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Bitcoin and cryptocurrencies

A cryptocurrency is a digital asset designed as a medium of exchange. It uses cryptography to secure transactions as well as to control the creation of additional currency units. Cryptocurrencies are digital currencies, a subset of alternative currencies. The most popular cryptocurrency is bitcoin, and since it was invented the various new cryptocurrencies that have been created are frequently called altcoins, as shorthand for bitcoin alternative.

Bitcoin was designed as a peer-to-peer system to be used for online payments, without the need for a trusted central authority. Since its invention in 2008, bitcoin has grown into a currency, a technology, an investment vehicle and a community of users. It is in fact believed to be the first cryptocurrency, although, as mentioned earlier, similar systems did exist before. Since the bitcoin system works without a single administrator (like PayPal) or a central repository, the US Treasury has categorised bitcoin as a decentralised virtual currency. In fact, the first decentralised digital currency would be a more correct designation than the first cryptocurrency.

Since all transactions are digital and take place directly between users, without an intermediary, there needs to be a way to ensure that users do not spend more bitcoins than they own. Therefore, all transactions are verified by network nodes and recorded in a publicly distributed ledger known as the blockchain.

While everyone has at least heard of bitcoin and other cryptocurrencies, few have comprehensive knowledge of how they work. In the rest of this article, we will introduce you to the main advantages and disadvantages to consider before making use of the possibilities that bitcoin offers.

bitcoin and litecoin piles on a table

Advantages and disadvantages of using bitcoin

Due to bitcoin's relatively novel nature, its price can increase or decrease unpredictably over a short period of time, and it can sometimes be more illiquid than other types of currency. This means that keeping your savings in bitcoins is a risky decision and not recommended. Bitcoin is seen as a high-risk asset, and it is not advisable to store money in bitcoins that you cannot afford to lose. On the other hand, due to its high volatility, those willing to take a risk may see considerable returns over a short period of time. Lack of awareness and understanding of bitcoin means it is relatively rarely used among businesses as a billing method. Once more and more businesses and private individuals start using bitcoin, its volatility and its liquidity risk should settle down.

Another thing to consider before acquiring bitcoins is the security of your digital wallet. Like your real wallet, your bitcoin wallet needs to be safe. Indeed, since bitcoin makes it possible to quickly and easily transfer funds anywhere in the world, the security concerns it poses are even greater. Remember, it is your responsibility to adopt good security practices. Overall, bitcoin is considered to be a safe and transparent system due to its cryptographic security. As a bonus, bitcoin users can enjoy considerably smaller transaction fees than those charged by credit cards or PayPal.

Bitcoin trading

Bitcoin has successfully positioned itself as another business opportunity for forex and other traders. As discussed earlier, buying and selling bitcoins is an easy, fast and cheap process. Before setting up your bitcoin account, you should be familiar with the status of bitcoin in your country, as well as any other applicable legal regulations and requirements. Bitcoin’s legal status varies significantly from country to country, and in many cases is still undefined or in flux. In 2013, the G7’s Financial Action Task Force issued a statement announcing that bitcoin and other internet-based payment services pose an increased risk of terrorist financing and money laundering. Meanwhile, in the same year, Germany classified bitcoin as a legally binding financial instrument that is essentially a unit of account.

scheme of benefits of bitcoin

Some countries that have managed to come to terms with bitcoin have gone one step further and introduced bitcoin ATMs: internet machines that look similar to regular cash ATMs and allow people to exchange bitcoins and cash. These machines can be used to purchase bitcoins or to change them back into cash. You can even set up your own bitcoin ATM if local regulations allow. It is important to point out that there are different kinds of bitcoin ATMs. The main distinction is between one-way and two-way ATMs; the former only allow users to buy bitcoins, while the latter can also be used to sell them for cash. Generally, two-way solutions are more expensive and so you would need to analyse all of the pros and cons before deciding which type would be more suitable for your business. Significantly, one-way machines are much more prevalent than two-way machines, accounting for 90% vs 10% respectively.

Setting up for bitcoin trading

If you are considering any kind of involvement with bitcoin or another cryptocurrency, you should start by exploring your country’s legal requirements and a number of other aspects:

Contact Confiduss now to get your bitcoin trading licence or to set up a bitcoin ATM.