What is Bitcoin? Is Bitcoin worth investing in?

What is Bitcoin? Is Bitcoin worth investing in?

9 minutes to read | 02.20.2022
TL;DR Bitcoin is digital currency. Bitcoin is the biggest cryptocurrency by market cap and it's powered by blockchain. A blockchain is a list of transactions. In this case, Bitcoin. When there are enough transactions, the block is mined by a computer generated code. Once block is mined, you get Bitcoin. There are many benefits of Bitcoin. Reasons include: getting rid of the middleman, being publicly accessible, but also anonymous, being immune to inflation, and being impossible to hack. It may be worth investing into Bitcoin because it's a hedge against inflation, it diversifies your portfolio, it's easy to turn into cash, and easy to trade. However, Bitcoin can be susceptible to volatility, which is when the price changes drastically in a short time. The future of Bitcoin looks bright. However, no one knows or can predict the price of Bitcoin, but as more and more people, countries, and businesses adopt Bitcoin it worth more and more people will own a piece.
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Cryptocurrency seems to be everywhere nowadays. Tons of ads all over the internet, and even now on TV, would make you think crypto is the next big thing. Well, it might be. There are a lot of different cryptocurrencies to choose from, but Bitcoin has the largest value and is the most popular with crypto investors. But what exactly is Bitcoin, and is Bitcoin worth buying? We are going to do a deep dive into Bitcoin to find out if this is something that’s worth it to you.

What is Bitcoin?

Bitcoin (₿) is a decentralized, peer-to-peer payment method that works all around the world through the internet. It allows you to send money to anyone with a Bitcoin address kind of similar to Venmo or CashApp. Bitcoin is a cryptocurrency powered by blockchain. Blockchain, simply put, is a receipt of transactions regulated by a network of computers. Each block holds a certain amount of transactions with each transaction showing to who the transaction is going, from who the transaction is from, and the amount sent. After a certain amount of transactions, the block must be mined and added to the chain. For Bitcoin, this is done through something called proof of work. A computer needs to generate a code that fits within certain criteria. Many computers are trying to do this at once. Whichever computer gets the code first, mines the block. When you mine a block, you get a token. That token is Bitcoin. So, Bitcoin is basically a bank statement. However, unlike a bank statement where the bank is the only entity that can see your transactions and balance, everyone connected to the network can see the list of transactions and balance.

Why is Bitcoin important?

There are a few key reasons that Bitcoin is important.

Bitcoin eliminates any middleman

A huge advantage of Bitcoin is that it eliminates the middleman. A middleman, something like a traditional bank account, isn’t always a bad thing. Banks let you pay for things and store your money. But many people around the world don’t have easy access to a bank account. For them it’s extremely hard to store any amount of wealth or to use their wealth to easily purchase things, like over the Internet. With Bitcoin, you just need access to the Internet, through a computer or a cell phone and you can trade Bitcoin to anyone in the world. This can make it even easier for families to support each other across country borders without having to deal with something like Western Union. Banks also allow for a single point of failure. In some countries, the government or bank does not have the best interest of the people at hand. But Bitcoin is decentralized, meaning it’s owned by the people who use it.

Bitcoin is transparent, yet anonymous

Like stated above, Bitcoin transactions are completely transparent and can be seen by everyone on the Bitcoin network. Bitcoin exposes manipulation and corruption. Since everyone can see exactly what transactions are being made, everyone can also see where Bitcoin is being moved, and how much is being moved. So, yes everyone can see every Bitcoin transaction, but Bitcoin is also anonymous. Bitcoin’s anonymity comes from only being able to see the wallet address. Your name or information is not attached to any Bitcoin transaction, just the wallet address. For smaller wallets, basically no one will ever know who you are. But larger wallets, say for governments, exchanges, or whales (people who own huge amounts of crypto), these wallets can be well known and possibly traced back to who they actually are.

Bitcoin is scarce

Bitcoin being scarce is a feature. If you look at the United States dollar, the amount of dollars is constantly growing. This is the same with the Euro, the yen, and every major currency on Earth. This is called inflation. Inflation does have its benefits, but it also has a lot of drawbacks. The biggest drawback is that your money is worth less over time. 100 dollars today is worth less than 100 dollars from 50 years ago. The same amount of money does not buy you the same amount of things. Bitcoin will only ever have a supply of 21 million Bitcoin. That’s it. There will never be more, but there could be less. As people lose keys to wallets, or forget they have any, or a number of other reasons that we won’t get into right now. As Bitcoin gets rare, the value of Bitcoin goes up! Luckily, with Bitcoin you can hold a piece of Bitcoin, instead of holding an entire Bitcoin. This means that even .0000001 Bitcoin will grow in value over time.

Bitcoin is secure

Bitcoin is impossible to hack. Just that phrase seems impossible, so why is it impossible to hack? The reason Bitcoin is impossible to hack is because every computer on the Bitcoin network has a copy of the blockchain (remember, the list of transactions.) Right now, there are about 10,000 computers on the Bitcoin network. If a hacker gets into one computer, and tries to change the blockchain, 9,999 other computers will look at that and compare their blockchain with the hacked blockchain. When the 9,999 computers see that their blockchain is the same, but different from the hacked blockchain, the hacked blockchain will then be updated to be the same as the 9,999. Unless someone somehow manages to hack into a majority of these computers, they will never be able to change the blockchain. The hard part is actually locating enough computers to hack, as the computers on the Bitcoin network are scattered all around the world at this point. That, and having the computing power to hack a majority of the network. Hacking Bitcoin is completely impossible.
Is Bitcoin worth investing in?

Is Bitcoin worth investing in?

There are a few good reasons that Bitcoin is worth investing in. However, you must be smart when investing in any assets, including Bitcoin. Only invest what you are willing to lose. If that is nothing, then don't invest anything. However, any investment in Bitcoin can pay off in the end. It's up to you whether you are willing to take this risk, or not.

Bitcoin can counter inflation

One of the biggest reasons people choose to invest in Bitcoin is a hedge to inflation. Like you had read above, Bitcoin is scarce, meaning that it is immune to inflation unlike traditional government regulated currencies.

Bitcoin will diversify your portfolio

Another good reason to invest into Bitcoin is to diversify your portfolio. If you invest in stocks or gold, Bitcoin can be added to your portfolio as an additional asset. Cryptocurrency is relatively young, so having a few dollars invested into Bitcoin can be an opportunity for massive gains if the world starts to mass adopt crypto.

You can easily turn Bitcoin into cash

Bitcoin is easy to liquidate, meaning turn into cash. With the rise of major exchanges, you can turn cash into Bitcoin and Bitcoin into cash cheaply and efficiently. You can then use this cash to buy other cryptocurrencies or transfer it to a traditional bank account to spend on everyday items. Because it's so easy to liquidate, Bitcoin can be a great short-term investment if you're looking for quick profits.

Bitcoin is easy to trade

Bitcoin is easier to trade than stocks. You don't need any certificates or licenses to trade Bitcoin, or any other cryptocurrencies. You don't have to go through any broker or traders. All you have to do is buy and sell through an exchange. It's extremely minimalistic compared to traditional assets. Bitcoin transactions are relatively instant compared to stock trading orders.

Bitcoin can be very volatile

This is either a pro or a con depending on which end you fall on. Because cryptocurrency is so new, massive amounts of money are moving in and out of the market. This can cause prices to rise or fall by a huge percentage each day. If you're looking for a short term investment, volatility can be your best friend or your worst enemy. You can learn the best ways to trade cryptocurrency to reduce the risk of volatility.

The future of Bitcoin

What does the future look like for Bitcoin? On Crypto Loves H2O, we don't want to make any price predictions because no one knows what is going to happen in the future, no matter what. People like to say Bitcoin will hit 100k or 1 million dollars, but the truth is there is absolutely no way to tell what the market is going to do. This is all speculation. The future of Bitcoin is looking extremely bright with countries adapting it as currency, and companies accepting it as an additional payment method. If this keeps up, Bitcoin could truly be a currency of the future. Bitcoin will probably never overtake the United States Dollar or any other major currency, but it doesn't have to. Bitcoin can just be used as an additional way to pay for things. One great thing about Bitcoin is if the world mass adapts it, you can spend it in other countries without having to exchange your currency for a foreign one. The future of Bitcoin seems bright, but it’s also the very first major cryptocurrency. As the technology gets better and better Bitcoin may seem ancient, and not as good as some of the future cryptocurrencies. Think MySpace and then think of Facebook. MySpace paved the way for social media, but Facebook perfected it. Is Bitcoin MySpace? Will we see another, more modern, advanced cryptocurrency take its spot as the top cryptocurrency. No one knows. And no one will know until it happens. We just have to wait and see. Summarize Bitcoin is the biggest cryptocurrency powered by blockchain. Blockchain is just a list of transactions. When the block hits a certain amount of transactions the block must be mined with a computer generated code. Once the block is mined you get Bitcoin. Bitcoin is good for many reasons. These reasons include eliminating the middleman, being transparent, yet anonymous, being scarce and immune to inflation, and being extremely secure and impossible to hack. Bitcoin can be worth investing in because it's a hedge to inflation, it's good to diversify your portfolio, it's easy to liquidate, and easy to trade. However, Bitcoin is susceptible to volatility, which can either be good or bad. The future of Bitcoin is looking brighter every day. However, no one knows what the price of Bitcoin will be next month, next year, or in 10 years, but as more and more people, countries, and businesses adopt Bitcoin it will become more of a household name. If you're ready to look into buying Bitcoin, learn the best ways to buy crypto.
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