Bitcoin made its first splash in 2008 when an unknown person or group of people released the idea of blockchain and a distributed ledger to the general public. It would become available in 2009 as a cryptocurrency when its source code was released as open-source software. Now up to 6 million people have a cryptocurrency wallet that holds mostly Bitcoin, but it can also include almost 2,000 other options.
Critics have justifiably pointed out over the years that Bitcoin helps to facilitate illegal transactions. Using this cryptocurrency means people must engage with high electricity consumption levels. It often feels more like a speculative bubble than a tangible investment, although there are some success stories out there where people have banked a lot of wealth because of this product.
The individual or group that invented Bitcoin mined approximately 1 million coins before disappearing in 2010. The price for a single Bitcoin was $0.30 in 2011. On December 17, 2017, it reaches an all-time high of $19,783.06. That’s why weighing the pros and cons of this cryptocurrency is an important practice for anyone who is thinking about an investment in the near future.
List of the Pros of Bitcoin
1. There is always growth potential with Bitcoin.
One of the most appealing components of Bitcoin is that it offers almost unlimited growth potential. Even though it isn’t the “flavor of the day” for investments like it was in 2016-2017, there is still an impressive amount of value available in this product. Because it offers a way for people to exchange something of value without going through third-party intermediaries, it can reduce the cost of a transaction without reducing the quality of the communication that occurs between peers.
2. Bitcoin gives us blockchain technology.
When Bitcoin was first introduced, the idea of using the blockchain became a way to process transparent values across a network without worrying about borders. Information travels with fractional delays when compared to the typical methods used by a traditional financial institution. The distributed ledger can process other forms of information, while smart contracts allow for a more secure way to do business since predetermined triggers can create automatic outcomes once stipulations are met.
3. You can use Bitcoin as money.
Bitcoin has a significant opportunity for growth as people get used to using it because it functions like a fiat currency without government interference. Large retailers already accept it as a valid payment option. ATMs are popping up around the world to help people convert their cryptocurrency into something usable at a small business. This advantage is all good news for investors because the value of Bitcoin is certain to rise when it begins to grow in popularity.
4. Bitcoin is safe to use.
Bitcoin is a transformative way to do business because the blockchain prevents issues like payment fraud or identity theft. It is more effective than a credit card transaction ever could be due to the nature of how each one gets confirmed. Every coin is digital, so that eliminates the issue of counterfeiting with this product.
When you pay with Bitcoin, then buyers send the exact amount required for each transaction. The merchant or private party has zero access to the rest of the funds in their wallet. This advantage reduces the risk of dishonest stores or hackers to try to pull as much as they can from a buyer’s account.
5. It is a highly volatile investment option.
Bitcoin, like most cryptocurrencies, is one of the most volatile investments that are available right now. When you have a high-risk commodity available, then you can create massive rewards for yourself. Early investors and innovators in this field made millions of dollars for themselves thanks to its value growth. The flip side of this advantage is that there is also the possibility to lose everything.
As a best practice, consider making about 10% of your portfolio Bitcoin or a preferred cryptocurrency. That way you can embrace the concepts of wealth-building without risking everything you have on this one option.
6. Bitcoin is usable anywhere in the world.
You can process a transaction using Bitcoin anywhere in the world today As long as you have access to the Internet or cellular data, then you can initiate a blockchain process that leads to wealth transfer. This cryptocurrency is 100% decentralized, so borders won’t get in the way of doing business for you. There are no financial institutions or governments that can interfere with this process or artificially reduce the value of what you own. That means the price to do business will decrease as the number of markets increases, creating even more opportunities to build wealth with this product.
7. You can mine Bitcoin to start earning profits.
Bitcoin mining allows individual users to secure a transaction that occurs on the blockchain. That process is how the act of validation occurs without the use of third-party intermediaries. If you have access to a computer and the Internet, then you can earn some value through this benefit. It isn’t a suitable action to take for everyone since a specific level of processing power and energy is necessary to create usable profits, but it is still something worth considering for any cryptocurrency.
There is still about 3 million available Bitcoin not in circulation, so getting active as a miner could be lucrative.
8. Bitcoin’s value is based on supply and demand instead of political interference.
The value of fiat currency rises and falls based on a variety of influences. This process can be artificially changed at the behest of almost anyone in the government. When you incorporate the trends of inflation or deflation into the mix, it is clear that Bitcoin has some definite advantages over the other forms of money we use today. Cryptocurrencies are separate from the traditional market and economy even though it can facilitate transactions in them. That’s why its potential for value remains tempting even if the value of each coin is rather volatile.
9. Bitcoin prevents other people or institutions from controlling your money.
If you receive a direct deposit, then a financial institution receives your money before you do. When you use Bitcoin, then the only way to access your wealth is to have access to your private key. This password allows you to protect your wealth from anyone who might want to freeze you out for some reason. Although the governments of the world would see this issue as a disadvantage since it could facilitate funding for terrorism and other illegal activities, it gives another layer of protection for the average person to protect their money.
The United States has civil forfeiture laws that allow the government to seize bank accounts without charging someone with a crime. The IRS has seized over $240 million in over 2,500 cases of structuring violations between 2005-2012. Over 30% of those involved nothing more than a series of transactions under $10,000 with no other criminal activity alleged by the government. Using Bitcoin can prevent these activities from happening.
10. Vendors cannot use your information if you use Bitcoin.
The traditional transaction with a credit or debit card requires you to provide identification materials to merchants. This data includes your account information. That means you must trust third-party processors and that business to protect your personal info from hackers and other attackers. Thieves can take it without anyone ever knowing it has happened until they strike months or years later.
Hundreds of millions of people have been adversely affected by information stealing through data breaches at The Home Depot, Equifax, and others. Bitcoin reduces this risk because your information never goes into the blockchain unless you specifically put it there.
11. Transaction speeds with Bitcoin are faster.
Bitcoin can be slow sometimes, but the transaction speeds are typically faster than what merchants experience with a debit or credit card. Instant cash transfers can occur with systems like Square or PayPal, but the cost of having that feature negates some of the profits that vendors earn. Switching to a system that allows for Bitcoin transactions can prevent those costs from occurring.
Transactions are final when they reach the blockchain, which means fewer chargebacks happen for merchants. That means there is more security on both sides of the equation, creating risk-reduction opportunities for both sides. It is transparent from the first action taken, so the opportunities for fraud are dramatically reduced.
List of the Cons of Bitcoin
1. There is still a general lack of understanding about how to use Bitcoin.
If you ask the average person about how they could use Bitcoin for daily transactions, there’s an excellent chance you won’t get a correct answer. There is a general lack of understanding about cryptocurrency in general even though the option is more than a decade old. This disadvantage applies to Bitcoin users themselves since some don’t know if it is secure or how the process works.
Bitcoin needs people to become comfortable with it if they are going to adopt it as a currency option. If that doesn’t happen, then it may never have the chance to reach its full potential.
2. Bitcoin still has some vulnerabilities to manage.
A Bitcoin transaction requires the coin wallet ID of the buyer only. It doesn’t need the contact details or the name of the consumer. This process allows for a certain level of anonymity in the transaction process that a traditional purchase can’t provide, but it is also an issue that keeps investors away from this cryptocurrency. Regulators warn against getting involved without fully understanding the medium because it can develop a black market where unethical or illegal dealings can take place.
Hacking is still an issue with Bitcoin to manage, although that happens more at one end of the blockchain or the other instead of in the middle. Binance lost over $40 million in value, or about 7,000 Bitcoin, from a May 2019 incident.
3. It may not be legal for some consumers to use Bitcoin.
Most governments and financial institutions accept cryptocurrency as a valid method of funding a transaction, but there are some exclusions to that rule. India declared that the government would do everything in its power to discontinue the use of Bitcoin and other cryptocurrencies now and in the future. There is no recognition for it as legal tender.
The central bank of India also announced a ban on the purchase or sale of cryptocurrency for entities regulated by them the same year. Nepal has an outright ban on using blockchain. Several additional countries, such as Pakistan, have stated that its use is illegal.
4. Mining processes for Bitcoin require a high-quality rig and processor.
Bitcoin mining is still possible, but proof-of-work systems confirm that it is an intensive process to support from a processing point-of-view. It requires an exceptional level of resources to gather wealth that has no other purpose than to regulate creation and encryption.
Most computers cannot do this work by themselves. That means miners would need to buy a rig that could do the job automatically. The asset investment alone may require more than $5,000. Once you incorporate the utility expenses of mining, the value of the Bitcoin you receive may not offset the cost to produce it.
5. Inflation does not impact Bitcoin or other cryptocurrencies.
Inflation makes the value of money change over time. If you had $1 in 1950, that would buy you a lot more than it would today. Although Bitcoin is independent of political influences, it is also kept separate from commercial ones. The value of what someone holds today fluctuates because of trading activities, scarcity, and demand. The value of a single Bitcoin goes down over time if it traded stably because inflation does not impact it. That means your overall value naturally deteriorates when you place warranties on it for its final value.
6. Bitcoin doesn’t provide you with 100% anonymity.
There are privacy coins in the cryptocurrency industry that allow for complete safety and anonymity, but Bitcoin is not one of them. When you look at the most accessible tokens that the average person would use for transactions, then any purchasing activities would not be 100% anonymous.
The public ledger system, smart contracts, and blockchain can offer insights into a person’s spending habits or purchasing activities that would not be available in systems with less transparency. Those practices could create individual vulnerabilities that might lead to declines in other areas of one’s investment portfolio.
7. You cannot recover Bitcoin if it gets lost.
If your bank account loses value because someone withdrew money without permission, then insurance protections can help you to reduce or eliminate whatever liability you have to that loss. The FDIC and NCUA help to secure $250,000 in value for funds deposited into standard accounts in U.S. financial institutions. If you convert your funds into Bitcoin, the result can be very different.
Fraudulent charges through Bitcoin offer zero recoveries. There is no system available that helps to protect the value of what you own. If someone steals your cryptocurrency, then there’s no guarantee that you can recover it. That’s why you’re using this option at-your-own-risk in most circumstances.
8. Bitcoin is not widely accepted as a currency right now.
Most companies and merchants who accept Bitcoin tend to be online-only platforms that offer a particular product or service. The availability of transactions continues to grow, especially with the use of cryptocurrency ATMs, but it is not at the same level as fiat currencies are today.
Bitcoin users can always convert their money into a traditional form of value to complete a transaction. The fluctuating cost of this commodity means the final operation might not save as much money as expected. Individuals who live in cities can usually use cryptocurrencies more often than someone who lives rurally.
Conclusion
Bitcoin could be a fantastic opportunity if you want to make an investment because of its volatility. You can add plenty of other cryptocurrencies to your portfolio if you want, or you can treat it as a regular commodity. The first transaction that involved this idea involved two pizzas from Papa John’s, so there are some economic considerations at play.
When looking at the pros and cons of Bitcoin, the picture is still surprisingly murky. Prices have stabilized since the craze in 2017 when everyone wanted to get involved. As of December 23, 2019, 1 single Bitcoin equals $7,299.44. Although that seems like a lot, investments that happened in late 2017 have people losing upwards of $10,000 per coin.
Then there’s the volatility to consider. Over a 10-day period in December 2019, the value of a single Bitcoin was as low as $6,615.80. It could still fall below $6,000 before the end of 2019, and who knows what could happen in 2020 or beyond. That’s why it is an enticing option for some investors, but something from which to stay away for others.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.