There’s been a lot of buzz in recent years regarding the ever-so-popular topic of cryptocurrency and blockchain technology. The most popular cryptocurrency that seems to be on the tip of everyone’s tongue is Bitcoin. Many wonder “Is Bitcoin a good investment?”
Today we’re going to help you decide for yourself. We’ll go over what Bitcoin is, how it works, and what you should think about before investing. We’ll talk about why you’d want to invest in this cryptocurrency and the benefits of joining the crypto craze. We’ll also cover the risks you should be aware of before you start investing your hard-earned dollars.
What Is Bitcoin?
Bitcoin (BTC) is a decentralized digital currency that uses a network of users to verify transactions rather than centralized financial institutions. Think of it as a new-age electronic currency that has the potential to disrupt the way we think about currency and how we store value.
Bitcoin was created in 2009 by an anonymous online user — or multiple users — who goes by the alias of Satoshi Nakamoto. The idea was to create a way to cut out the middleman from the many financial transactions that happen every waking moment of the day.
Historically, monetary transactions have been facilitated by a third-party financial institution, like a bank or a credit card company. A third party facilitates the transaction, charges transaction fees, and takes a cut of the action. This is not so with Bitcoin.
How Does Bitcoin Work?
Bitcoin and other digital currencies like Ethereum (ETH), Litecoin (LTC), or Ripple (XRP) are governed by an open network of users. Once you join a cryptocurrency network, you’ll join millions of other anonymous users who help verify peer-to-peer transactions.
For example, let’s say Party A wishes to make a transaction with Party B. Since these online transactions are completely anonymous, how do both parties know they can trust one another and not be cheated or scammed out of money?
This is where the power of the Bitcoin network comes into play. When a transaction is made, the entire network of linked computers verifies that the exchanged coins actually exist. Nobody can be cheated or scammed since the entire network of computers verifies every transaction. Fraudulent transaction attempts will be flagged and won’t go through.
So what are some of the benefits of investing in Bitcoin?
Benefits of Investing in Bitcoin
Bitcoin is an anonymous and decentralized digital currency. It comes with minimal transaction fees and has the potential of making you a lot of money. Let’s start at the top.
1. Finite Bitcoin Supply
The amount of Bitcoin isn’t an infinite number. There will only ever be 21 million Bitcoin in circulation. This rule will never change. This means whatever currency you possess cannot fluctuate due to an outside party releasing more currency into circulation.
For example, governments like the United States will release more currency into circulation slowly over time. This outside manipulation can mess with the value of currency rather than letting the market value adjust solely on its own. Bitcoin and other cryptocurrencies create a sense of transparency that’s unmatched when you think about our Federal Reserve or gold-backed currency.
For one, the fiat currencies — or the paper money issued by our government — changes depending on government monetary policies. We don’t have a clue as to how much money is being printed or will be printed in the future. Second, we also can’t predict the exact value of gold since we could always stumble across enormous gold mines that could reduce this commodity’s price.
2. Decentralization
Bitcoin is a decentralized currency. This means that no one government or financial institution has control or influence over it. Instead, power is distributed across the entire network of users.
All Bitcoin holders are equal and on a level playing field. There isn’t one person or institution that is collecting transaction fees, censoring finances, or governing transactions. Instead, an ongoing public ledger that is built off blockchain technology is the governing body that makes Bitcoin work.
3. Low Fees
Bitcoin isn’t completely exempt from fees, however, the fees incurred transferring Bitcoin are minuscule in comparison to traditional banks and financial institutions. The fees you contribute are currently around $1 to $2 per transaction. When you’re buying Bitcoin, cryptocurrency miners — or those who help validate your transaction — are rewarded for their efforts through these Bitcoin miner fees you’re charged for each transaction.
This is a steal compared to traditional banks and financial institutions, where currency exchange rates and international fees are tacked onto international money transfers. These fees could total over $35.
4. High Earnings Potential
Buying and selling Bitcoin is an excellent way to make a large amount of money. There are countless people who have hit it big, especially when the price skyrocketed to an all-time high of $20,000 in late 2017. Just one year before that, one Bitcoin was $1,000. That’s a 20x increase in just one year!
Those who invested heavily in the early days reaped massive rewards. Lamborghinis and lavish lifestyles were highlighted all over social media. Unfortunately, these fairytale stories aren’t always the case. The price of Bitcoin can be quite volatile, which leads us to some of the risks you should be aware of.
Risks of Investing in Bitcoin
Cryptocurrency isn’t as rosy as people like to think. Bitcoin definitely has some risks associated and you should proceed with caution before throwing large amounts of money into the market.
1. Bitcoin Volatility
Along with the atmospheric highs come the depressing lows. The price of Bitcoin has shot through the roof and then come crashing down in a matter of days. Not everyone becomes a cryptocurrency millionaire overnight and you should not expect this to be the norm.
This volatility makes for a risky investment for those looking to make some money. Many financial experts are deathly afraid of cryptocurrency and recommend investors to stay far away. However, many die-hards swear by the game-changing technology and see a bright future for the digital currency.
2. Cybertheft and Fraud
Since Bitcoin is a digital-based currency, it’s susceptible to online fraud and cyber hacks. Crypto exchanges are vulnerable to cyber-attacks where Bitcoin is being traded. If your bitcoins are stolen, you don’t have a way to retrieve it. It is simply gone forever and you can do nothing about it.
There are even fake Bitcoin exchanges that will attempt to lure you in, have you send over funds, and then vanish. Some cryptocurrency exchanges you can trust include Coinbase or Binance.
Finally, if you lose or forget the pin to your digital wallet, you won’t be able to retrieve your funds.
3. No Regulation
Decentralization and deregulation are great and all, but with this comes a sense of worry from financial experts. Government agencies are scrambling to figure out how they can tax and regulate the new kid on the block. It’s also a breeding ground for shady deals like drug, weapons, and trafficking transactions since it’s anonymous and unregulated.
4. Still in Its Infancy
Bitcoin is only 10 years old. In recent years it has seen incredible volatility and growth. Many are wondering how the technology will grow, how it will be used, and the adoption rate around the world. Bitcoin hasn’t been widely adopted by businesses and can’t be used to purchase everyday items at most stores. Many are skeptical and think Bitcoin is only a fad that people are using to make money. However, true believers see Bitcoin as an accepted currency and are enabling customers to use it to exchange goods and services.
Is Bitcoin a Good Investment?
Bitcoin is a promising digital currency and has tremendous potential from an investment standpoint. However, you should always invest wisely and understand that Bitcoin and other cryptocurrencies are still very volatile.
It will be up to you to decide whether or not you think Bitcoin is a good investment. It wouldn’t hurt to learn the ropes and start investing in Bitcoin, but you should never invest more than you’re able to afford. We don’t recommend tossing your life savings into a crypto exchange with hopes of hitting it big and becoming a millionaire. Instead, consider it just one part of a diverse investment portfolio.
Financial experts typically recommend you invest a majority of your money in low-risk investments like CDs and fixed annuities. The remainder of your investment dollars — a much lower percentage of your portfolio — can then be dedicated to higher-risk investments like Bitcoin and other cryptocurrencies.
Bitcoin price predictions will vary depending on who you ask. Some are bullish when it comes to Bitcoin’s price and think the sky is the limit. Others, like billionaire Warren Buffett, think it’s a foolish investment and shouldn’t be part of any investor’s portfolio.
Bull or Bear Market? You Decide.
We’d be lying if we said we could give you a crystal clear Bitcoin prediction as to how much it will be worth in a few months to a year from now. Just like playing the stock market, it will be your decision as to how you’ll invest and what you’re willing to bet on this cutting edge investment market.
We can tell you that Bitcoin is upending the entire financial system and has everyone scrambling to figure out what will happen next. You can decide to sit on the sidelines and see how everything unfolds, or you can join the rush and start investing wisely with what you can afford.
If you’re interested in other ways to make money on the side, check out our guide to investing for beginners. You can also look into some of these investment apps you can download today.
