Bitcoins (An introduction for beginners)
Are you curious to know what a bitcoin is? what are its uses? how it works? and how you can invest and earn through bitcoins? This is the right place to get all your answers.
Let us start by understanding the meaning of bitcoin.
WHAT IS A BITCOIN?
In very simple words, Bitcoins are digital tokens which can be traded electronically anywhere around the world.
Bitcoin is also referred to as digital currency but here it is to be noted that it is not the same as our normal currency (e.g.: rupee, euro, etc.). Our normal currency is backed by something and monitored by someone (e.g.: the amount of rupees in the Indian economy is monitored by the RBI and is backed by gold and government securities to some extent.). However, Bitcoin transactions are monitored by a decentralized group of computers. It is similar to a decentralized network of servers that make internetwork.
Since Bitcoins are not run by a central authority, people can trade in Bitcoins anonymously thus safeguarding every individual’s identity.
HOW CAN ONE USE BITCOINS?
Bitcoin works on demand-supply principle (as I call it). Hence, its price keeps fluctuating (a new blog will be up on how bitcoins work). So, you can buy bitcoins when its price falls and sell them when the price rises and earn a profit. But it is essential for you to be patient and invest wisely.
As stated earlier, Bitcoins are also a form of a currency, and hence they can be used to buy commodities online. Some businesses accept Bitcoins as payment. In fact, there are a few businesses which only accept Bitcoins as payments.
When trading in Bitcoins, a lot of jargons (technical terms or terminologies) are used which are important to understanding well before investing.
Following are some important terminologies used in bitcoins.
- Block height
- Double spend
- Private key
- Hash rate
- Encryption algorithm
- Public key cryptography
- Bitcoin network
- Genesis block
- Unconfirmed transaction
- Mining pool
- 51% attack
- Ask price bid price as-bid spread
- The volume of an exchange
- Market Depth
- Margin trading
- Bitcoin laundry
- Escrow service
- Fiat currency
(A new blog will be up explaining each of the above jargons.)
PROS AND CONS OF INVESTING IN BITCOINS.
- Bitcoin is transparent (Transactions are available for verification by anyone and anytime.)
- Inflation is unlikely because there are a finite number of those currencies in circulation.
- Large amounts of bitcoins can be transported in a memory drive easily without detection.
- You control your money without revealing your identity.
- Several people don’t understand it and so, are mistrustful of it.
- A bitcoin once lost cannot be recovered.
- Transactions made with bitcoins cannot be traced easily.
- It is subject to market fluctuations.
By Ria Vaghela (Market Analyst intern at Qrius and FYBMS student at Narsee Monjee College of Commerce and Economics)