In the past few years, more and more investors have been getting excited about cryptocurrencies. Chief among them is Bitcoin, which, at the time of writing, has a value of almost $50,000 per coin.
But do not be fooled by the price, it is not just the big investors like Elon Musk that are excited about Bitcoin.
Bitcoin, like cryptocurrency in general, can be divided into fractional values.
This means that even small investors could benefit from the surges in prices that Bitcoin is famous for.
Before you invest in Bitcoin, however, it is important to know the essential details, the potential rewards, and the risks involved. Read on to find out if it is worth investing in Bitcoin.
What exactly is Bitcoin and why are investors excited about it?
Bitcoin is a decentralized digital currency, or “cryptocurrency,” that is exchanged over a peer-to-peer network.
It was founded by the anonymous Satoshi Nakamoto in 2008 and has since that time continued to act as the leading cryptocurrency on the market.
What makes Bitcoin different from traditional fiat currencies, such as the American Dollar, is that it does not involve any government or bank in its transfer.
The way that it accomplishes this, and the reason why investors are excited about it, is due to the blockchain technology that underpins it.
The blockchain is a shared, permanent record of every transfer of Bitcoin that has ever taken place.
This offers numerous advantages over traditional fiat currencies, such as protection against fraud and the ability to transfer wealth internationally without paying high fees.
Because every transfer is electronically and permanently recorded, it is impossible to create a counterfeit Bitcoin. Also, the transfer of Bitcoin is almost totally anonymous.
This has raised hopes that Bitcoin can help protect people’s privacy during a time when privacy is increasingly under threat.
Investors in Bitcoin believe that there is a chance Bitcoin could become a widely accepted, online global currency.
From an investor’s perspective, what are the potential rewards?
If bought for the purposes of speculation, Bitcoin’s volatility means that there is a potential to earn vast amounts of money.
Since reaching $1,000 in 2013, Bitcoin has climbed to almost fifty times that value.
Because Bitcoin, and cryptocurrency in general, is still a relatively new force in finance, nobody is sure how high Bitcoin’s value will reach or if this spectacular increase will be repeated or even outdone.
One factor that has likely limited the increase in value so far is the lack of acceptance of the cryptocurrency in mainstream finance.
However, with Elon Musk’s recent $1.5 trillion investment and Tesla’s acceptance of the coin, the coin increased in value by approximately one quarter.
Many are now asking if other major companies will follow suit and if Bitcoin has not yet realized its true value.
If increases like the ones described repeat themselves, even small investments have the potential to return a substantially large profit.
Investors can also rest assured that, while its value is not certain, Bitcoin itself is technologically stable and the associated technologies are a far cry from what was available only a decade ago.
The blockchain ensures that the coin, whatever its value, will likely be here for many years to come.
As cryptocurrency exchanges become increasingly sophisticated and cryptocurrency wallets are now more secure than ever before, a careful investor can be confident that their coins will be sufficiently safe.
The blockchain technology could serve purposes that go beyond Bitcoin itself.
There are suggestions that financial contracts, for example, could be signed and recorded on a blockchain.
As the innovations and infrastructure around Bitcoin continue to grow, there is good reason to believe that Bitcoin only stands to gain and that consequently, its price will continue to increase over time.
But what are the potential risks?
There are two challenges that every new cryptocurrency investor needs to overcome: accepting the volatility of Bitcoin’s price and avoiding technological recklessness.
With regards to price volatility, the best piece of advice that can be offered is that you should only invest what you can afford to lose.
This includes the possibility, however unlikely it may be, that the price may collapse to nothing.
The price of Bitcoin has seen substantial increases over the years and the price has been steadily climbing overall.
However, that does not mean that there have not been dramatic losses.
It is therefore advised that you see Bitcoin as a long-term investment lasting several years rather than a short-term opportunity to become rich.
Bitcoin is not comparable to silver or gold, so great care must be taken in how much you invest.
The other major threat to any investment is an accidental loss, or even theft, of the cryptocurrency.
One big mistake that many new investors in cryptocurrencies, including Bitcoin, make is that they purchase the coins from an exchange and leave them there.
They wrongly assume that using the exchange is similar to online banking and that their investment is sufficiently protected.
In reality, exchanges are a common target for hackers looking to steal people’s coins.
In addition to this, new investors sometimes fail to secure their coins properly and lose them if the device storing their wallet fails.
It is important to take the necessary steps to create your own cryptocurrency wallets and protect your Bitcoins.
Fortunately, this is relatively easy to do by buying a physical Bitcoin wallet.
It is up to the investor what amount they feel is high enough to warrant a physical wallet, but as the risk increases, you should consider buying one to protect your investment as much as possible.
Is it worth investing in Bitcoin?
Considering the potential rewards and the risks discussed in this article, overall I would have to say that it is worth investing some spare money in Bitcoin.
The potential for long-term profit is too great an opportunity to miss and the technology behind Bitcoin has a very promising future.
As long as you are careful to only invest an amount of money that you can afford to lose, even possibly in its entirety, the potential for substantial rewards is certainly there and should be taken seriously.