Wondering if you should invest in Bitcoin? If you’ve been around any kid of financial news lately, you’ve no doubt heard about the meteoric rise in the world’s most well-known cryptocurrency.
Should you invest? Is it a good option? And what the heck is Bitcoin anyway?
Well here’s a few things you should know about Bitcoin before you invest. Also note that this article is for information purposes only and should not be taken as any kind of financial advice.
What is Bitcoin?
Bitcoin is known as a cryptocurrency or a digital currency. It’s basically online money. Like any currency you can exchange it for other currencies (like say, buy bitcoins with US dollars or vice versa) and it fluctuates in relation to other currencies as well.
Unlike other currencies however it is decentralized, meaning there isn’t any one central bank, country or government in charge of it. And that means it’s not as susceptible to government or central bank mismanagement.
Pros of Bitcoin
#1 Easy To Send Money
Because it’s decentralized, this also means that you can send a friend Bitcoin (money) on the other side of the world in seconds without having to go through a bank intermediary (and pay the banking fees).
This fact alone makes Bitcoin very popular. Instead of waiting for a wire transfer which can take days, you can send your payment in seconds or minutes.
#2 Limited Supply
There are only 21 million Bitcoins that will ever be mined. This limits the amount of Bitcoin that can ever be produced. This is like saying a government cannot print money because there is a limited supply of bills – and they won’t print anymore.
When there is a set supply your purchasing power is preserved and the currency is immune to runaway inflation.
This limited supply has also helped to contribute to the rise in the price of Bitcoin. People don’t want a currency that can be printed – or inflated – into infinity at the whim of a greedy government.
Most people think that Bitcoin is completely anonymous. But actually it’s not anonymous – it’s more private. All Bitcoin transactions ever made can be seen on the Blockchain – the public Bitcoin ledger.
But your name and identifying details behind the transaction are not seen. Each transaction is linked to an address – a string of text and characters. So while people might see your address – there is no way to link that address to you.
A lot of people who don’t like their banks spying on them (or telling them how much of their own money that they can or can’t move), really like this privacy feature.
#4 Cheaper to Transact
Many businesses have to take Visa or MasterCard these days to stay competitive. However these cards take some rather substantial fees out of each sales transaction.
But a merchant who accepts Bitcoin doesn’t pay these hefty fees – so it puts more money in their pockets.
So those are some of the main pros of Bitcoins. What about the cons?
Cons of Bitcoin
#1 Risky – Price Fluctuations
Bitcoin is famous for rising slowly over months – and then falling 20 – 50% over a couple of days.
Because it’s being traded 24 hours a day 7 days a week, the price is always fluctuating. And all it takes it some bad news – like the news of the Mt Gox hack a few years ago – to send the price tumbling down.
So basically it’s not stable – and there are a lot of unknowns out there that can affect the price. The rule here is this: don’t put any money into Bitcoin that you can’t afford to lose.
#2 Slowing Transaction Speeds
Bitcoin is starting to run into problems with slower transaction speeds and higher transaction fees. Other cryptocurrencies have come along that are faster and cheaper.
The Bitcoin miners are working on the problem. However until these issues are resolved, you can expect the price to be extremely volatile.
#3 Bitcoin Transactions Not Reversible
Unlike a credit card charge, Bitcoin transactions are not reversible. So if you send Bitcoin to the wrong address – you can’t get it back.
Also, there are a lot of tales from people who have lost their Bitcoin wallet address (through hacking, phones being stolen, virus-infected computers, etc.) and they’ve completely lost their coins. There’s no way to get them back.
For this reason, you really need to know what you’re doing and take the time to research how to buy and store your coins properly if you want to invest in Bitcoins – or any other cryptocurrency.
So those are some of the things to consider before investing in Bitcoin. Basically while Bitcoin has a lot of great things going for it – and while it has the potential to change financial transactions as we know it – there is still a lot of risk. There are a lot of unknowns out there still.
If you do decide to buy, take your time and research your options. Don’t buy from just any seller. Some of them are trustworthy and run a great business. But there are others that will overcharge you and may not even deliver your coins.
Be safe and do your research first. Find a trusted seller with a stellar reputation – there are quite a few of them out there. And remember the golden rule here – never invest more than you can afford to lose.