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Case study on Crypto currencies and bitcoin

A brief case study explaining the complexity that surrounds one's mind while he/she decides to invest in crypto or Bitcoin

Like any other commodity in the stock market, this digital currency (bitcoin)also follows the same demand and supply trend.

From 2009-2016 – due to a lack of awareness about a new form of currency (CRYPTOCURRENCY) and less demand, its value was only $0.09, which escalated to $315.21 in 2016.

People are lured more by its benefits rather than discouraged after knowing the drawbacks. A similar trend is being followed in the market after the covid pandemic. People's protectionist policy is due to the increasing inflationary trends. Still, its boom period is waiting after this kind of enormous crisis.

What Is Bitcoin And How Does It Work?

Bitcoin (BTC) is the world's first decentralized cryptocurrency, also the best known of the over 19,000 cryptocurrencies today. This bitcoin network was launched in 2009. The financial media eagerly covers each new dramatic high and belly-churning decline, making bitcoin an essential part of the landscape.

Bitcoin's wild volatility can grab big headlines, but it's not the best choice for novice investors or those looking for a stable store of their time and money. Moreover, the big picture can be challenging to understand due to its complicated technology. So now, let's have a detailed view of how bitcoin works.

Who invented bitcoin?

In 2008 the domain name .org was purchased and an academic white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was uploaded. It set out the principle and design of a system for a digital currency free from the control of any organization or government.

Satoshi Nakamoto, the document's author, wrote: "The fundamental problem with traditional currencies is all the trust required for them to work. Therefore, the central bank must not deface the currency, but the history of fiat currencies."

The following year the software described in the paper was finished and publicly released on 9 January 2009, launching the bitcoin network.

Nakamoto continued to work on the project with various developers until 2010, when he withdrew from the project and left it to his own devices. Nakamoto's true identity was never revealed, and he has not made any public statements in years.

The software is open source, meaning anyone can view, use, or contribute to the code for free. In addition, many companies and organizations, including MIT, work to improve the software.

How Does Bitcoin Work?

Bitcoin eradicates intermediaries as it works on peer-to-peer software and cryptography.

For example:

If you need to transfer money to someone, you can give cash or use an intermediary (such as a bank). Both mechanisms, whether physical cash (with the country's central bank as guarantor) or electronic transfer, involve an intermediary (in the latter case, a bank or other financial institution). Transaction costs are incurred when intermediaries are involved. But in the case of bitcoin transfer, where you are using blockchain technology, there will be no extra charge, so it can be used as an alternative payment system to send money over the internet,

This cryptographic trust is built into bitcoin through a program called a wallet, a public key and a private key.

Downloading the bitcoin software allows users to create free bitcoin wallets. A wallet has two keys: a public key and a private key.

Bitcoins can be received through the public key, similar to an address or account number.

Bitcoin can be sent through a private key, which functions as a digital signature. As the name suggests, the private key should be kept and known only by the owner, and the public key can be shared with anyone to obtain bitcoins. This is where you may have heard about bitcoins being lost in the news, but it was not the bitcoins network which was hacked. It was the website.

Bitcoin transactions are cryptographically verified through telecommunications network nodes and then recorded in a decentralized distributed ledger called a blockchain. This feature distinguishes bitcoin from other crypto assets, requiring all transactions to be routed or validated through a centralized exchange (similar to a stock exchange).

What is bitcoin mining?

Mining is the method that maintains the bitcoin network and also how new coins are brought into existence.

All transactions are publicly broadcast over the network, and miners bundle an extensive collection of transactions into blocks by completing a cryptographic calculation that is extremely difficult to generate but very easy to verify. The first miner to solve the next block broadcasts it over the network, and if proven correct, it is added to the blockchain. That miner is then rewarded with the amount of newly created bitcoins.

The bitcoin software has a hard limit of 21 million coins. There will never be more than this—the total number of coins will be circulated by 2140. Roughly every four years, the software reduces the size of the rewards to make bitcoin twice as difficult to mine. This limited supply of the currency makes it volatile in the market.

Can bitcoin be converted into cash?

Like any other asset, Bitcoin can be bought and sold with any fiat currency such as the US dollar. (price will depend on market value) There are numerous cryptocurrency exchanges available online where this can be done. Still, transactions can also be done in person or on a communication platform, allowing even small businesses to accept bitcoin. Unfortunately, no official mechanism is built to convert bitcoin into any other currency.

Nothing inherently valuable weighs the bitcoin network down. But the same has been confirmed for many of the world's most stable national currencies since they dropped the gold standard, such as the US dollar and UK pound.

Is Bitcoin a good investment?

Buying cryptocurrency reveals you to a volatile asset class. It is the largest cryptocurrency by market cap. It is a good investment if you have good tolerance, have high knowledge about the stock market, are financially sound and want to add a portfolio in your digital currency.

Bitcoin pros

  • Potential for high returns
  • Independence from any governmental authority
  • Protection from online payment scams.
  • Greater liquidity
  • Easy international transactions.

Bitcoin cons

  • Depending on the market means highly volatile.
  • Illegal transactions (terror financing, human trafficking etc.)
  • Cybersecurity issues (hacking)
  • No official body to keep a check on fraud and scams.

In conclusion, we can say that Bitcoin is not absolutely safe to invest in, but if you are looking for a risky but profitable investment, you should go for this cryptocurrency. In today's world, uncertainty is present in every business, so that no one can predict the future. But bitcoin has more chances of having a leap once again in upcoming years because of the bend toward digital inclusion. 

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