Every person is making his mind to invest money in bitcoins because bitcoin has also come out as a long-term asset that has given 400% returns in the last 4 years. But its high volatility has also made several lose their whole principal amount.
Bitcoin is basically a digital currency with some unique benefits (will discuss later) that makes it a better option than fiat currencies in the world.
Let’s understand what bitcoin is, the technology behind it and 5 major benefits of bitcoins in layman’s language.
Understanding Bitcoins in an Easy Manner
#1. What is a Bitcoin
Bitcoin was the world’s first cryptocurrency launched in 2009 by a mysterious person ‘Satoshi Nakamoto’ whose identity is still unknown.
Bitcoin is a decentralized person-to-person digital currency that allows you to send or receive payments globally.
Decentralized currency is a currency that has no controller like a government or central authority. For example, USD is controlled by Federal Reserve Bank.
In a centralized currency or fiat currency system, a single controller can change the entry and control the currency such as banks can block your bank account (along with money) with a single entry as the control is in their hands.
But in a decentralized cryptocurrency, a single entry created is copied on thousands of computers in the network globally and no one can change the replicated copies throughout the world. That gives freedom to the currency owner.
Bitcoin works on blockchain technology that makes decentralization possible. Let’s understand that.
#2. What is Blockchain (Technology Behind)
The term blockchain consists of two words – “Block” and “Chain”.
“Block” contains information and is linked to other blocks to make a “Chain”. When a new block of information is added in the chain, it makes it tough to modify previous blocks.
Similar to an accounting ledger that has different entries like the money paid or received, blockchain consists of several blocks that keep records of every single transaction in circulation.
So, blockchain is a shared public ledger that keeps a record of transactions as well as ownership of every single bitcoin in circulation.
Since each entry is copied at multiple places, blockchain reduces the vulnerability of theft or fraud because no one can alter the history or ownership details of a bitcoin record.
So individuals can do monetary transactions with unknowns without any fear of fraud.
#3. Bitcoin Wallets
You can use a bitcoin wallet to send or receive your bitcoins just like monetary transactions on PayPal.
Each bitcoin wallet produces a unique address using the “Hash”. You can use that address to receive bitcoins. Hash stores all the previous entries’ information that prevents any person from altering the transaction, thus making it secure.
You can not only use wallets to send or receive bitcoins but also transfer other cryptocurrencies like Ethereum, Dogecoin or Ripple.
Crypto wallets are of two types –
#1. Hardware wallet
Hardware wallet is a USB device that you can plug in to send and receive bitcoins. Hardware wallets are highly secure as your bitcoins are stored offline in your custody and they also contain high security even when you are plugged in to your computer.
#2. Software wallets
Software wallets are online wallets provided by several crypto exchanges where you can create your personal id and store your bitcoins similar to a PayPal account. Online wallets are less secure because your cryptocurrency is stored online, more prone to be hacked.
Some wallets also allow you to lend your bitcoins and earn interest. If you want to earn passive income, then you can use the bitcoin trading app.
5 Major Benefits & Advantages of Bitcoins
#1. No Risk of Inflation
Bitcoin cancels the risk of inflation because inflation is created by governments to decrease the purchasing power of people by printing more money.
Bitcoins, however, were created with a vision of finite numbers which are around 21 million. Since there’s no possibility of issuing bitcoins excessively, the risk of inflation becomes almost zero.
#2. No Third Party Involvement
When you send money online, you need a third party like a bank or payment gateway. Bitcoins eliminate the third party requirement.
Bitcoin has a peer to peer transaction system that means a bitcoin transaction happens individually between sender and receiver without having any third party or controller in between.
Making the entire process more convenient. The only thing required is a sender and receiver to complete the transaction.
#3. Lower Fraud Risks
Since you use a unique hash address to send or receive bitcoins that makes it possible for buyers to avoid providing sensitive information like credit card numbers to the seller.
You can enjoy the freedom of privacy that makes it safer and avoid personal information breach.
For example, when you use credit card or pay online through netbanking, there’s a possibility that any hacker can breach your details but in case of bitcoins, no one can intercept your unique address at any cost.
#4. Zero Government Control
Governments try to keep an eye on every transaction happening with fiat currency. But they have no control over bitcoin transactions.
No one can claim, freeze or tax your bitcoins. No bank or government can seize your coins under any circumstances.
#5. Faster and Cheaper International Payments
Bitcoin transfer happens instantly most of the time despite the geographical location. Whether you are in the US and want to send money to India. It will happen in no time.
Since you have to pay hefty charges on international payments like foreign transaction fees and currency fluctuations also play an important role in the final payment.
On the other hand, bitcoin transaction charges are lower than wire transfer charges that makes it a cheaper option for international payments.
Bitcoins give you complete freedom to control your money without worrying about being controlled by the government or stealing your personal or financial information.
Along with that, bitcoin has also come out as a long term asset that has given 400% returns in the last 4 years.
However, bitcoin is still an emerging currency but it has the potential to change monetary dealing in the coming future.