What is Bitcoin?
Released as an open source in 2009, Bitcoin is the world’s first cryptocurrency. The digital currency does not possess any back-up and it isn’t regulated by a central authority, nor is there a political institution that controls its circulation.
However, the process of engaging in bitcoin is quite simple and easy. Holders of this cryptocurrency can transfer bitcoins via a peer-to-peer network system. These transfers are tracked on the 'blockchain - ' a type of ledger that records every transaction.
Why use Bitcoin?
Trading Bitcoin is considered the future of the monetary world for the following reasons:
- It’s decentralized and brings power back to the people: The age of bitcoin is not too old; it was launched only a year after the 2008 global financial crisis. It has attracted a wide range of people who foresee unsustainability in the current financial system, since then. It comes of no surprise that there is a huge community of ideologists who are actively building, buying, and working in this cryptocurrency world.
- Freedom: Traders can transfer any amount of bitcoin from one country to another; without the typical bank delay for two to three days, or due to weekend closures.
- Security: Payments in bitcoin are not tied to anyone’s personal information; therefore, users are not exposed to identity thefts. It is also possible to back-up and encrypt Bitcoins to ensure the security of the users’ money.
- Low Transaction Fees: Bitcoin’s transaction fees are low, unlike the banks and private companies. For instance, Paypal charges a 2.5% transaction-fee to send/receive money.
- The Immutable Ledger: Bitcoin’s blockchain public ledger is objective. Traders trust it, since it is based on pure mathematics; therefore, it involves minimal human-error and is not corrupted by questionable politicians.
What are the disadvantages of Bitcoin?
Despite having so many advantages, the bitcoin bares some disadvantages. One major drawback is the extreme price-volatility. Apart from this, people are concerned with:
- Legal Grey Area: Many major governments worldwide haven’t entirely recognized bitcoin as a fully-fledged currency, yet. This is due to their fear that cryptos might be used to hide money from taxation, or for other illegal activities. Although the price movements, as well as the adoption of Bitcoin, is guided by governmental actions, they are unable to stop Bitcoin due to its nature.
- An exchange hack is not related to the integrity of the whole bitcoin system; however, participants are bound to panic in such a situation, as traders have lost their savings exchange hacks, in the past. One way of avoiding this is to store your coins in a wallet.
- Illiquidity: Bitcoin is known for its elevated rate of illiquidity; largely owing to the cryptocurrency’s $500 market cap that bothers the users. It is highly unlikely that bitcoin’s price would plunge to deep levels and users would be unable to take action; however, the scenario remains unsettling.
- Volatility: Bitcoin prices are subject to vast volatility - a chief reason behind the users’ reluctance to choose this instrument. Given that the future price of bitcoin is largely unknown, users who had taken up the cryptocurrency as a speculative investment option, are gambling on the process. As new investors enter the process and the market cap continues to grow, bitcoin prices are deemed to become more stable.
- Lack of adoption by businesses: The price fluctuations and volatility are largely seen as an obstacle to many business houses that adopt this form of payment. However, the large-scale adoption of this across the consumer-belt, will eventually mitigate this disadvantage.