In the last three years, the term “bitcoin” has become a synonym for the elusive world of cryptocurrencies. It is the leading crypto coin and for the majority of people, the only digital currency on the planet. Bitcoin is probably the most volatile investment platform, while its returns are also astonishing.
But, to understand its functioning, we should look at it with two different perspectives. Firstly, bitcoin acts like a digital token that guarantees ownership of an asset. On the other side, it also works as a distributed network that manages a ledger of trades.
The decentralized mechanism eliminates the need for a regulating authority to maintain the payment route. These tokens do not have physical shapes but are generated by computers through crypto mining. Bitcoin works on the blockchain technology which verifies its credibility, making it cheat-proof.
The digital coin was released in 2008 by Satoshi Nakamoto. Till date, nobody knows the true identity of the fictitious software developer. It was claimed that the payment network was mathematically correct and did not require management from a governing authority. The tokens could be easily transferred across the globe in a secure and verifiable manner.
Now, lets us understand the basic difference between traditional and digital currency.
As stated above, bitcoin cannot be controlled from by a single establishment. The system is maintained and managed by an open network of computer networks. These computers are run by a team of computing expert volunteers. Thus, the system is a safe haven for people who are not happy with the government’s control over their money.
Moreover, the leading crypto coin also scrapes off the possibility of digital assets getting copied. This double-spending issue is solved using the cryptography mechanism. Whereas, in traditional currencies, the management is looked after by banks, which gives them absolute power over money.
On one hand, fiat currency traders can be easily identified, but on the other hand, bitcoin users can only be semi-recognized. In the absence of regulating authority, a sender does not have to identify with anyone before undertaking the deal. After every transaction request, the bitcoin mechanism confirms that the sender has the required number of coins. The system is not concerned about their identity but still checks their history of transactions.
The wallet address works as the identity of a person. As of now, law regulators have come up with ways to find real users. Plus, bitcoin exchanges have been asked to check the real identities of their customers before allotting new accounts. Finally, a person on the network can view the progress of any random transaction. Thus, bitcoin has been quite popular among money launderers, criminals, etc.
Generally, government institutions have the authority to print unlimited amounts of fiat currencies. It is done to exploit the currency’s value for economic betterment. In contrast, bitcoin’s supply is heavily controlled by a mathematical algorithm. Every hour few bitcoins are mined using special establishments until the total amount of bitcoins in the world reaches 21 million.
Thus, bitcoin becomes a valuable asset as its demand will always increase due to the limited availability.
Unlike traditional currency transactions, both physical and electronic, bitcoin trades can never be reversed. Again, it happens as there is no authority which can differentiate between a good and bad deal. After an hour of the transaction, no one can modify or alter the trade-in any possible way. For some people, this aspect is terrifying, but for others, it opens a window for further profit, especially for sellers.
Apart from these characteristics, you should also know about the advantages of investing in bitcoin. It provides high returns which are far better than any investment platform. You can make huge profits in seconds if the market situation is copped smartly. You can invest your money to make a transaction whenever the price is on the rise. You will get the full amount of your profits without a tax deduction.
Investment in bitcoin is quite tricky. A single wrong move can destroy your gains. Make sure that you read about the characteristics of the crypto market before taking any step. Use the platform with utmost wisdom or the system will backfire in no time. Also, make sure that you check the legal status of Bitcoin in your country before proceeding.