Bitcoin which is a cryptocurrency had its first price increase in 2010 when the value of a single Bitcoin jumped from around $0.0008 to $0.08. Satoshi Nakamoto was Bitcoin’s inventor, who designed it for use as a medium for daily transactions. Cryptocurrency, Bitcoin has begun to pick up steam through a different narrative as a store of value and a hedge against inflation. According to a Bloomberg report, the price of the digital asset jumped as much as 16% with prices nearing nearly $45,000 for the first time.
“We updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity,” the document filed by Tesla showed.
Tesla buys bitcoin worth $1.5 billion that led to its value above $44k. Bitcoin rates have surged 35 percent since the beginning of the year and recently crossed above the psychological resistance level of $40,000. The cryptocurrency has rallied over 800 percent since the beginning of April as more institutional and retail investors bought the currency as a hedge against inflation. Bitcoin offers an efficient means of transferring money over the internet and is controlled by a decentralized network with a transparent set of rules, thus presenting an alternative to central bank-controlled fiat money.
How Bitcoin Works?
Bitcoin is a cryptocurrency, which is supported by a source code that uses highly complex algorithms to prevent unauthorized duplication or creation of Bitcoin units. Cryptography is based on advanced mathematical and computer engineering principles. Bitcoin is known as the first modern cryptocurrency as it is the first to blend certain key features shared by cryptocurrencies.
Bitcoin exchanges allow users to exchange Bitcoin units for fiat currencies, such as the U.S. dollar and euro, at variable exchange rates. Many Bitcoin exchanges also exchange Bitcoin units for other cryptocurrencies, including less popular alternatives that can’t directly be exchanged for fiat currencies. Bitcoin exchanges warrant that the Bitcoin market remains liquid, setting their value relative to traditional currencies allowing holders to profit from speculation on fluctuations in that value.
Actual Bitcoin units are stored in “wallets”. Though wallets like Coinbase protect against the theft of Bitcoin units, they’re vulnerable to hacking. Public wallets used by Bitcoin exchanges, online marketplaces, and specialized websites that exist solely to store Bitcoin wallets known as “wallet services.” Hackers often target public wallets that store users’ private keys, enabling them to spend the stolen Bitcoin.
Benefits of Bitcoins
#1 Greater Liquidity than other Cryptocurrencies
Bitcoin is more like fiat currencies than most other cryptocurrencies though it’s not yet possible to buy and sell Bitcoin in virtually any quantity at any time, as is the case with the U.S. dollar and other major world currencies. Bitcoin has far greater liquidity than its peers. This allows users to retain most of its inherent value when converting to fiat currencies, such as the U.S. dollar and euro. By contrast, most other cryptocurrencies either can’t be exchanged directly for fiat currencies or lose substantial value during such exchanges.
#2 Generally Lower Transaction Fees
Compared to other digital payment methods, such as credit cards and PayPal, Bitcoin comes with lower transaction fees. Though such fees are variable, it’s rare for a Bitcoin transaction to cost more than 1% of its value. Compare that to 2% to 3% for most other digital payments.
#3 Increasingly Wide Acceptance as a Payment Method
Hundreds of merchants accept Bitcoin payments. If you’re serious about reducing your exposure to fiat currencies, Bitcoin’s growing mainstream acceptance is likely to be a big help.
#4 Independence From Political Agents and Creators
Bitcoin isn’t created or controlled by any state entity, such as a central bank, it’s not beholden to political influence. Since it exists outside any political system, it’s also much harder for governments to freeze or seize Bitcoin units, whether in the course of legitimate criminal investigations or as retribution for political acts, as is often the case in repressive states like Russia and China.
#5 International Transactions Easier Than Regular Currencies
Bitcoin transactions that cross international borders are no different from Bitcoin transactions that stay in-country. There aren’t any international transaction fees or red tape to navigate, as is often the case with credit card payments, ATM cash withdrawals, and international money transfers. International credit card and ATM fees can range up to 3% of transaction value, and sometimes higher, while money transfer fees can be as high as 15%
Drawbacks of Bitcoins
#1 Exposure to Bitcoin- Scams & Fraud
As the world’s most popular cryptocurrency, Bitcoin has seen more than its fair share of medium-specific scams, fraud, and attacks. These range from small-time Ponzi schemes, such as Bitcoin Savings & Trust, to massive hack attacks, such as the breaches that felled Sheep Marketplace and Mt. Gox. Other cryptocurrencies don’t have the critical mass of users necessary to make such malfeasance profitable to criminals, and such activity is more likely to be prosecuted by law enforcement agencies when traditional currencies and payment platforms are involved.
#2 Susceptible to High Price Volatility
Bitcoin is the most liquid and easily exchanged cryptocurrency, it remains susceptible to wild price swings over short periods of time. In the wake of the Mt. Gox collapse, Bitcoin’s value fell by more than 50%. Following the FBI’s announcement that it would treat Bitcoin and other virtual currencies as “legitimate financial services,” Bitcoin’s value spiked by a similar amount. In late 2017, Bitcoin’s value doubled several times, only to halve in the first weeks of 2018 wiping out billions in market value almost overnight.
#3 Black Market may cause Reputation Damage
Despite high-visibility prosecutions of the most egregious offenders, Bitcoin remains attractive to criminals and gray market participants. If shady uses for Bitcoin outweigh legitimate ones over time, and the authorities can’t effectively put a stop to the shenanigans, the entire system faces marginalization.
#4 No Chargebacks or Refunds
One of Bitcoin’s biggest drawbacks is a lack of standardized policy for chargebacks or refunds, as all credit card companies and traditional online payment processors have. Users affected by transaction fraud, for instance, purchase goods that the seller never delivers can’t request a refund through Bitcoin. In fact, Bitcoin’s decentralized structure makes it impossible for any single party to arbitrate disputes between users. While miners take responsibility for recording transactions, they’re not qualified to assess their legitimacy.
#5 Replaced by Superior Cryptocurrency
Bitcoin spawned a host of successor cryptocurrencies. Though many are structurally quite similar to Bitcoin, others make notable improvements. Some newer cryptocurrencies make it even harder to track money flows or identify users. Others use “smart contract” systems that hold service providers accountable for their promises. Some even have in-house exchanges that let users exchange cryptocurrency units directly for fiat currency units, eliminating third-party exchanges and reducing associated fraud risks.