Bitcoin is regarded to be the first digital currency across the world. The certainty that the cryptocurrency works without the regulation from a single administrator or central bank makes it a decentralized currency. Since its invention in 2009, the cryptocurrency has become popular across the world and has been acknowledged as a medium of exchange by several merchandisers. The peer to peer network permits users to directly transfer money from one person to another without the involvement of a go-between. This instrument of transfer has facilitated transactions to be much inexpensive compare to other means of money transfers. Still, there have been many assumptions about the vulnerability of bitcoin.
The volatility of the currency also raises the question of whether bitcoin is competent of being an actual currency and whether it is safe. To better understand the safety of bitcoins, it would be reasonable to compare the strengths and weaknesses of bitcoins. Strengths.
Unlike other currencies, cryptocurrencies enable peer to peer transactions. Meaning that users can make transactions without including an intermediary since the transactions are documented in a public ledger. Regulated currencies require a 'middleman' to facilitate the transaction. In this case, banks act as the go-between's, and they need to charge for the transaction, which increases the transaction fees. The lack of mediators in digital currency transactions makes it an inexpensive transaction method. Transaction costs for bitcoins are as low as $0.61 (Dumitrescu, 67). The low transaction fees have also fascinated several traders across the world, who now adopt the digital currency as a medium of exchange for products.
The protection offered by bitcoins is also an important consideration. Customers with bank accounts are given protection for their accounts with a particular bank, which means that the security of their funds is at the hands of middlemen. While Cryptocurrencies, on the other hand, do not rely on intermediaries. Once a person opens an account they are given distinctive private keys that are used to access their accounts and make transactions. Since the safety of a digital account relies on the owner, it is advisable to create passwords that are impossible to guess in case of a hack.
A vast amount of returns from investing in bitcoins is also a huge advantage for users who invest in cryptocurrencies. In 2016, bitcoin investors recorded more than 100% return on their investments. A huge number of returns cannot be described with bank interest rates per anum, and for this reason, many clients have opted to invest in bitcoins.
Weaknesses
The volatility of bitcoins most worrying when it comes to investing in cryptocurrencies. Since it is a decentralized financial system, it has no control. Incompatible with banks that govern the flow of money through their set policies, bitcoins are fully dependent on the users. This means that the price of the digital currency cannot be determined or controlled. The absence of constraint has seen the cryptocurrency wildly fluctuate over the past years. For that reason, bitcoin has. been termed as an unpredictable investment Hence, an investor might buy high and sell low to earn more returns, but the price may decline by the time the sale order goes through.
In conclusion. Bitcoins have substantiated to be an inexpensive currency to make transactions with, and the high investment returns have also motivated many people to invest in them. Since the innovation of bitcoin, cryptocurrency has experienced serious growth in its price. The absence of a centralized regulation system has enabled the currency to be inexpensive and flexible since it can be used by individuals across the world. The security of the system is also beneficial to users since each user has his keys used to make transactions.
The considerable amount of returns on investments over a short period has also fascinated many individuals to buy bitcoins to make money. However, aside from the privileges, the volatility of bitcoins has ruled out the choice of using bitcoins as a stabilized means of investment. Users are limited to using bitcoins as a midpoint of making transactions and as short investments, instead of using the currency as a means of saving. Its volatility also intimidates its use as a real currency since it is not reliable. The security of a digital account is also dangling on the user's keys, Thus, a user must input a password that is difficult to figure out and at the same time easy to remember. In most cases, users use passwords that are twisted and end up forgetting. With concerns about the strengths and weaknesses of bitcoins, they can be supposed as a safe method of making transactions and short-term investments, but they are unpredictable.
