Bitcoin, the most exciting marketplace, introduced the notion of Blockchain. Bitcoin allows anyone to send payments to each other, no need for middlemen, and does not need to be regulated by governments. But there are things to know before entering the Bitcoin market.
For any supply chain product to be able to exist in a decentralized system powered by blockchain technology, industries must first tokenize it. Tokenization is a process that converts an asset into a digital representation to create a digital currency or digital tokens.
It is a critical concept that cannot be ignored when discussing how companies can move towards transforming their business models. Beginners may also read articles about bitcoin and other cryptocurrencies and the current challenges facing the market.
Bitcoin is just the beginning of what has become known as Blockchain. “It allows one to run applications and make transactions with no central authority necessary,” explains Ethereum’s website. They are seeing massive attention from major companies who believe in its future potential.
Many say that they will transform their customer relationships into digital relationships. Let’s discuss everything that newbs should know before entering the bitcoin market.
1. Bitcoin is highly volatile
When bitcoin was introduced in early 2009, it was traded by people at less than $1. Who would have thought their current price hovers around $65000 per coin? While the capitalization of Bitcoin reached up to $850 billion this month, you will face a lot of volatility issues when buying bitcoins.
2. Bitcoins are not legal tender
While bitcoins are designed to be used as a currency, they do not have legal status, except in El Salvador. The US Department of Treasury issued an official statement on March 18th, 2014, warning that bitcoin would not make it into the legal currency system; however, speculators still traded it despite the warnings by the government.
After realizing bitcoin’s potential, the US classified bitcoin as a commodity. As a result, people can now trade freely in bitcoin and participate in the mining progression without any issues.
3. Bitcoin is decentralized
Bitcoin works on a concept known as the Blockchain. These nodes are mostly computers that carry out complicated calculations and include other entities like companies and governments. Bitcoin value fluctuates because it has no intrinsic value and hence no underlying asset to back it up. It means that it is dependent on the confidence of an individual or group, thus making it very volatile and risky.
4. Bitcoin has a finite supply
Bitcoin has a fixed supply, which is 21 million coins. The Bitcoin protocol states that miners can ever create only 21 million bitcoins in total. As of today, approximately 16.7 million are mine. The creation rate halves every four years until the last bitcoin is mined by 2140.
5. Bitcoins are not anonymous
To many people, Bitcoin represents a way to make anonymous purchases without being tracked, controlled, or surveilled by government agencies or businesses. However, this is not the case because all transactions are recorded in the Blockchain, which anyone can see. Anyone can verify transactions if they have access to bitcoin network nodes or have enough computing power, called mining.
6. Bitcoin is an excellent source of returns
Bitcoin has provided an excellent source for returns on investment since it was released in 2009. The value of bitcoin initially started from fractions of cents and reached $65000 in just 11 years. This huge return generated much interest from many investors, even those with little knowledge about cryptocurrencies.
Anyone from one address to another can trace all bitcoin transactions, and all the transactions are recorded on Blockchain, which is public and transparent to all users. It makes tracing transactions extremely easy for law enforcement agencies.
7. Securing Private keys are mandatory
Private keys are a password to a wallet address; without the private key, no one can access the coins in your wallet. Therefore, securing and keeping your private keys safe and secret is essential.
If you lose your private keys, there is no way for anyone else to access them, so it is best to make as many duplicates as possible. Also, ensure that you always keep them in different locations like on paper, on a USB drive, or with someone people can trust.
8. Avoid storing cryptocurrencies in the digital currency exchange
One of the newbies’ most significant mistakes is storing their digital currencies on digital currency exchanges. It would be best if you always tried keeping all of your cryptocurrency in a secure wallet, never leaving them on an exchange. Exchanges are unreliable and can become compromised anytime, losing all of your cryptocurrency.
New entrants should avoid straight jumping to bitcoin trading and investment without prior knowledge and experience. The above-listed portion is some of the crucial things a novice must acknowledge before entering the bitcoin market.