Bitcoin is the pioneer in the world of cryptocurrency that was launched in January 2009. The creator of Bitcoin, Satoshi Nakamoto, is a mysterious identity and pseudo name. No one is aware if this is a single person or a group of people or an organization.
Bitcoin is the first decentralized cryptocurrency in the world. The price of Bitcoin has increased from a few cents a little over a decade ago to $56,000+ (as of November 24, 2021). The success of Bitcoin has triggered the launch of over 13,000 more cryptocurrencies in the world over the last decade. These are collectively known as altcoins. Some of the popular altcoins are Ethereum, Litecoin, Solana, Cardano, Ripple, and Polkadot. However, Bitcoin remains the most popular and most promising cryptocurrency.
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Here is all you need to know about Bitcoin – its basics, how it works and should you invest in Bitcoin:
What is Bitcoin?
Bitcoin or BTC is a decentralized digital currency built on blockchain technology that does not have a central administrator or a government backing it. The idea of Bitcoin was started with the notion that it would be able to emerge as a decentralized currency where people would be able to freely transact and the power of controlling it would be in the hands of people.
The vision of Bitcoin emerging as an alternative currency or a global medium of exchange is still far from being realized due to its volatile price graph and lack of regulation. However, in the current scenario, it is believed that Bitcoin will emerge as a strong asset class in line with gold, real estate, and stocks which will help people to diversify their portfolios.
In addition, Bitcoin is already a very favored peer-to-peer payment mechanism that plays an integral role in settling cross-border payments with much lesser fees as compared to traditional mediums.
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How does Bitcoin work?
As mentioned, Bitcoin works on the blockchain technology that maintains a public ledger of all transactions involving Bitcoin including buying, selling, volume, etc in an encrypted format across various nodes in a network of systems spread across the world.
Bitcoin is based on the Secure Hashing Algorithm (SHA)-256 hash function and mining algorithm. This is a variant of the SHA-2 which has been developed by the National Security Agency (NSA). Apart from Bitcoin, SHA-256 is used in other popular encryption technologies such as SSL, TLS, and SSH.
The technology behind Bitcoin is robust and its decentralized nature makes it almost impossible to recreate or duplicate the transactions that are taking place.
Going forward, it is believed that Bitcoin will further establish its position in the market as a strong asset class and a strong peer-to-peer payment system that will be able to compete with traditional financial markets and banking systems for cross-border transactions.
Should you invest in Bitcoin?
Bitcoin as a cryptocurrency is still in its early days. Experts believe that the $1 trillion market cap of Bitcoin as of date is just the tip of the iceberg and it has immense potential to grow across the world. Having said that, it has almost been a free ride for Bitcoin so far and as it grows bigger, it is expected that regulators across the world would want to get tighter control over its future.
There is no denying that it has emerged as a preferred investment avenue, especially among millennials, over the past few years. It has already made several millionaires due to its wild price growth so far. However, it is suggested that you understand the concept behind Bitcoin first and understand what it is trying to achieve. Ascertain the risks involved before jumping on the crypto bandwagon.
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If you are simply getting on board for the high returns it offers, always remember that it also comes with a high risk. The best way would be to start small and invest only the amount that you can afford to lose.
