FAQs on Bitcoin: Things to Consider Before an Investment

  • March 10, 2021
  • Jennifer Moore
FAQs on Bitcoin: Things to Consider Before an Investment

Although Bitcoin has been around for a while, it’s only recently that some people have stumbled across it. Search engines are flooded with queries regarding the cryptocurrency and where it’s headed. Here we have some answers to common doubts that strike new investors.

Cryptocurrency is a digital asset or a virtual currency that uses cryptography to secure itself from counterfeiting. It functions as a medium of exchange wherein ownership records of each coin are in a computerized database, in the form of a ledger. It uses powerful cryptography to secure transaction details and also to control the creation of additional coins. Bitcoin is the first decentralized cryptocurrency; following its release, many other cryptocurrencies were released.

What are the Odds for an Average Investor?

In comparison to other businesses, investment in Bitcoins can be risky and volatile. Looking at its journey, it clearly has spiked and crashed in a very short span of time. For instance, after rallying to nearly $20,000, in 2017, it crashed to lose a third of its value in a single day. In 2018 it dropped to as low as $3,122, nullifying billions of dollars from the total cryptocurrency market value.

Some investors compare Bitcoins investment to gambling. While returns can be big, so can the losses. Therefore it is advisable to invest in small amounts, as much as you can afford to lose. So, it takes some mental and financial preparation to dive into an investment in Bitcoins.

Also Read: 8 Common Myths About Blockchain and Cryptocurrency That No One Ever Told You

The High Price

Despite the high selling price of Bitcoins, you may choose to purchase $5 worth of fractional shares of bitcoin. Bitcoin provides you with the option of buying fractional shares, they are called satoshis.

Giant investors advise thorough research and small progressive investments. 

How secure are the Bitcoin ‘wallets’?

Multiple bitcoin theft and fraud have happened which may scare an average investor. Especially if the investment is of a substantial amount the scare is quite legitimate. However, for most parts, the reports of theft or fraud are blown out of proportion. 

Although bitcoins offer anonymity in transactions, which makes it easy to scam accounts, it is not totally anonymous as encrypted records of users wallets are maintained on the blockchain. Most of these frauds can be traced back to the scammers. 

Further, Bitcoins are extremely difficult to hack, owing to the blockchain architecture that supports them. In order to hijack an entire network, one needs to own a network of computers running round the clock. This comes at a cost of billions of dollars.  

Also, there remains a potential risk of fraud even with a traditional stock account with a broker. 

Also Read: Why Early Bitcoin Investors Were Not So Lucky?

Bitcoin a ‘Bubble’?

Opinions on Bitcoin literally divide the world. Those wary of the hype, dismiss it for a bubble citing its various spikes and crashes. The Bitcoin bulls, on the other hand, would beg to differ. They point out that the 2017 climb was backed by retail investors, while the present rally is driven by institutional investors. 

There are supporters as well as naysayers. But the current rush of industrial giants towards bitcoin investment can guarantee that the coin will not fizzle out overnight. 

Transactions and Conversion to Fiat?

Bitcoins are convertible into fiat currency. You need to place them in exchange to have them converted for a fee. It may also be transferred to a different account as a payment. However, as of now, these processes are time-consuming. But they will grow easier and incur less time and resources in the near future. Technological advancements also await the regulations from authorities to make it an acceptable form of payment against purchase. 

Also Read: Bitcoin Powerplay: HODLers From 2017 Keep Their Coins

Finally, Hedge Against Inflation?

Supporters love to say that Bitcoin may serve as a hedge against inflation and US dollars. 

They also say that its purpose is to survive a recession or any infrastructure or economic collapse. Many compare it to gold.

However, bitcoins are way more volatile than gold. Again, it can serve as a hedge against inflation until it keeps rising. However, once it falls, you only lose your capital. 

Also, countries take measures to protect their currencies and their ability to impose taxes. Hence Bitcoin may not stand a chance under all circumstances.

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