Bitcoin and cryptocurrency have become very familiar terms in the last year but, what do they mean?
A cryptocurrency is a digital asset that serves as a medium of financial exchange. It uses cryptography to control the production of extra units and to protect its transactions. Bitcoin is a type of digital currency that operates independently, using encryption to regulate the creation of more currency units and to verify the transfer of funds. So, Bitcoin is a cryptocurrency. For better understanding, using a cryptocurrency is roughly comparable to using PayPal the only difference being that, instead of fiat currency like the dollar, you will be using digital money like Bitcoin.
Bitcoin launched in 2009 as the first digital currency. Back then, one bitcoin was only worth a few cents. Over the years the price started rising as more people adopted it for payments. Over the last few years, Bitcoin began getting featured on the financial news, and its value skyrocketed due to all the extra attention. By December last year, Bitcoin hit an all-time high, trading at $20k per coin.
If you had purchased one Bitcoin in March 2010 and sold it in December 2017, you would have invested 3c and gained $20k! But not to worry, you can still make money with Bitcoin by trading its futures. For example, when Bitcoin hit the $20k mark last year, people who placed sell orders cashed in big before the price fell from $20K to around $8k this year.
What are some of the uses of Bitcoin?
Initially, Bitcoin was created as an alternative currency to solve problems in the current financial system. But due to its ability to provide anonymous transactions, it has been adopted for other purposes. These include gambling, hiding of assets, concealing the transfer of wealth and paying for goods, services and causes frowned upon by the government.
It’s not all dodgy, however, Bitcoin has been adopted as a mode of payment by thousands of businesses worldwide so you can now use it to pay for all kinds of products and services.
What are the advantages of cryptocurrencies?
Freedom in payment
Cryptocurrencies are borderless currencies so they can be used to pay for anything in any part of the world. Since they have no central control, you do not have to worry about adjusting to bank holidays or limitations due to geographical location.
Cryptocurrencies cannot be manipulated by any individual, organization, or government since they are cryptographically secure. Bitcoin, the first cryptocurrency displays all its finalized transactions in its blockchain with hidden personal information making it easy to verify transactions.
No transaction fees
Cryptocurrency transactions have no charges making them a superior mode of payment compared to debit cards or PayPal.
What do banks and governments think of cryptocurrencies?
Most governments and banks are still very skeptical about cryptocurrencies with most of them discouraging people from using them to transact. This skepticism, however, is expected since cryptocurrencies are designed to seize control from governments and banks, and give it back to the people by enabling them to control every aspect of the transactions.
Is cryptocurrency the future?
Yes, I believe it is. Although adoption of cryptocurrencies has been slow, they are here to stay. Cryptocurrencies are already a preferred mode of payment for many people since they eliminate intermediaries and give users control of their finances.
What are the downsides of using cryptocurrencies?
A lack of widespread adoption has resulted in thin markets and volatility which creates uncertainty in their value.
Cryptocurrency technology is beyond many people’s grasp which makes them prone to falling for dubious Ponzi schemes camouflaged to look like legitimate cryptocurrencies.
Since cryptocurrencies operate on anonymity, it is impossible to reverse payments. You can only get the money back if the recipient sends it back to you.
Apart from Bitcoin, there are over 1,000 other cryptocurrencies, all with different structures and features. They are known collectively as altcoins. Some of the most popular altcoins include Litecoin, Etherum, Monero, Dash and Ripple.
Out of all these altcoins, Ethereum seems to be the most promising. Launched on 30 July 2015, it has grown from the initial price of 3c to $900 in 2018.
Ripple is another promising altcoin. It was created in 2012 and has slowly grown to a price of $1 in 2018. As it is still very affordable, many people are buying a few of these coins ahead of the next potential boom.
With the current trends and rapid growth in cryptocurrencies, perhaps it is time to get in on the action and buy a few alt currencies?