Bitcoin: An Overview

If you are someone who generally stays out of the loop of advancements in online transactions, the world of cryptocurrency can seem difficult to navigate. Repeated mentions of ‘Bitcoin’, ‘mining’ and ‘Bitcoin exchanges’ can leave you confused. 

We’re here to break down the basics of buying Bitcoin and help you consider the pros and cons involved before investing in it.

Bitcoin is a form of decentralized digital currency that is used for electronic payments. It eliminates the need for intermediaries like banks and administrators and can be transferred from one user to another on online trading networks. It serves as an alternative to the current system of centralized money transactions.

Bitcoin was created in 2009 by an anonymous person using the alias Satashi Nakomoto. Since its inception, Bitcoin has increased tremendously in value, sparking Bitcoin trading online between users from across the globe. 

Buying Bitcoin is facilitated by online marketplaces called Bitcoin exchanges. Users buy and sell Bitcoin on these exchanges using various currencies. 

Bitcoin can be mined by solving complex math equations and verifying Bitcoin transactions. Earlier, money transactions had to be verified by banks. In the case of Bitcoin, miners keep accurate records of transactions in a public record called a blockchain. Since this can be a demanding task, miners are rewarded with Bitcoin whenever they add a block to the blockchain.

Mining also produces new Bitcoin, much like printing money increases cash flow in the regular monetary system.

What Is Bitcoin Used For?

BTC, being a store of value, is as an alternative asset class to traditional instruments like gold or equities. It can also be used to purchase items, since many companies are open to payments in cryptocurrency now. 

Many companies pay their employees in cryptocurrency, with Fairlay and Exodus Wallet being among the companies that pay their employees in Bitcoin.

What Can You Buy With Bitcoin?

From buying food items to booking flights and hotels, Bitcoin can purchase most things normal currency can, provided that retailers are willing to accept crypto. 

Stores like Overstock and The Fancy accept payment in Bitcoin. Among fast-food restaurants, Subway is a popular chain that currently accepts Bitcoin payments. You can even purchase movie tickets using Bitcoin from MovieTickets.com.

Buying Bitcoin: Pros

Faster, Cheaper Transactions

Until the advent of cryptocurrency, transactions between two parties required the involvement of the bank or other middlemen. Often, these intermediaries take a cut from the transaction for their services. Buying Bitcoin does away with the need for these middlemen, thereby making transactions cheaper.

Excluding intermediaries also makes transactions smoother and faster, since they do not require verification and other time-consuming procedures.

Transact Anytime, Anywhere

Buying Bitcoin allows you to make transactions from a mobile phone or laptop from anywhere in the world. Since Bitcoin is a borderless form of global currency, you can avoid the exchange rate hassle that normal international transactions can cause. Normal overseas remittances require intermediaries like Money Transfer Operators and a Remittance Service Provider, and the procedure can be quite expensive, especially for smaller amounts.

Since the blockchain can be accessed by anyone, Bitcoin transactions eliminate the need for intermediaries. Many blockchain startups offer services that allow users to conduct Bitcoin remittances without much knowledge of the technology itself. Using Bitcoin for overseas remittances can thus be a cheaper and easier way to send money abroad.

Greater Liquidity

With the boom in the value of cryptocurrency, Bitcoin has become one of the most liquid assets available. Buying Bitcoin allows you to invest your money in digital currency, which you can easily sell for regular currency if the need arises.‍

Transparency 

All regular transactions go via banks that make records of these exchanges. The bank’s ledger, however, is not accessible to the public. Buying Bitcoin allows you to be part of an alternative system, where transparency is assured by maintaining records in a public ledger available to all. This ledger is called a blockchain. Since every transaction is verified, it cannot be manipulated by hackers.

Control and Privacy

While records of all transactions are maintained, the anonymity of the buyers and sellers is protected. Buying Bitcoin allows you to function in a marketplace where your identity and items of purchase are protected and visible to you alone.

Since Bitcoin is a decentralized form of currency, it eliminates the need for banks and gives you complete control over your funds and transactions.

Buying Bitcoin: Cons

Lost Bitcoin is Non-Recoverable

In the traditional scenario, if anything happens to your bank account, you have the option of withdrawing your money. However, as Bitcoin is stored in digital wallets with a private access key, so if the wallet file is corrupted or the access key is lost, the Bitcoin can be lost forever. Since there is no central authority, lost cryptocurrency cannot be retrieved.‍

Value Fluctuation

‍Like other high-risk investments, Bitcoin is prone to the ups and downs of the market. While it has a high potential for appreciation at the moment, it is still early to say whether the trend will last. The cryptocurrency marketplace can be very volatile and the frequent price changes can be intimidating, especially to new investors. It is important to be aware that these fluctuations occur often and do not necessarily mean you have made a bad investment.‍

Lack of Regulation‍

While the absence of regulatory frameworks like banks and governments allows greater freedom and control over transactions, it can also be a disadvantage. Without a regulatory framework, it is difficult to prevent fraud and scams. ‍

Risk of a Crackdown

‍Since Bitcoin eliminates governments from financial transactions, it is possible that they may crackdown on the use of it. While this is an unfair measure, it is a real possibility. These players stand to lose a lot if cryptocurrency becomes the new standard system and they can ban it citing regulatory and security issues.

Should You Buy Bitcoin?

Like most other investments, buying Bitcoin comes with its share of risks and perks. An integral factor to keep in mind is the volatile nature of the crypto marketplace and to not get thrown off by the frequent rise and fall of prices. 

Bitcoin definitely has the potential to be the new standard form of transaction, but you must make an informed decision before investing in it.

Buying Bitcoin: FAQs

How much Bitcoin should I buy? Since Bitcoin is still a speculative asset, it is important to keep your financial stability in mind when investing in it. Experts advise against investing in crypto if you have debts or other heavy financial needs. If not, it is advisable to invest between 1 and 4 percent of your net worth in crypto. For starters, it is best to invest no more than 3 percent. Once you get a hang of the marketplace and learn the ropes of Bitcoin trading, you can decide whether to invest more of your resources in buying Bitcoin.

How can I keep track of the crypto marketplace? Apps like Cointracker can keep track of your crypto folio and taxes as well as the fluctuations of the crypto market. You can also learn how to read crypto charts to understand price, volumes, and time intervals. These can help you make more informed decisions when investing.

How can I obtain Bitcoin? Bitcoin can be bought from Bitcoin exchanges or traded with another user. By setting up an account on a Bitcoin exchange, you can trade Bitcoin with other users on the exchange. Some of the traders may choose to remain anonymous, but the transactions are accurately recorded and verified. To buy Bitcoin from these exchanges, you will first have to link your bank account to your Bitcoin exchange account. 

You can also buy Bitcoin using Bitcoin ATMs or P2P exchanges. Unlike normal Bitcoin exchanges where buyers and sellers are matched up and the transactions may remain anonymous, P2P exchanges allow you to post details about your requests to buy or sell Bitcoin, specifying payment methods and other details. Users can then browse through the different posts and choose the transaction they want to make.

You can also accept Bitcoin as payment for goods and services. If you are tech-savvy, you can participate in competitive mining and obtain Bitcoin by solving complex computational puzzles.

You can also buy Bitcoin directly from your bank account.  You can store, buy and sell crypto from your OnJuno account starting from amounts as low as $5. OnJuno also allows you to set up a direct deposit and get part of your paycheck in crypto.

Bottom Line

With a basic understanding of Bitcoin, you can embark on crypto ventures that may alter your financial standing considerably. While it is clearly no bed of roses, it is a daring step into the transactions of the future. Once you are familiar with how it works, it is up to you how to make use of this new liberated system of transactions.