Is it safe to invest in bitcoin?

Bitcoin has captured everyone in its spell as a new type of digital currency that was first released in 2009. In an article about online currencies, bitcoins are a natural subject to discuss as they have been on the market for several years now and trading in bitcoins has become big business such as with companies like Coinbase.

In this article we will discuss bitcoin by explaining what it is, how it works, what makes it so attractive to investors and traders alike today, and finally some of the risks associated with investing or trading in bitcoins.

What is Bitcoin?:

Bitcoin is a digital form of currency that represents the value of the entire network, which can be used to buy things and transfer money. The first thing to note about bitcoins is they are not printed like paper money, coins and notes like USD, Euro or even gold. Bitcoins are a completely digital form of currency. The value of each bitcoin is set by its current market price; it's supply in total will never exceed 21 million coins. This prevents inflation and ensures bitcoin wealth tends to be passed down from generation to generation so as not to lose the value stored in them over time.

The reason why bitcoin and blockchain are so important to understand is because they are the foundation of what cryptocurrency (which basically means digital currency based on blockchain) is all about.

How Bitcoin Works:

Bitcoins can be obtained through mining. To mine bitcoins, you must solve a mathematical problem using computers or your phone's GPU. This math problem is very complex and can only be solved by having a lot of computing power or a really powerful computer (a high-performance video card). The more computer power you have at your disposal the more likely you will solve the algorithm for that puzzle to get bitcoin rewards.

Bitcoins can also be obtained by buying them on a bitcoin exchange, or simply trading or accepting them as a payment for goods and services. This is another way you can make money from bitcoin. Just like with mining bitcoins, the concept of making money from trading or investing in bitcoins is exactly the same as mining them.

When you have bitcoins, you can exchange them for any other currency (such as Dollars) using bitcoin exchanges – such as Coinbase. Bitcoin transactions are handled by a network of decentralized computers running the bitcoin software around the world which means all transactions are anonymous and there is no need to provide personal information online when you buy or sell things with your bitcoins just like when using cash in your everyday life.

What makes Bitcoins so attractive is they trade like a currency or commodity, not like a stock. The value of a bitcoin depends on supply and demand; its value has been rising over the years as more people discover it. To put it in simple terms; whenever there is new demand for bitcoins, the price will rise to meet that demand because there would be less supply to go around due to trading. In this way you can see bitcoin is similar to how gold prices fluctuate though it's not exactly based on gold and you don't learn about mining for gold by playing video games and buying textbooks, like in bitcoin.

The concept of trading like a commodity is unique to the field of cryptocurrencies. Most currencies in society today are based on government or central authority which is why they don't trade like commodities; they are also not anonymous like bitcoin because once you provide your personal information and identity online such as with Facebook or with PayPal it cannot be anonymous. The only way to truly become completely anonymous with money is to go underground and exchange cash in person. Want to know more about bitcoin trading technique & strategies click here.

The takeaway from this discussion is that bitcoins are really just based on math and cryptography; they are data that no central authority controls. For this reason, governments and central banks around the world are very hostile towards them and this has resulted in a number of criminal cases being filed against bitcoin activities.

Bitcoin Investment vs Speculation:

A lot of people ask about investment or speculation in bitcoins after reading all these terms, well the answer is yes and no. Bitcoin investment is when you buy or trade bitcoins with the goal of making money from it. Speculation on the other hand is when you buy bitcoins on an exchange (such as Coinbase) with the hope that you'll make more bitcoin trading it than with that purchase will go up in price. This is a common misconception that it is safe to trade or invest in bitcoin because it is "virtual currency", when the truth is no virtual currency can be guaranteed to continue existing or even work correctly. There are simply too many factors involved in bitcoin to say it is safe as a long-term investment, like with any investment you need to look at the risks and have an exit strategy in mind.

Bitcoin on Blockchain:

The reason why so much effort was put into creating bitcoin was because of the blockchain technology, which I will break down here as well. The concept of the blockchain was first introduced by a person named Satoshi Nakamoto; his true identity remains unknown today. It was intended to be a decentralized, digital ledger of sorts that stored every transaction that had ever occurred in bitcoin. It would make transactions more secure because these transactions couldn't be altered or reversed without the agreement of everyone on the bitcoin network and it could also allow for new things in the future since every transaction is saved permanently.

When you have bitcoins on a bitcoin exchange or wallet you are essentially trusting these services to hold your money and honour your wishes because they are not holding any portion of your money themselves; they only provide an interface for you to buy or sell bitcoins with them. Having your own wallet or purse is the only way to ensure that you are in control of your money, since a bitcoin exchange cannot honour every request and will be forced to shut down at some point due to it being a business.

It has become common practice to store bitcoins in a paper wallet, which is just the public and private key printed on a piece of paper; this is small and secure so you can't accidentally lose it but the downside is that it's not something you can share with people easily if you're trying to buy goods or services online. Most people use a wallet like Coinbase or Blockchain.info which are bitcoin wallets that are connected to the web so you can store, send and receive bitcoins from them. There is no problem with storing bitcoins in a wallet on the internet as long as you have your key (public and private) and you trust the company that runs it. However, if there is any kind of security breach or unauthorized access to your funds you will lose everything since there is no way for you to recover your funds without your keys.

The next big step in bitcoin will be to make applications for various devices including mobile phones and tablets. This is already being worked on by developers in the bitcoin community and some developers have released their own version of a mobile wallet for bitcoins, which is as secure as the wallets on your computer that are connected to the internet.

The future of Bitcoin:

That brings us to the final topic, which is how you should remember this new virtual currency called bitcoin. Bitcoin can be used anonymously and it exists only online, or at least in your mind. This is what makes it so valuable as a commodity; you can use it like gold or any other type of currency. However, the real value of bitcoin is not based on you or your needs but on how much people are willing to pay for it and how many people want to buy it. It's a controlled amount of money that you can use online in exchange for goods and services.

Conclusion:

With the volatility of bitcoin and other cryptocurrencies, it is difficult to predict whether or not these currencies will be widely accepted in the future. As a result, investors should plan for both outcomes by building up their diversification portfolio. The more coins you hold, the greater your chance of seeing some growth over time. However, if one currency does eventually become dominant such as Bitcoin becomes at $100K per coin - then that would be worth holding on to long term!

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