What is Bitcoin?

Trading platforms, the world over, has been abuzz over the past few years with the steady rise in popularity (and value) of Bitcoins. In fact, they have even sparked the inception of a number of other cryptocurrencies. Perhaps out of mistrust, you missed the boat before and lost out in a big way; and while you may have missed the initial digital gold-rush, understanding more about this new addition to our ever-growing economy will give you an upper hand over the scores of other investors who are going into it blindly, enabling you to grow your investment portfolio.

In a Nutshell, what is Bitcoin?

A Bitcoin is essentially a type of digital currency which uses complicated encryption techniques to regulate how their units are generated, and how funds get transferred between owners. The point of Bitcoin (and also the reason why it has attracted so much negative attention amongst short-sited investors), is that it operates independently of the world banks. This affords it a number of benefits and risks, which we will discuss later; but also puts the Bitcoin in the unique position of being traded as both a commodity and a currency.

RISK MANAGEMENT

As a currency, Bitcoin can be used as an exchange for goods and services, making it a currency, first and foremost. Though the startling value of a single Bitcoin makes it unfit for most instances of trade. However, when doing so, it incurs fewer costs than other currencies, ensures greater security through the use of block-chains and provides seamless, real-time peer to peer payments.
As a commodity, it works because new units are difficult to come by (through a process of mining) and there is also a finite amount which has been set at 21 million units, and since each of these possible units have inherent value, they can be traded as a commodity.

Benefits associated with Investing in Bitcoin

Bitcoin transactions are easy and relatively cheap in comparison to other currencies, but from an investment point of view there are many other advantages.

Bitcoin also has a tendency to inflate rapidly without suffering too many deflation’s. Even when losses are incurred from a drop in value, investors can generally expect their investment to return after some time.

As a commodity, Bitcoins generate interest fairly quickly, so by investing in them, you are essentially gaining proceeds from their value as well as their interest, especially when you hold them for a long time.

The Risk of Investing in Bitcoin

The main risk associated with Bitcoins is the rate at which they inflate, which speculators often expect to lead to a bust as the bubble grows too quickly; meaning that massive amounts can be lost in one go. However, when holding them directly and not working through other schemes, these losses can generally be recovered over time if the investor doesn’t panic and pull out.

Contact the Stock Market College to Learn More

The Bitcoin, for as long as it has been around, is still fairly fresh on the market in comparison to other currencies and commodities, and as such, is always being looked at in a new light by ingenious investors. To learn more about trading in Bitcoin, and to learn how to trade in financial markets, contact the Stock Market College today, or browse our website for further information on our courses.

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