Bitcoin Investment: Analyzing the Reasons for Cryptocurrency Adoption

This essay delves into the reasons behind the increasing popularity of Bitcoin and cryptocurrency investments. It explores the technological underpinnings of cryptocurrency, including the use of cryptography and blockchain technology to ensure security and decentralization. The essay highlights the advantages of Bitcoin, such as its potential as a store of value and a means of payment, while also acknowledging its drawbacks, including price volatility and security concerns. It examines Bitcoin's characteristics as a financial asset, its role in the financial system, and its potential to address problems related to traditional banking systems and unbanked customers. The essay further analyzes the market dynamics, including the impact of supply and demand, and discusses the potential for cryptocurrency to serve as a refuge against inflation. The essay concludes by emphasizing the transformative nature of cryptocurrency, driven by its ability to solve long-standing problems and the support of its growing community.

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WHY SHOULD PEOPLE INVEST IN CRYPTOCURRENCY OR
BITCOIN?
Bitcoin, most known and common cryptocurrency of the world, is increasing with
respect to popularity. By using cryptocurrency, the users could digitally exchange value
without oversight of third party. Cryptocurrency works upon theory to solve algorithms of
encryption for creating unique hashes. Combined with the network of the computers, the
users could exchange hashes for exchanging the physical currency. Finite amount of bitcoin
would be generated, thus ensuring rarity and preventing overabundance. Bitcoin possesses
the strength in making it viable currency which has elevated in status in recent years (Prentis,
2015). Recently, bitcoin and cryptocurrency are main topics within financial industry.
Cryptocurrency is virtual or digital currency which utilises cryptography for its security.
Cryptocurrency is tough for counterfeiting as for the security feature. Cryptography’s
defining nature is the organic nature.
Cryptocurrency is subset of digital currency’s class, however it is an essential type
for digital currency. Blockchain technology which is used by the cryptocurrency, like
Bitcoin, is distributed ledger which records the transactions. This does not need involvement
of third party and solves problem of double spending. Decentralization allows technology of
blockchain is having better security, faster settlement and increased capacity. As result,
cryptocurrency and blockchain are two essential topics in financial industry. Main drawback
of traditional system for currency payment is the large transaction fees, which made people to
choose alternative currencies which allow in shorter processing time of peer-to-peer (P2P),
which results in growing market of digital currencies with lower risk (Burniske & White,
2017). Before creation of the cryptocurrency, several other kinds of the digital currencies

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were there. The legal entities or institutions control creation, transaction, verification and
bookkeeping of digital currencies.
These digital currencies platforms are centralised. Such centralised digital currencies
could be transacted in certain platform and designed for supporting business of issuing
institutions. This could be tough in using them as substitute of fiat money as there is no legal
tender for these digital currencies. Hence, decentralized digital currencies is potential
replacement of fiat money. However, many obstacles are there for overcoming without using
of central or intermediary authority. One major obstacle is problem of double-spending.
Blockchain is used by bitcoin as public ledger of every transaction and scheme known as
PoW for avoiding need of central server or trusted authority to timestamp the transactions
(Guadamuz & Marsden, 2015). As blockchain is distributed ledger that records every
transaction in permanent and verifiable way. This solves problem of double-spending.
Bitcoin, a cryptocurrency, is accepted as the payment for services and goods or
bought directly from the vending machines or exchanges or from the other people. The
bitcoins could be transacted through applications, software or several online platforms which
provide wallets. Other way for obtaining bitcoin is by mining. P2P network is used by bitcoin
system and the transactions take place directly among users. Bitcoin decentralises
responsibilities to verify transactions’ validity to overall network. There is recording of
transactions in public ledger known as blockchain and could be verified by the network nodes
that might be anyone using computer system having software of bitcoin installed. Once a
transfer is made by the user, transaction would be broadcasted among the users and would be
confirmed by network (Swartz, 2018). After verification, it would be recorded within
blockchain and transfer would be completed. This process of keeping record could be termed
as mining. There is creation of bitcoin as incentive to solve cryptographic puzzle by using
data of transaction.

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Every transaction contain outputs and inputs. There is reference of input for the output
from last transaction. Transaction’s output holds corresponding amount and receiving
address. In transaction, specific bitcoins are sent from wallet of bitcoin to specific address,
only if sufficient balance of bitcoin is there in wallet from last transaction. Encryption is not
done on the transactions and could be seen in blockchain along with corresponding address of
bitcoin. However, identity of receiver or sender remains anonymous. Wallets of bitcoin have
private seed or key which is used for signing transactions (Dallyn, 2017). Such secured data
pieces provides mathematical evidence that coins within transaction come through owner of
wallet. With signature and private key, account could be accessed only by the owner and the
transactions could not be changed by anyone else.
Mining is the process to add newly records of verified transactions to public ledger of
bitcoin. Records are stored and grouped in blocks. Timestamp and link to previous block is
there for each block, so that blocks could be chained together. Total record of the transactions
could be found in main chain. There is link of every block within the chain to previous block
and could be traced back to first block (Brosens, 2017). However, blocks are there that are
not section of main chain, known as orphaned or detached blocks. They could happen when
many miners create blocks at the same time. This could also cause by attempt of attackers to
reverse the transactions.
Bitcoin has the characteristics which allow it in functioning as money and making it
useful method for payment. It is easier in transferring bitcoin to the businesses or other
people, as well as for the international transactions. Though, bitcoin’s other aspects make this
less advantageous for per day transactions, which includes volatile fluctuations in price and
security problems. Currency’s value could be determined by demand and supply. While there
is increase in demand of bitcoin for future value, bitcoin’s supply is about to increase at
predetermined, inflexible rate. As result, both demand and price of bitcoin fluctuated. Such

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price volatility undermined ability of bitcoin for serving as store of the value (Rose, 2015).
Characteristics of bitcoin as financial asset draw interest of several and created potential of
financial loss. Though line between financial asset and money is unclear, actions of people
reveal often asset’s role is playing within the economy. Excitement regarding bitcoin is
around buying this as financial investment. Bitcoin is not used as money for buying services
and goods.
Due to bitcoin’s limited amount, it would never be inflated from bitcoins’
overabundance. Bitcoin is regarded as protected by inflation which originates from
restrictions or changes of national government. It creates safe haven to the investors in
putting their wealth in, as this does not generally lose value depending on the inflation. The
bitcoin is showing strength as the refuge against inflating the national currencies (Halaburda
& Sarvary, 2016). Though, the price of bitcoin could widely fluctuate based on several
external factors. Bitcoin has highest value for currency all over the world.
Cryptocurrency has unique position within transformative technology for long
standing the financial systems. Cryptocurrency’s nature has the ability in filling the gaps
within latest financial technologies. It also helps in solving banking problems through being
P2P system. Cryptocurrency helps in remediating the problems that are related to the
unbanked customers. Due to capability of ad-hoc networking of bitcoin, two users could trade
bitcoin among themselves by scanning the QR codes that are displayed by application on the
phones. This is unique technique for solving problem which existed for such long time. This
would increase invariably as there is growth of user base, hence demand of better application
and network of cryptocurrency would come (Abramaowicz, 2016). Enormous market for
people is there for the potential developers for creating such applications, as such technology
would affect any organization which depends on third party.

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Progression of bitcoin to become transformative technology has driven by the ability
for solving problems of long standing, combined with growing and supportive community of
users and developers. Cryptocurrency has become big player within commodity market.
Cryptocurrency have a unique attribute to be purchased by online mechanism directly
(Chuen, Guo & Wang, 2017). If there is continuation of bitcoin as valid refuge to inflate
currencies, it would gain validity for the investors.

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