Bitcoin remains to stand out and stay on top within the over decade-long history of cryptocurrencies. Unsurprisingly, by December 2019, more than 42 million bitcoin wallets have been set up by cryptocurrency users globally.
As we have learned about the basics of Bitcoin, we are now aware of the unique characteristics of the Bitcoin network and its native digital currency. It dominated the cryptocurrency space, signaling the Great Crypto Bull Run of 2017, and continuously proves to be a powerhouse.
If you have decided to invest in Bitcoin, you must be mindful of the advantages and disadvantages associated with this digital asset. It is logical to consider it as a high-risk yet high-reward investment in your financial portfolio. Make sure to hodl and trade at your own risk.
In this comprehensive guide, learn about the major benefits and drawbacks of bitcoin investments. Understand what makes bitcoin ideal for today’s generation and why should it be handled properly to avoid risks and losses.
Advantages of Bitcoin
Convenience and Accessibility
Created to become an electronic cash for payments, Bitcoin allows seamless transactions within a matter of seconds. Unlike traditional remittances, you can transfer bitcoins to your peers and other recipients through a crypto wallet address.
No cut-off, no holidays, no hidden charges. When using bitcoin and other altcoins for payment and money transfers, you can easily do so at any time or date, without any unnecessary charges. Decentralized by nature, using bitcoin allows you to be in control of your money.
Wherever you are located, you can easily send or receive bitcoins as long as you have your crypto wallet ready. For those who are abroad and cannot easily access any banks or remittance centers, they can take advantage of smooth and stable transactions and payments with crypto.
Bitcoins are produced and stored within the blockchain, a type of a distributed ledger that proves to be highly secured because of cryptographic encryption. All bitcoin transactions are processed within its blockchain and confirmed within minutes through crypto mining.
Unlike opening a traditional bank account that requires proof of your identity, cryptocurrency transactions are pseudonymous in nature because the identity of the owner is unknown. You can simply use a person’s public wallet address to complete one transaction process.
Any bitcoin transaction is irreversible once sent. This removes any chance of alteration within the system. Buying, selling, and storing bitcoins may be the risky part but the digital asset itself is secure. Its origin blockchain makes any form of cheating highly unlikely to happen.
A bitcoin’s wallet private key protects your bitcoins from any hacking attempts. Without this private key, no one can access your wallet and bitcoins without your knowledge. This is the reason why we suggest you choose a bitcoin wallet that you can rely on.
Verifiable and Transparent Transactions
To keep track of any bitcoin transaction, use a blockchain explorer. It is publicly accessible, without the need to disclose any personal information like name and address. Hence, you can verify any transaction at any time.
Transactions are tamper-proof as the network cannot be manipulated by anyone unless they get control of 51% of the total servers (mining hash rate) maintaining the network. The Proof-of-Work (PoW) mechanism prevents the possibility of 51% attacks within Bitcoin’s network.
There are numerous ways to transfer money around the world. Despite this, Bitcoin remains to be one of the cheapest and fastest methods of sending funds. Unlike the fees of credit/debit cards, Bitcoin transaction fees are flat and market-based.
Considering this, regardless of the amount you are using per transaction, the amount you will pay will generally be less than traditional payment channels. This will not include exchange rates, margins, and other hidden fees and costs.
Miners consider transaction fees as a basis for the priority of block confirmation. Those who want their transactions to be confirmed instantly must pay a surcharge to push their transaction in front of the queue.
In a traditional banking setup, a user may be required to go through various middlemen before conducting a successful transaction, especially one that involves a huge amount of money. In terms of cryptocurrency, you can send your bitcoins and altcoins directly to a merchant or peer.
Without anyone to double-check your transaction details, you have to be responsible upon sending or paying with bitcoins. Anyone who has a crypto wallet can receive bitcoins without any difficulty.
In terms of trading, bitcoin leads the crypto market with the highest market cap and among one of the highest daily-traded assets. Accordingly, Bitcoin is known to be one of the most liquid cryptocurrencies, making it ideal for crypto-fiat conversion.
The subject of liquidity has many aspects to consider such as the ability of an asset to be converted to fiat, a lower bid-ask spread price, and the flexibility of entering or exiting the market. In fact, liquidity affects the price of Bitcoin.
The increase in the number of trusted Bitcoin exchanges, growing acceptance of bitcoins by merchants, and further availability of bitcoin ATMs worldwide are also some of the important factors that result in this asset’s great liquidity.
Independent from Any Issuing Entity
The Bitcoin network as a whole is not controlled by any central entity. Therefore, acquiring bitcoins is not strictly monitored by any personnel. The network is powered by interconnected servers or nodes that ensures the system’s efficiency.
Even so, cryptocurrency whales are traders or exchanges that hold a huge amount of digital currencies. As the Bitcoin network exists outside any political authority, acquisition of these digital assets including bitcoins are possible and cannot be stopped by any means.
Resistant from Inflation
Unlike fiat currencies that can be subject to inflation as no fixed supply is set, Bitcoin has a built-in scarcity feature assuring that only 21 million BTC will ever exist. This will likely support the long-term value of Bitcoin against other altcoins.
Looking at the basic concept of economics, Bitcoin’s inflation-resistant nature makes it a viable alternative for traditional currencies. With its recent block halving event in 2020, the rate of bitcoin creation has been slowed down as it marches closer to its limit.
Disadvantages of Bitcoin
Degree of Acceptance and Understanding
One of the known problems when it comes to cryptocurrency adoption is the level of awareness and understanding of people. With more than ten years of existence, a lot of people are still not fully aware and well-informed about cryptos.
For mainstream acceptance to happen, people must be willing to take the risk of buying cryptos and actually using it in real-life transactions. Once this has been the norm, bitcoin and altcoins will be widely recognized by the general public.
More and more businesses now accept bitcoin as payment. Despite this, the ratio in terms of fiat to crypto transactions is still relatively low. Soon, more merchants and customers would embrace crypto payments.
Volatile in Nature
Daily price fluctuations are apparent in the cryptocurrency market, especially with Bitcoin and other leading cryptocurrencies. Since BTC is one of the most liquid and traded crypto assets, it influences the price movements of its altcoin pairs.
For this reason, traders should invest in bitcoins cautiously. They should be careful enough to anticipate any risk of losses. Once again, we are reminding you to only invest in money you can afford to lose.
Bitcoin is not flawless. Although it boasts of heightened security, faster transactions, and low-cost charges, in terms of regulations and usage, Bitcoin is still on a blur line. Governments are still hesitant to accept crypto processes.
Many countries still restrict the business use and sale of bitcoins. Moreover, they usually associate this asset to illegal fundings and money laundering activities. Despite certain rules and appointed individuals focused on combating crypto-crime, cases are still increasing.
Black market activities damage the good reputation that cryptocurrencies are based upon. Due to the digital and unregulated nature of bitcoin, it has been utilized for dark web marketplaces. This results in the hesitation of authorities for approval.
Irreversibility of Transactions
Another downside of bitcoin is that any transaction that has been done cannot be taken back, in any way possible. Once you have sent or paid using your bitcoins, it cannot be refunded back to your account unless the sender gives it back.
In the traditional banking system, a safety net is available in terms of any risky or massive transactions. In a blockchain, there is none. It is your responsibility to verify your peer or merchant’s wallet address before hitting send.
Scams and Frauds
Being the most popular cryptocurrency in the sphere, Bitcoin is one of the most used baits by scammers on different platforms. Tricking people to participate, anonymous people and posers announce unreasonable offers online.
Because of the high profit that can be gained with BTC, people are often deceived by frauds that broadcast fake airdrop events and trading competitions. This can lead you to lose your digital assets without any possibility of return.
Unsustainable Bitcoin Mining Process
The process of Bitcoin mining requires a vast amount of electricity to do. An analysis revealed that in 2018, Bitcoin’s carbon footprint generated 17.3 megatons of carbon dioxide. At the same time, the Bitcoin network has consumed 31.3 Terawatt-hours of electricity.
Mining equipment has the most environmental impact in this scenario, with minimal contribution to recycling. China is known to be one of the main contributors, with major mining companies located in this area. As a result, the demand for efficient mining hardware is increasing to address this problem.
Vulnerability of Crypto Wallets
If you lose access to your bitcoin wallet, you can say goodbye to your bitcoins. Unless you have backed up your wallet or mnemonic phrase, a lost private key cannot be recovered. Unlike a stolen credit/debit card, a file for replacement is not valid.
Your bitcoin will be lost once your wallet file has been corrupted. In the same way, forgetting your private key will let your assets be abandoned in the network. This can easily cause any Bitcoin investor a huge loss of their investment. That is why every user must be solely responsible for their crypto wallets.