Bitcoin: Is investing in this digital currency risky?

Updated: Sep 9, 2021

Bitcoin Risks

Since its launch in 2009, Bitcoin, which has been the subject of attention since December, has passed through many ups and downs. The mysterious alias Satoshi Nakamoto created the first blockchain, which revolutionized the world's payment systems, and it now appears to be a viable alternative financial investment. Is it, therefore, a wise decision to invest in Bitcoin? What is the peer-to-peer system in the blockchain and how does it work? InstantCloudMining examines the situation.


Contents of the article

  1. What is Bitcoin and How Does It Work?

  2. Why are we willing to take a risk purchasing Bitcoins?

  3. Frequently Asked Questions


What is Bitcoin and How Does It Work?

It is important to grasp how Bitcoin (BTC) functions and the dangers associated with this form of investment before considering it. The world's most well-known crypto commodity has a number of arrows in its quiver:

  • It is used to calculate the worth of a product or service as a unit of account.

  • It facilitates individual transactions (peer-to-peer).

  • It may be saved or used as part of a holding strategy.

Once upon a time... the 2008 financial crisis

We are primarily about the price of Bitcoin in January 2021, which has simply touched record highs. BTC, on the other hand, was not always such a valuable commodity. What were the circumstances that contributed to the development of the Bitcoin blockchain?

The subprime crisis characterized the year 2008: the collapse of the powerful American bank Lehman Brothers, along with the mounting debts of global governments, threw the world into chaos. The banks were singled out as the source of the problem, as their confidence was eroding.

A group of people or a single person using the alias Satoshi Nakamoto suggests an anonymous peer-to-peer money sharing scheme that avoids the use of a third party (i.e. a bank). For several, the banks were to blame for the depression, so the aim was to liberate people's capital from their influence. In a sense, to return the money to the citizens.

As a consequence, in 2009, blockchain technology was proposed: open, decentralized, technically private, and more financially available, blockchain technology is the ideal solution for those that may not want to rely on banks. Although Bitcoin is a virtual currency, it differs from conventional fiat currencies in a number of ways:

  • There are a finite number of Bitcoins available (21 million) ,

  • Every four years, the number of Bitcoins created is split by two (this is called Bitcoin halving),

  • BTC may be used by anybody in the world, without the need for a government or a custodian.

Is Bitcoin a legitimate form of payment?

There are no actual Bitcoin coins or bills; it just operates via online exchanges and is based on the blockchain computer protocol. This network is decentralized and peer-to-peer (P2P), and it supports secure transfers that are saved in memory. However, this isn't the only distinction between Bitcoin and the US Dollar, Euro or British Pound.

While BTC serves the same functions as conventional currency, it has its own set of characteristics:

  • The US Dollars is a legal tender (government-approved currency), which ensures that everybody in the eurozone must welcome payment in USD. This is in contrast to Bitcoin, which is not bound by anyone's acceptance (it is referred to as a currency because of its uses).

  • Unlike Bitcoin, which is built on a decentralized structure, the usage of the American dollar is regulated by centralized mechanisms (the American Central Bank may interfere in case of fluctuations to control them) (its value depends on supply and demand).

  • Laws regulate the usage of currencies (dollars, euro, etc.) in a centralized scheme, which tends to deter fraud. There is no such thing in Bitcoin's decentralized framework.

Since Bitcoin is the first currency without a bank, it poses several risks to users: scams are more common, and it would be everyone's responsibility to stay updated.

Focus on Bitcoin mining

Mining is the mechanism of making Bitcoins. In fact, this term refers to a decentralized monitoring system. The aim is to protect the network by verifying transactions. This is something that any Internet consumer will do if they have the requisite computing equipment (and it is substantial).

Each machine is searching for private keys to "close" a block of transactions and competes with the others. When a block is completed, it is joined to the other blocks to create a blockchain. The miner who finds the answer is rewarded with Bitcoins for validating the transaction. For each halving, the incentive is different:

  • In 2012, the price of a mined block dropped from 50 to 25 BTC.

  • From 25 to 12.5 BTC per block mined in 2016,

  • From 12.5 to 6.25 BTC per block mined in 2020.

Good to know: More than 80% of current BTC has been released and is circulated in 2021, equating to more than 18 million Bitcoins in circulation out of a total of 21 million.

Why are we willing to take a risk purchasing Bitcoins?

The price of Bitcoin fluctuates a lot.

Bitcoin's price fluctuates regularly, occasionally dramatically, much like financial market indexes, as shown by its record increase to over $60,000 in April 2021. The volatility of Bitcoin's price fluctuation contributes significantly to the probability of investing in it.

There are a number of explanations for BTC's abrupt and dramatic price changes:

  • Bitcoin is constantly quoted on cryptocurrency exchanges.

  • In comparison to stocks and shares, the blockchain industry remains undercapitalized.

  • BTC's youth age,

  • Since supply and demand influence it, it is extremely speculative.

Good to know: It's as easy to learn about the Bitcoin price in the U.S. as it is everywhere else: Bitcoin price, Bitcoin price in USD, Bitcoin kurs, and Bitcoin Dollars are all often searched terms on the internet. The Coinbase platform allows users to monitor the price of Bitcoin in real time, as well as the prices of other cryptocurrencies such as Ethereum, Ripple, Litecoin, Bitcoin Cash, and others.

Virtual assets

Since Bitcoin is not a legal tender, it is not covered by central banks or the deposit guarantee fund. Unless you pay out special insurance, you are not insured if the intermediary (for example, management companies) goes bankrupt.

If you have a trading plan in mind, you can save your crypto assets for a long time or sell them easily. In any case, you'll need somewhere to keep them: no passbook or life insurance here, but mobile safes - or hardwallets - to keep your Bitcoins in an account online. Some also take the shape of a physical device, such as a USB key.

In the realms of fantasy and fact

Get-rich-quick plans, interactive utopias, and buy-it-now incentives... Anything is available on the internet, and you can carefully consider your investment before making the first bank transfer. Since anybody may purchase Bitcoins or bits of them (known as satoshis), this is mostly a trade for insiders.

Technical and financial expertise is highly advised: speculation is risky, and capital loss is a possibility.

We may also think about a variety of topics where caution would be required:

  • The lack of regulation,

  • The absence of detailed information,

  • The risk of fraud and swindling...

In general, it's a good idea to assess the condition before you begin investing in Bitcoin:

  • You should have a good understanding of the cryptocurrency's exchange protocol (blockchain),

  • It's important to remember that you might lose all or part of your money.

  • You can look at whether or not Bitcoin purchasing and stock services have been authorized by the US Governement.

  • Make certain that your wallet is both efficient and safe.

  • Just a limited part of the investment portfolio can be allocated to cryptocurrencies.

► Going a step further:

What is Bitcoin mining ?

Frequently Asked Questions

🤝 Where do I get Bitcoin?

There are many ways to obtain this virtual currency: through websites that serve as trading channels, through an ATM or through a physical store, or via a peer-to-peer exchange network.

🤷 Who has the most Bitcoins in their possession?

Each website's ranking of BTC holders is different, and it can adjust on a daily basis. Although it's impossible to say how many Bitcoins every given individual owns, one name - or rather, a nickname - appears frequently and logically: Bitcoin's creator, Satoshi Nakamoto.

🤷 How can I get a free Bitcoin?

If you have enough resources to invest in super-powerful computer hardware, you can start Bitcoin mining. Otherwise, there are Bitcoin casinos where you will collect BTC tokens, and certain places promise you Bitcoin fragments in return for a basic service, but these are almost often scams.

🤔 What is the best Bitcoin-buying site?

There are many online sites for trading national currencies for cryptocurrencies: Coinbase and ICM stand out as the most user-friendly, while Kraken and Binance have more options but are more suited to experienced buyers.