How does Bitcoin investment work?
Bitcoin is a decentralized system for issuing electronic money, meaning there is no central bank in full control that issues this money.
The system works on the principle of a peer-to-peer network, where there is no central server.
This type of network is familiar to many people as it is used with torrents. Bitcoin emission occurs through mining, where in order to extract bitcoin, the computer of a network participant must decipher a complex cryptographic task.
Bitcoins are mined not one by one, but by blocks, the size of which is halved after every 210 thousand mined blocks.
The total number of possible bitcoins that can be mined is capped at 21 million.
After every 210k blocks, mining them becomes increasingly difficult.
At the moment, it is practically impossible to mine a bitcoin with a home computer.
The power of these machines is simply underwhelming, even if it is a $10,000 rig. Today supercomputers are the ones involved in mining.
For the rest, this task is simply unprofitable. Many investors see Bitcoin as a certain analog of gold and as a defensive asset, only more reliable, because no government will be able to deprive them of electronic currency or influence it with hyperinflation. At the same time, Bitcoin, like traditional currencies, is subject to fluctuations, on which you can earn very good money.
This makes it a favorite financial instrument among many speculators and long-term investors.
One of the facts worth mentioning is that despite its popularity (Bitcoin makes up for about 70% of the global cryptocurrency market), its legal status varies in different countries.
If in Japan, bitcoin is recognized as legal tender, in Germany it is allowed as a settlement unit, in China, bitcoin operations are allowed for individuals, but not available for banks, and in Switzerland it is considered as a common foreign currency with the corresponding laws applied to bitcoin, then in Russia its status has yet to be determined, with it walking the edge between being legal and illegal.
Another nuance of the coin is the expensive entrance threshold.
As of today, the currency is approaching the $3,800 mark. It is traded on virtual cryptocurrency exchanges, the largest of which are Coinbase, Poloniex, and Bitstamp as a few examples. Independent trading on these exchanges has its own specifics and can hardly be recommended to any novice trader.
Fluctuations in cryptocurrency quotes during the day are several times higher than the dynamics of stocks or futures, and crypto exchange services are typically much more expensive.
In addition, there is very little news on cryptocurrencies, and it is very difficult to trade Bitcoin by focusing and relying on external information, as is the case with the stock exchange.
In general, if you want to invest in cryptocurrencies, you should be doing so with the aim of maintaining your positions for the long term.
Most cryptocurrencies, including Bitcoin, are still in their infancy and have decades ahead of them to reach new value milestones.
Some say it will cost up to a million for a single bitcoin, some say it won’t be worth any more than a few thousand.
Either way, these are all mere speculations, as no one can know for sure where things are going to head. All we can do is wait and see.