Bitcoin as an Investment: Pros and Cons

Updated: 19 hours ago

Bitcoin originated during one of the most chaotic financial environments in US history. It was created by a person or group with the pseudonym Satoshi Nakamoto in 2009.

 

Table of Contents:

Introduction

The Origin of Bitcoin

What is Bitcoin Gold?

What is Bitcoin Cash?

Advantages of Bitcoin Accessibility and liquidity Anonymity and transparency Independence from Central Authority


Disadvantages of Bitcoin Volatility No Government Regulation Irreversible


Bottom Line: Should You Invest in Bitcoin?


Introduction

Bitcoin (BTC) was the first cryptocurrency to be ever created in the year 2009, and it is one of the most popular digital currencies in the world today. Bitcoin is a blockchain-based decentralized digital currency powered by a network of users who record transactions and verify them without any intermediary or central authority.

Bitcoin is an excellent alternative to fiat currencies controlled by central banks or the government. Each transaction is verified via a process called a proof-of-work consensus. For some investors, Bitcoin is a fun asset for trading, whereas others believe that it has the potential to ultimately become the universal currency of the digital space. Let us understand the history of Bitcoin and what makes it a popular cryptocurrency to invest in.

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The Origin of Bitcoin

Bitcoin originated during one of the most chaotic financial environments in US history. It was created by a person or group with the pseudonym Satoshi Nakamoto in 2009. With time, the monetary value of Bitcoin became more broadly understood, and today it has become one of the fastest-growing asset classes.


Bitcoin is a decentralized cryptocurrency, and its initial support base is comprised mostly of tech-savvy individuals and libertarians. Bitcoin's inception and adoption within this community define its virtues, values, and fundamental design. When Satoshi first proposed Bitcoin, very few people showed interest, and the idea received a lot of criticism from a niche community of computer scientists and cryptographers. Many of these people were involved in digital cash experiments in the eighties and nineties. For them, Bitcoin was just the latest experience in a long sequence of experiments for creating monetary systems focused on privacy and freedom.

Over the years, Bitcoin has taken various forms. Ahead, we look into the types of Bitcoin.

What is Bitcoin Gold?

Bitcoin Gold was created to limit certain groups from controlling Bitcoin. Its creators thought it was impossible to mine Bitcoin fast enough to make it accessible for everyone since the dedicated ultra-expensive mining rigs and farms crowded out the average miners. Bitcoin Gold solved this problem by making digital mining accessible to everyone. Instead of needing specialized equipment, Bitcoin Gold can be mined by regular computers with dedicated graphics cards. Thus, anyone with a computer can mine Bitcoin Gold just like Bitcoin was intended initially.

What is Bitcoin Cash?

Bitcoin cash was designed to be a transactional cryptocurrency instead of a reward for blockchain work. It is designed to allow for transactions within seconds and facilitate transactions across borders without being regulated.

If you are considering investing in Bitcoin, it is worth looking at the advantages of Bitcoin as well its disadvantages.

Advantages of Bitcoin

Bitcoin has become of the most popular cryptocurrencies, and there are various reasons behind this. Here are some advantages of Bitcoin that make it a good investment option.

  • Accessibility and liquidity

One of the advantages of cryptocurrencies (including Bitcoin) is that it doesn't have any borders and is an accessible as well as versatile currency. It takes only a few minutes to transfer Bitcoin to another user, and one can use it to buy goods and services from a growing list of places that accept it. Thus, spending money in another country and exchanging other currencies becomes easier.

  • Anonymity and transparency

Bitcoin users are identified by numerical codes and can have multiple public keys, and the transactions can also be traced back. The transactions are permanently viewable, which gives you transparency, and they are still kept safe from fraud because of blockchain technology. Compared to traditional currency, which requires personal information, no other personal information is needed for conducting Bitcoin transactions, increasing users' privacy.

  • Independence from Central Authority

Bitcoin is a decentralized currency not regulated by a central bank or a single government. This means that authorities will not demand your coins. Moreover, Bitcoin gives users autonomy and control over their money, as the price is not linked to government policies. Generally, cryptocurrency users view it as one of the main advantages of Bitcoin.

Disadvantages of Bitcoin

Despite the rapid growth and increasing number of users, Bitcoin has some disadvantages, especially if you think, "is it worth investing in Bitcoin?". Here are a few disadvantages of Bitcoin that you can be aware of.

  • Volatility

When Satoshi Nakamoto created Bitcoin, a limit was set of 21 million Bitcoins, thus making Bitcoin scarce. This scarcity is exactly what makes Bitcoin so valuable and also fluctuates its prices since the price is the only variable that can change to ensure demand. Other than this, some factors influence Bitcoin's volatility, like the uncertainty about its value in the future and security breaches.

  • No Government Regulation

A decentralized currency can be viewed as one of the cryptocurrency benefits. However, it can also be considered a disadvantage of Bitcoin as the currency is not regulated. Bitcoin transactions don't come with legal protection and are not reversible, thus making them susceptible to scams. As Bitcoin is not centralized, there is no guarantee of a minimum valuation. Therefore, if a big group of investors stop using Bitcoins and sell them, their value could decrease significantly and affect users with a large amount of crypto.

  • Irreversible

Bitcoin transactions are anonymous and thus also lack security. The transactions done through Bitcoin are final and irreversible, so they cannot be retrieved in case it is sent to the wrong recipient. Many Bitcoin users keep their Bitcoins in a crypto wallet which puts them at the risk of losing their money in case they lose their private key. Moreover, if the hard drive crashes or a virus corrupts the wallet, the funds can become inaccessible in minutes.

Bottom Line: Should You Invest in Bitcoin?

This brings us to the question, should you invest in Bitcoin? Despite the various benefits of Bitcoin, many people still view it as a risky investment. But just like any other form of investment, investing in Bitcoin also requires you to do your research ahead of time. Bitcoin is very volatile, and it is best to invest in it if you are willing to take the risk.


Also, ensure that you understand how bitcoin works and are comfortable with the level of risk. We would not recommend investing all your life savings in the cryptocurrency market. Make sure that you only invest a small amount of your income and never invest more than you can afford to lose. Investing in cryptocurrency is also a long-term investment and not a short-term one that will help you make money instantly. Having said that, you can benefit from the price volatility as you can purchase Bitcoin when its price drops and when the price soars, you can sell it to incur a profit.


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