Is Bitcoin a Good Investment?
A Review on its Safety, Blockchain & More!
Unless you have been living under a rock, then you’ve probably heard about Bitcoin. This cryptocurrency has made headlines due to massive gains in value and the revolutionary way of transferring funds.
Want to learn more, but don't know where to start?
The good news is we’re here to teach you all you need to know. Instead of confusing you with technical terms we’ll explain what this digital currency is, how it works and how you can buy or store it.
First off, Bitcoin works using the blockchain. This is an open ledger where each unit of currency has a unique, coded identifier and trades are processed using the computing power of the network.
The problem newcomers have is understanding how this all works and how they can buy some for themselves. Let’s get straight into it and look at the origins of this digital currency and how it works.
How Does Bitcoin Work? Is It Safe?
Like any other investment or thing of value, it’s important you understand what you are getting into. Here we will be looking at the background of this virtual currency and explore its main features.
Bitcoin is the original cryptocurrency, which has played a big part in its dominance. It was created in 2009 by a software developer using the pseudonym Satoshi Nakamoto.
The virtual cash quickly gained traction as a way to facilitate peer-to-peer transactions online without involving a centralized authority.
All transactions get validated with the computing power supplied by the network’s users. In the absence of a governing authority, the ledger of transactions is public so once a BTC coin is assigned to an owner, the entire network is aware.
Some of the most important features of BTC include:
You may wonder why this virtual currency reigns supreme amongst all the other cryptocurrencies (check our reviews on this page). One massive reason is how widely it is accepted.
Many online and physical shops accept this form of digital currency and it’s the most easily traded cryptocurrency.
No crypto can rival how interchangeable banknotes are but this digital cash is certainly the closest to widespread acceptance.
This cryptocurrency is unique as a currency because it has a hard limit of 21 million Bitcoins. Not all of these exist yet - some still need to be ‘mined’ using computer power.
The limit stops any inflation of supply and because each individual BTC coin is divisible to eight decimal places, the currency can always be traded in usable chunks.
What really separates Bitcoin from the competition is its open source code. Application developers can build services that utilize the blockchain and serve users freely without the need to seek permission.
Next, here’s a look at how this cryptocurrency works and some of the unique technology it has behind it.
How Does the BTC Blockchain Work?
Every Bitcoin currently in existence was ‘mined’ by a computer solving a complex algorithm. The BTC coin itself is a unique line of code and assigned an owner, who is also represented by a unique identifying code on the blockchain rather than a name.
You don’t need to provide a name or give any identifying information to create a wallet to hold and transfer this currency. Privacy is not the right word to use though, due to the public ledger maintained on the blockchain.
Every time one coin owner wants to transfer a an amount to someone else, the unique coin identifier is transferred to them. The transfer takes place in public and is irreversible so that no crypto can ever exist in two places at one time.
The blockchain is the public record of this transaction. The encryption used by this cryptocurrency is of the highest level - it was originally created for use by the NSA.
Any attempts to ‘hack’ the crypto's ecosystem will be futile but there are still security concerns. A big weak point in security is an individual's record of the BTC coins they own.
Many coins use similar encryption, algorithms and processes, but there are some unique technological features that set Bitcoin apart.
Hashing power refers to the computing power present on a coin’s network that is available to process data. This processing power is used to process transactions and release new cryptocurrencies.
Computing power is the driving engine of the currency and is needed for it to operate. Out of all the cryptocurrencies in existence, Bitcoin has by far the largest pool of hashing power.
You can even see the real time network hashrate here. Having such a massive amount of computing power makes this network the most powerful and resilient of any cryptocurrency.
This may all seem far from simple to you, but as far as cryptocurrencies go, Bitcoin is very vanilla. Other digital currencies offer additional functionality, but this also serves to increase their ‘attack surface’.
Attack surface refers to the number of vectors - or approaches - a hacker can take to break into a software-based system. Because this virtual currency is simple without a plethora of extra features, it has a small front to defend and can focus heavily on maintaining the integrity of the network.
If you’re thinking about purchasing Bitcoin, here’s more information about how you keep it stored.
How Do You Store Bitcoin?
We all know how to store money in a bank account, but how exactly do you store a digital currency?
The most popular way for storing this particular cryptocurrency is to use a desktop wallet application. This is a program that acts as an encrypted wallet for your BTC coins on your computer. You can also use cloud-based wallets that are accessed via any web connection.
The next step up in security is a hardware wallet, which involves storing your cryptocurrency on a well-encrypted external device like a USB or external hard drive.
One of the most secure ways to store your Bitcoins is to use a paper wallet. With this method, you generate a print-off with the access codes for your cryptos and keep it somewhere safe.
Next let's look at your options for mining Bitcoins.
Can You Mine this Cryptocurrency?
The short answer is, yes you can. The long answer is you may find it hard to make a decent profit these days.
Every 10 minutes, a few hundred of the network’s pending transactions get placed into a ‘block’, which is a mathematical equation that needs to be solved. The miners compete to be the first to solve the problem, which also acts to confirm the transactions.
Whichever miner reaches the solution first is given a reward of new cryptos, released from the 21 million coin cap. It used to be possible to do this with a home PC, but now there’s a lot of competition among miners, which has driven up the difficulty.
Now, the best way to mine is via a pool that draws on the computing power of all its members, or to invest in expensive specialist hardware. If mining isn't for you, then you may want to consider buying your digital currency instead.
How to Buy Bitcoin and Where?
Exchanging cash for a Bitcoin is the quickest way to get your hands on some. To buy one, you need to connect with a person willing to sell.
The most common way of buying and selling is with online exchanges. These behave in a very similar way to online share trading. First you deposit money into your exchange account and then make an offer to buy a quantity of coins.
As long as there’s someone willing to sell a coin at the price you’re offering, the exchange will initiate the transaction.
The currency will then transfer to your exchange account via the blockchains validation process and your cash will be sent to the seller’s account.
You should almost be ready to dive in and buy some of this virtual cash already. First though, there are some important things you need to consider.
Best Way to Invest in Bitcoin: Things to Know...
It’s an exciting time to be investing in Bitcoin because of the heights in value it has reached recently.
Because of this high value, there’s a lot going on and it pays to be up-to-date with the latest trends and developments before investing. Here are some of the major considerations and news items to think about.
A Fork in the Blockchain Network
It’s complicated, but basically there was disagreement among the community about the direction to take the currency. Instead of continuing the arguments, the network decided to ‘fork’, creating Bitcoin Cash.
Holders of the original coin got an equal amount of the new currency, which followed the new protocols that were under debate.
It remains to be seen what value the new virtual currency reach but it is certainly an interesting time for cryptocurrency.
Exchange Security and Safety
The network is amazingly secure, but the weak link is exchanges.
With newcomers flocking to buy cryptocurrencies, exchanges have started to hold more and more digital and physical currency, making them a target for hackers.
See here just how many security breaches have happened. Exchanges are useful for trading, but you should reconsider holding your crytpocurrency in them long-term.
More and more governments globally are paying attention to cryptocurrency trading. No country has banned trading Bitcoins but some have made steps to control trading or make it more difficult.
As you can imagine, all aspects of this revolutionary digital currency are changing rapidly and you should try to keep up to date so you can make good investment decisions. The biggest question is, should you invest in Bitcoin now? Here’s what we think.
So, Should You Start Investing in Bitcoins?
As the most high profile cryptocurrency, Bitcoin is getting a massive amount of media attention and everyone seems to have an opinion on it.
To decide if this virtual currency is a good investment choice for you, there are a few things to think about.
Review Your Risk Profile Before Buying
Everyone has a different appetite for risk. For example, you may be OK with risking a few thousand dollars on an investment but to someone else, the thought of losing that amount of money keeps them up at night.
Without a doubt, investing in cryptocurrencies is riskier than traditional investments. They are a new phenomenon and no one is sure how this ecosystem will develop.
With that said though, Bitcoin is by far the largest and most stable of all digital currencies.
If you are a bit risk-averse but still want to get involved in cryptos, then this currency is the best choice.
Establish Your Investment Expectations
It’s pretty important that you moderate your expectations if this is your first time investing in a cryptocurrency. You may have just heard about Bitcoin, but it has been around for years at this point and been through a lot.
The original investors who still hold some stake have seen countless dips and crises over the years. Even though the long-term trend for Bitcoin is likely to continue upwards, don’t expect investing in such a new and volatile thing to be all smooth sailing.
As you can see, the decision to invest is a very personal one and only you can make the final decision. If you need our opinion on a great crypto to get involved with, Bitcoin comes in right at the top of the list.
The content of this post is for educational purposes only. Please do your own research and consult a financial professional before making any investment decisions.