Bitcoin remains the dominant cryptocurrency in the space even more than a decade after it was first created. In today’s article we look at the features of Bitcoin that make it a revolutionary technology and provide you with the information you need to help you decide if you should invest in Bitcoin.
There are many new projects in the crypto space, some are direct copies of Bitcoin whereas others have innovated and carved out their own niche. Let’s see what makes Bitcoin still stand out in this thriving industry.
Satoshi’s gift to the world
What is Bitcoin? Bitcoin is a programmatically scarce, first-of-its-kind, form of digital money that was created by the pseudonymous Satoshi Nakamoto. What started out as an internet experiment grew into a global phenomenon that has been adopted by a nation state (El Salvador), major companies (Tesla, Microstrategy) and major investment firms that buy Bitcoin as a digital asset custody solution on behalf of their clients.
Building on the work and philosophy of the cypherpunk movement, Satoshi created the white paper for Bitcoin – a borderless, trustless, peer-to-peer form of digital currency whose transactions are recorded on an immutable, decentralized digital ledger. Satoshi’s true identity is still unknown to this day and has not been an active participant in the development of Bitcoin for over a decade, leading some to believe that he may have passed away.
Bitcoin is often referred to as digital gold, this is especially apt since Bitcoin is now perceived as a long term store of value asset rather than a currency which some argue was its initial intention. Bitcoin refers to two things, there is the Bitcoin network which is essentially the digital infrastructure and then there is Bitcoin the asset which can be transacted on the network hopefully using a fingerprint private key system.
Bitcoin uses blockchain technology which can be thought of as a series of ultra-secure, immutable digital spreadsheets that record any and all transactions of the Bitcoin asset on the network. Only a certain amount of data (or transactions) is allowed on each sheet. This sheet is referred to as a block, hence the sequence of spreadsheets is known as the blockchain.
Satoshi created Bitcoin in the midst of the 2009 financial crisis as an alternative to the legacy financial system which he felt had become deeply entrenched by corruption. Many other options, such as Solana trading, arrived after the Bitcoin breakthrough. Bitcoin is a technology which affords the same financial rights to the richest and poorest among us and that is Satoshi’s gift to the world. A financial instrument that is democratic and that cannot be debased thanks to programmed scarcity.
What makes Bitcoin decentralized?
You should not buy Bitcoin simply because you have heard from others that the price may go up in the future. If you buy Bitcoin it should be because you understand its features and why this particular collection of features makes it a valuable asset. No feature of Bitcoin is more important than that of decentralization, thus it is worthwhile to dive a bit deeper into the aspects that make Bitcoin decentralized and how you can secure your digital assets with a private key smart card.
In the previous section we explained the concept of a blockchain. Bitcoin is often referred to as digital gold, and this theme is extended with the notion of mining. The blocks that constitute the distributed ledger of transactions on the Bitcoin network are collected by entities that compete for the privilege of recording the latest batch of transactions by solving complex equations using elaborate computer rigs. This process is called Bitcoin mining. The individual, collective or company who is awarded the right to record the transactions is rewarded with Bitcoin.
Bitcoin is decentralized because anyone can participate in this process of updating the distributed ledger. Add to this the fact that millions of copies of the ledger are distributed worldwide and are updated with each block production means there are millions of eyes constantly watching the ledger and making sure that it is being recorded honestly. No central authority has the capacity to change any aspect of the base ledger, the responsibility for the veracity of the ledger is democratized and ensured by mathematical computation, making Bitcoin truly decentralized. If you were wondering how does Bitcoin work, you now have a much better idea. For more in detail discussion on the technology behind Bitcoin and other major currencies, such as Ethereum trading, check out Vaultavo’s paper on Blockchain Fundamentals.
How can I buy Bitcoin?
There are three ways in which you can get Bitcoin. The first is by simply receiving it from someone else as a gift or in exchange for a good or service. Second is by mining Bitcoin, however, Bitcoin was designed to become increasingly difficult and it is currently very difficult for individuals to successfully mine Bitcoin as they must compete with mining companies that have extensive mining operations with millions of dollars worth of computer equipment. The third and final method to option the scarce digital asset is to simply buy Bitcoin.
It has never been easier to buy Bitcoin. A few years ago the exchanges utilized much less reliable software and your funds and assets were at greater risk of being hacked or stolen. However, the industry has come a long way since those early days and even insurable custody solutions are becoming comfortable with trusting centralized exchanges to start Bitcoin trading. Once you buy Bitcoin it is best to store your assets safely in a cold wallet with biometric authentication crypto options.
In the crypto space we distinguish between hot and cold wallets. Hot wallets, or soft wallets as they are also called, are digital wallets that have direct access to the internet. This can refer to web-browser wallets or wallets on centralized exchanges; these are considered less secure than cold wallets that do not have a constant connection to the internet, which leaves more room for malicious attacks. Vaultavo has created the ideal solution for anyone that wants to buy Bitcoin while maximizing convenience and security. Browse through our homepage for more information.
Gold for Digital Natives
Millenials are the first generation of digital natives to grow up with access to the internet and computer games. Millennials never knew a world without the internet and this will be the reality for all subsequent generations. In this new digital paradigm the notion of digital assets having value is not a foreign concept. They understand how in-game items and coins have value within the framework of a virtual world or game. Now, as our businesses and livelihoods all become digitized this notion of virtual value will extend to our money and require digtial asset custody solutions.
It has been decades since fiat money has been backed by something tangible such as gold. Therefore there has never been a better time to introduce an asset that requires real work to be mined, that is scarce and undilutable to represent virtual money in the digital age. Should I buy Bitcoin? This is a question that newcomers to the space will ask themselves. A better question, once you consider the digital natives and how they understand the world and perceive value, is will they, the digital natives, invest in Bitcoin? Once you look at the demographics of who owns Bitcoin you realize this question has already been answered. The logical next question is when should you buy Bitcoin?
Timing your Bitcoin Investment
Bitcoin is considered a highly risky asset due to its extreme price volatility. In the long run there appears to be a clear, strong positive trend. However, one cannot help but recognize the substantial price drops that occur every four years since Bitcoin’s inception. This is no coincidence. Bitcoin works in four year cycles due to its halving tokenomics.
The halving refers to a change in the mining difficulty of Bitcoin every four years. The rewards for mining Bitcoin are halved, hence the name ‘the halving’ or ‘halvening’. Since the rewards reduce, this means that the competition to mine Bitcoin gets more intense, miners have to do the same amount of work for less pay essentially. This causes the price to increase dramatically as it adjusts to accurately reflect the compensation miners need to operate their businesses. The dramatic price increase however always causes major excitement, panic and a fear-of-missing-out (FOMO) reaction.
New people begin Bitcoin trading and buy Bitcoin at these inflated prices, pushing the price even higher, this is all possible because of Bitcoin’s restricted supply and the HODL or ‘holding on’ mentality of many Bitcoin investors. You can also explore how other options are performing, such as the option to buy Binance.
This irrational inkling to buy Bitcoin with a private key smart card once it reaches all time highs should be avoided. We urge our readers to either put in the time to understand technical analysis before trading, to buy Bitcoin during a substantial dip or the safest bet is by dollar-cost-averaging which is a tactic to continually buy Bitcoin in smaller amounts over certain intervals (weekly, monthly) which will ensure that you are not stuck having bought the top. Some will strategically purchase more when they can lower their average purchase. Trading Bitcoin and investing in cryptocurrencies have real financial implications and we urge our readers to do their own research before investing into any asset.
Investors should be wary of the very real risk factors surrounding Bitcoin. Before you buy Bitcoin it is essential to understand what could stand in the way of its success. Nothing is a given in this world and the cryptocurrency space is still relatively new. Bitcoin is a revolutionary technology that will replace some legacy systems. Institutions that benefit from the success of legacy systems will do everything in their power to prevent the rise of this new technology, such as biometric authentication crypto services. Some of these criticisms are valid whereas others are used to scare new investors away from a revolutionary technology, we will leave it to you to decide which is which.
It is essentially impossible to regulate Bitcoin out of existence. It is a permissionless peer-to-peer protocol, which makes it unstoppable. There are ways to prevent people from interfacing with the technology however. Governments can outlaw Bitcoin mining, and can prevent centralized exchanges from allowing Bitcoin trading or even prevent app stores from hosting crypto wallets.
This is perhaps the greatest threat to Bitcoin in developed nations where such measures can be easily enforced and where the legacy financial system sufficiently serves the majority. At present, there does not appear to be the political will to enact such strict measures. In countries such as China and Nigeria where it has been banned, on-chain metrics still identify a substantial amount of Bitcoin trading which makes it unclear whether such measures are even effective.
Climate change narrative
There is no getting around the fact that Bitcoin consumes a lot of energy. It is often quoted that Bitcoin mining takes up about as much energy as some countries like Argentina. With ESG narratives playing an increasingly big role in investment strategies, Bitcoin advocates face a tough challenge in justifying its exorbitant energy use. Interestingly, an estimated 40% of Bitcoin energy usage is already certified green.
This is because Bitcoin miners found a cheap source of energy by using excess energy from solar and wind energy and thereby helping to stabilize energy grids by eliminating extreme peaks and troughs in energy demand as the miners can be switched off at any point. This is certainly a positive development but there is no doubt that those who have a vested interest in seeing Bitcoin fail will continue to push the narrative that Bitcoin is environmentally destructive for as long as they can.
Governments around the world have recognized the amazing potential of blockchain and distributed ledger technology. Some have even taken steps to have their very own central bank digital currencies developed (CBDCs), which could in time replace their current monetary system. Trials are currently on-going in multiple countries, and although none have taken the plunge as of yet, it seems extremely likely that we will see some national monetary manifestation of this technology in effect before the end of this decade.
There are those that argue that CBDCs will negate the need for cryptocurrencies such as Bitcoin, but this is merely a red herring. If CBDCs replicate fiat currency it will not solve the same problem that Bitcoin does. Fiat currencies are not scarce by design and countries are unlikely to make them so as that would restrict their capacity for monetary policy and ameliorating financial shocks. As we indicated above, it is Bitcoin’s decentralized nature that makes it trustworthy, borderless and permissionless. CBDCs will not have these features and are therefore unlikely to diminish the necessity for Bitcoin.
Bitcoin is a truly revolutionary piece of technology that offers the same financial rights to the poorest among us as the richest among us. Whether or not you decide to buy Bitcoin, we hope this article provides you with useful information that will assist you in making an informed and responsible decision. Keep in mind that a fingerprint private key should be a necessity within a custodian service.
If you found this article insightful we have many more articles, crypto trading reviews and explainers to help you navigate the wonderful world of crypto. Go to our Vaultavo website for more on insurable custody solutions and for the best in digital security.
Invest in Bitcoin FAQs
Where to buy NFTs?
It is important to note that different blockchain projects all have their own NFT domains. Ethereum’s primary NFT server is known as Opensea, Cardano has CNFT.io.
Are NFTs safe?
The cryptocurrency space is risky in general. There are tens of thousands of projects and there are certainly many scams littered in the mix. NFTs are the same, for every sincere legitimate project you can also find a scam. The most common scam is a rugpull in which creators of the NFT simply take your money and run without delivering on their promises.
Is Bitcoin the best Crypto?
This is a subjective question. The features of Bitcoin make it the most decentralized. It was also the first mover in the space and therefore it is the most visible and has the strongest network effects. However, by certain metrics Bitcoin is not the best. For example Bitcoin is not the fastest or the most energy efficient and it does not have smart contracts natively. For some Bitcoin may be the greatest while others might prefer Ethereum or Cardano for these reasons.