Did you know that bitcoin was the best performing currency of the year 2016 and appreciated from four cents in 2010 to over $1,000 in 2017? Impressive, right?
Well, sometime in January 2017, the Central Bank of Nigeria (CBN) warned Nigerians against the use of virtual currencies, including bitcoin, ripples, litecoin. The apex bank said anyone trading in bitcoin was doing so at his or her own risk as it is not a legal tender in Nigeria.
However, with Nigeria’s economic situation, the CBN’s harsh clampdown on bitcoin and other cryptocurrencies have been met with some stiff resistance. And though, it’s been about 4 months since the ban, the question remains –is bitcoin worth investing in?
What is bitcoin?
Bitcoin is the first decentralized digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed like naira, dollars or euros – they’re produced by people using software that solves mathematical problems. Its most important characteristic is that it is decentralized as no single institution controls the bitcoin network.
How bitcoin works?
Since no bank is involved so when a person A transfers bitcoin to another person B, all the information is recorded in a public ledger, known as the Blockchain. This ledger records all of the transaction that have taken place since the last ledger.
For transferring bitcoin, you can have a private key of your own wallet and get the public key of another’s wallet. Every bitcoin wallet can have one or more public keys that can be distributed to everyone but can have only one private key which only the owner of that wallet can know.
Some argument in favour of investing in bitcoin/decentralized finance:
- Bitcoin is inflation-proof.
- It is relatively still in its infancy.
- It has cheaper transaction fees.
- It can be much more secure and reliable.
- It is subject to capital gain without a cap limit value to fiat currency.
- It eliminates third parties between you and your money.
Some reasons why bitcoin may not be a good investment choice:
- There has been high-profile cases of bitcoin hacks.
- Bitcoin has zero intrinsic value. It’s a digital “currency” only if some people are willing to recognize it as currency.
- It is not the same as , which, while not backed by gold, is backed by the full faith of the government.
- Bitcoin is more about speculating on price than an investment.
- Bitcoin is still a very volatile asset and is only something for risk-loving investors.
Now, before plunking down your hard-earned money on bitcoin, take the following precautions:
- Start with a small amount.
- Find ways to invest your Bitcoin in securities such as loans and IPOs.
- Trade some Bitcoin for Altcoins – Each cryptocurrency was created with a different set of goals.
- If you are looking for a stable store of value or a steady price increase over a specific time period, then bitcoin is not for you.
To sum up; an investment in bitcoin is likely to get you good returns. On the other hand, the probability that you will lose some or all of your investment is high. So don’t invest money that you cannot afford to lose. But ultimately, it is up to you to decide whether an investment in bitcoin is in your best interest.
Disclaimer: The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of dailydigest.ng.