Table of Contents
- What are Bitcoins – Explanation
- What are Bitcoins and Its Risks
- 1) Government Approval – Bitcoin risks
- 2) Bitcoin Users Are Not Taxed – Bitcoin risks
- 3) Product Security – Bitcoin risks
- 4) It is Extremely Volatile – Bitcoin risks
- 5) Consumer Protection – Bitcoin risks
- 6) Potential Competition – Bitcoin risks
- 7) No Safety Medium – Bitcoin risks
- 8) Anonymous Use – Bitcoin risks
What are Bitcoins – Explanation
Bitcoin is a kind of currency created to address the problems associated with a centralized currency while doing in itself all that any centralized currency can. It is a decentralized currency. By a decentralized currency, we mean a currency that is not controlled by a governing body or institution. It was invented in 2009, during the period of a financial crisis. Although it has an inventor (known as Satoshi Nakamoto), he irreversibly revoked the right of control of the currency, making himself like an ordinary Bitcoin owner anywhere. This digital currency has no physical equivalent like notes or coins, and some governments are concerned because it cannot be taxed or controlled by them. Bitcoin transfer needs no middleman such as a bank; hence it is a bank-free currency. How does it work?
The whole system works in a well-ordered manner, even if it has no complex control structure. To generate this crypto-currency, people compete to solve complex math puzzles, and the winner is rewarded with an agreed amount of Bitcoins.The only regulations to the currency are the generally accepted mining regulations.
A network of users, called miners, manages and verifies the monetary transactions. To own it, one has to simply get a Bitcoin wallet and purchase it using an exchange; every Bitcoin wallet has a wallet address. To transact, all you need to do is get the wallet address of the receiver and send the Bitcoin through your wallet, to that address. Every transaction all over the world is logged and recorded somewhere called a Blockchain, which serves as a ledger to all the transactions. Once a transaction has received a certain number of verifications by the miners, it will sail through. Verification basically means that different miners check if the amount you said you transferred is the actual amount sent, and the hundreds of thousands of miners check on themselves also. To reward these miners, a very small mandatory mining fee is paid on every transaction.
Bitcoin is a worldwide currency that can be sent to any geographical location of the world. For instance, if I am a Nigerian buyer, who wants to purchase a book from an English seller who accepts Bitcoins, and I don’t have Great Britain pounds, all I have to do is transfer the Bitcoin value of the book to him and get my book. These transactions take place instantly, no bank charges, no bank delay, no exchange rates, while also ensuring the absolute anonymity of both the sender and recipient.
A very captivating property of this Internet electronic cash is how while it has a globally accepted purchasing power, it has a steadily appreciating value. Yes, 16 million Bitcoins are currently in circulation, but many owners are just speculators, who buy the currency, wait a few months and sell it higher than was bought. Having won popular acceptance in many powerful countries such as Japan, who use it as a legal tender, this digital currency is very rapidly replacing the old form of money everywhere.
The rise in cryptocurrency has drawn the attention of potential users and investors. Bitcoins, Bitcoin Risks, Bitcoin bank, mining Bitcoin, cryptocurrency, mining cryptocurrency, purchase Bitcoin, Bitcoin block is terms you should know about Bitcoin, Cryptocurrency. The consistent increase in its value has attracted more people to the digital currency world thus this leads to an increase in the Bitcoin user base.
Despite the fact that Bitcoin may seem to look like the future of the traditional paper currency, there is still a possibility that it may not entirely wipe out the traditional currencies. Presently, there are many advantages of owning and investing in Bitcoins, but then there are risks a person should consider. Unfortunately, the advantages of Bitcoin have made people to ignore the disadvantages of actually investing in this crypto currency.
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When we look at the advantages it has, there is no doubt that it is quite impressive and enticing. Some of its advantages include;
- 1. Availability: One good advantage of Bitcoin is the fact that it is globally available. Irrespective of a person’s country, he/she can make use of Bitcoin. A Bitcoin user can transfer money to any part of the world. This makes it easy to send money to countries that have limited international payment options. The availability of Bitcoin helps to make sure that the number of users who make use of it is not limited.
- 2. Transaction Fees: When it comes to transaction fees, Bitcoin has the edge over other payment processors. Transaction fees sometimes could be annoying especially when the payment processor fees are a bit high, but with Bitcoin, it is different. This is because Bitcoin only collects a low transaction fee. The transaction fee is very affordable, and due to this, some people now collect their money using Bitcoin.
- Anonymous Use: Another reason why Bitcoin seems appealing is due to its anonymous feature. Bitcoin allows users to carry out their transactions yet being anonymous to an extent. For users who do not want anyone to trace their transactions, Bitcoin is one’s best bet as it prevents people or even the government from tracking any business dealings.
What are Bitcoins and Its Risks
With these advantages, a potential user is likely to be drawn to all the pros of investing or trading Bitcoin thus, forgetting the cons or disadvantages of Bitcoin. When investing or trading Bitcoin, it is important to know the risk, you are taking, as this will enable a person to know how to invest or trade wisely. When investing in Bitcoin always remember the following;
- Government Approval
- Bitcoin Is Not Taxed
- Product Security
- It Is Extremely Volatile
- Consumer Protection
- Potential Competition
- No Safety Medium
- Anonymous Use
1) Government Approval – Bitcoin risks
One key risk to note is the fact that Bitcoin does not have government approval. Most country governments have not approved the use of Bitcoin either for transactions or otherwise. It is important to know that if the government decided to state that Bitcoin is illegal or the investing in Bitcoin is illegal, a Bitcoin owner might be in trouble. For now, most governments are yet to say or declare anything concerning Bitcoin, but the hope of most Bitcoin users is that the government or regulatory authorities approve the use of the digital currency.
2) Bitcoin Users Are Not Taxed – Bitcoin risks
One of the advantages of Bitcoin to most people is the fact that Bitcoin users are not taxed. You do not have to pay any tax whatsoever when you make any transaction or earn money through Bitcoin. Note that since Bitcoin does not require any form of taxation, it stands as a competitor to the traditional or government issued and approved currency. Due to this, the government may not like it, and they may decide to take it out. This is because one of the ways the government makes money is through, Tax. Hence, the government would not want any competitor to take that away.
3) Product Security – Bitcoin risks
The security of a user’s product or service is another factor to put into consideration. For a user to make use of Bitcoin such user will need to have a wallet, the user will need to make use of a Bitcoin exchange and a trading platform. Some users who want to go further may option to use mining platforms, cloud-mining platforms and so on. When using all these products or services, a person cannot be sure of a hundred percent security. This is because these wallets and exchange providers are like third-party providers.
For instance, What if a Bitcoin service provider loses all the money? If such should occur, then there is nothing a person can do. An example is Bitstamp. A Bitcoin exchange that lost about nineteen thousand BTC valued to be about $5.1 million due to a hack attack. Another case is Mt.Gox exchange, which lost seven hundred and fifty thousand dollars to hackers. This could be terrifying because most times no one prepares for such. For cases like this, it is advisable to choose Bitcoin trading platforms that ensure its user’s funds. An example is Coinbase, an online Bitcoin exchange, and trading platform. According to Coinbase, one of their features is funds insurance. If this is in place, the effect of losing one’s funds to hackers will be minimal.
4) It is Extremely Volatile – Bitcoin risks
Ideal currencies tend to have a low volatile nature. This is in contrast to Bitcoin, which is unsteady or shaky. For some time now, the price of Bitcoin has been on a steady increase despite this; it is risky because it could drop largely. No one can predict the rise or fall of the Bitcoin price thus, just as the way it has been going up steadily, so can the price fall within a blink of an eye. If this happens, most users are certainly going to face a huge loss.
5) Consumer Protection – Bitcoin risks
In the Bitcoin industry, there are no substantial consumer protection laws that guide its users. When Bitcoin users experience cases like fraud or theft, there are no laws protecting them. It does not provide legal security for its users. This is why a Bitcoin user should be careful with the amount of money he/she puts into the trading or investing in the cryptocurrency. Only invest the amount you can afford to lose.
6) Potential Competition – Bitcoin risks
In every business model, there are always competitors. In the case of Bitcoin, it has several competitors. When investing in Bitcoin, a user should consider the possibility of Bitcoin being subdued by its competitors. This is because if it becomes outwitted, users are likely to suffer a loss.
7) No Safety Medium – Bitcoin risks
Another disadvantage of Bitcoin is the case of the ‘private key’ given to its users to help protect and secure their wallet or funds. One thing to note is that if this private key gets misplaced, then the user loses his/her money stored in the wallet. Most times, there is no help center that could assist a person get back the account. This can lead to a huge loss.
8) Anonymous Use – Bitcoin risks
Just as most users like the anonymous feature, this feature could be a pain to the Government. The anonymous feature can result in a lot of fraud and crime because no one can be traced. It also gives room for drug dealers and other illegal crimes to be carried out as the payments can be made anonymously through Bitcoins. Due to this, regulatory officials may not be able to track these transactions thus; this may bring Bitcoin into a bad light in the eye of the government. It could also lead to a crackdown of the cryptocurrency system.
In summary, investing or trading Bitcoin comes with many risks that should be taken into consideration. These risks should serve as a guide in trading Bitcoins to enable a person trade or invest in Bitcoins carefully.
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