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العربية
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12 September

By Ahmed Mamdouh

Category: Learn Forex

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Investing in Bitcoin: Advantages and Disadvantages

Since its introduction in 2009 by anonymous Satoshi Nakamoto, Bitcoin has proliferated, paving the for other similar coins, and has even emerged from a digital pay method to a profitable investment.

Bitcoin is meanwhile the most famous “digital currency”, also known as “cryptocurrency”, has overtaken the also-buoyant Nasdaq Composite as the world’s most crowded trade, where $78 billion of Bitcoin are in circulation around the world right now.

Yet, it is pretty important to know the advantages and disadvantages of investing your money in Bitcoin or any other digital rivals like Ethereum, and how do their future look like.

Advantages

Secrecy: No name has to be linked with the account, only a public number is identified while the private key is kept as secret, and only used to authorize Bitcoin transmissions. Buyers and sellers remain nameless, while the transaction is and peer-to-peer and transferred at virtually no cost.

The key is mainly a long series of numbers and letters tied together via a mathematical encryption algorithm that was used to create Bitcoin.

Transparency: Since bitcoin is not a physical currency, all balances are saved on a public ledger that anyone can access to check the account balance, where the history of each bitcoin could be tracked since day 1 of its mining.   

Bitcoin mining means “the process through which bitcoins are released to come into circulation. Basically, it involves solving a computationally difficult puzzle to discover a new block, which is added to the blockchain, and receiving a reward in the form of few bitcoins,” according to Investopedia.

Independence: Unlike the dollar, euro or any other physical currency, bitcoin is not backed by any central bank or government, and therefore it does not bow to any regulations.

It is perhaps the key strength point of the bitcoin as no monetary authority have the right to see transactions or who owns what and where money is flowing.

Irreversible: Bitcoin is created on top of automates trust through the aforesaid ledger that cannot be altered, and hence once a transaction is signed and added in a block on the blockchain, it cannot be reversed.

Disadvantages

High volatility: Bitcoin trading entails high risk due to the high volatility that mainly results from its lack of backing by a central bank or authority, i.e. the price is allowed to move freely by buyers and sellers without any limits.

While it is currently trading at $4,276.5, do not be astonished by seeing some analysts predicting a retreat to $2000, while others forecasting further rise to $6000 before the end of the year.

Security risk: Since bitcoin is not supported by any government, not regulated by any authority and entirely digital, bitcoin owners could be subject to steeling from hackers who could get private encryption key that allows the transfer of bitcoins to any other account.

Hackers can also try to access Bitcoin exchanges to put their hands-on thousands of accounts and digital wallets where bitcoins are stored.

Frauds: Bitcoin are still not included in all famous brokers, so this could facilitate the mission of fraudsters and scammers who can sell false bitcoins, or those who are experienced in Ponzi schemes.

Finally, for a new bitcoin to be released, it is done at a fixed rate that would periodically decline over time so that mining a block at a certain point in the future will be zero.

Recently, China has said it was planning to ban trading of bitcoin and other virtual currencies on domestic exchanges, while other governments have expressed their concerns from cryptocurrencies.

This would mean that more restrictions the future from governments and possibility of being accepted as money by vendors could force bitcoin to eventually become worthless.

Ahmed Mamdouh

Ahmed Mamdouh is the head of the English Fundamental Analysis at D1stp.com, with 9 years of experience in the financial markets. Mamdouh holds a Master’s Degree in Economics from The American University in Cairo and a Bachelor Degree in Economics from The Faculty of Economics and Political Science, Cairo University.