcoin have gained a lot of value in recent years due to its popularity and volatility. There are investors speculating on Bitcoin by planning to make short-term gains out of it and not invest in it for the long term. This is the reason for the fueled-up prices of Bitcoins. Also, due to this reason, all the merchants who started accepting payments in Bitcoins have stopped this practice due to its volatile nature. 

Since there is no centralized authority regulating the cryptocurrency, it might not be a great idea to purchase Bitcoin through a secondary market. The transaction period between purchase and sale of a Bitcoin can be five days, and the markets usually crash due to the volatile nature.

There is a limit to the number of transactions of Bitcoins. As compared to the other currency platforms, the number of transactions that can be carried out is very high, and there is a limit to the number of transactions that can be carried out a Bitcoin which is limited to seven transactions a second. This is one of the reasons that is making Bitcoin away from being a dominating player in the global payment market.

Lastly, when Bitcoin was first invented in the year 2009, the maximum number of Bitcoins that could be mined was limited to 21 million. The latest numbers of Bitcoins that exist are 16.8 million. The numbers of Bitcoins that can be mined have reduced across years; this has made the mining process of Bitcoin more complex. Due to this limit in the supply of Bitcoin, there has been pressure on the upward valuation.

There are other cryptocurrencies as well that are existing in the market like Litecoin, Ripple, etc., which have both advantages and disadvantages similar to that of Bitcoin. The values of these cryptocurrencies are correlated to the values of Bitcoin.

(Last Updated On: September 27, 2021)
About the author

    Whale Sumo

    Hwang is a self-proclaimed nerd who loves helping people understand complex concepts. He has a passion for crypto and online privacy and enjoys teaching others about the benefits of both. Hwang is an advocate for individual freedom and believes that knowledge is power. When he's not busy sharing his knowledge with the world, Hwang can be found running full marathons or playing video games.