X-Ray on Bitcoins

Bitcoin Meaning

Bitcoin is a digital currency created in 2009. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms. It is operated by a decentralized authority. There are no physical bitcoins, only balances are kept on a public ledger in the cloud. Bitcoins are not issued or backed by any banks or governments.

Bitcoin Mechanism

Bitcoin uses peer-to-peer technology to facilitate instant payment. The individuals and companies who own the computing power and participate in the Bitcoin network are known as "miners". They are motivated by rewards in terms of release of new bitcoins and transaction fees are paid in bitcoin. These miners can be thought of as the decentralized authority enforcing the credibility of the Bitcoin network. Bitcoin mining is the process through which bitcoins are released to come into circulation. Basically, it involves solving a computationally difficult puzzle to discover a new block, which is added to the block chain, and receiving a reward in the form of few bitcoins. As more and more bitcoins are created, the difficulty of the mining process – that is, the amount of computing power involved – increases.  (Source: Investopedia)

Investing in Bitcoins

There are many Bitcoin supporters who believe that digital currency is the future. Those who endorse it are of the view that it facilitates a much faster, no-fee payment system for transactions across the globe. Although it is not backed by any government or central bank, bitcoin can be exchanged for traditional currencies; in fact, its exchange rate against the dollar attracts potential investors and traders interested in currency plays. Indeed, one of the primary reasons for the growth of digital currencies like Bitcoin is that they can act as an alternative to national fiat currency and traditional commodities like gold. Bitcoins can be earned through the following ways:

Receiving as Payment

Bitcoins can be accepted as a means of payment for products sold or services provided. An online business can easily accept bitcoins by just adding this payment option to the others it offers, like credit cards, PayPal, etc. Online payments will require a Bitcoin merchant tool (an external processor like Coin base or Bit Pay). 

Interest Payments

Another interesting way (literally) to earn bitcoins is by lending them out, and being repaid in the currency.

Betting

It’s possible to play at casinos that cater to Bitcoin aficionados, with options like online lotteries, jackpots, spread betting and other games. Of course, the pros and cons and risks that apply to any sort of gambling and betting endeavours are in force here too.

Risks of Bitcoins

The concept of a virtual currency is still new and, compared to traditional investments, Bitcoin doesn't have much of a long-term track record or history of credibility to back it.

Regulatory Risk: Bitcoins are in contradiction with government currency and may be used for black market transactions, money laundering, illegal activities or tax evasion. Bitcoins are not supported by governments because of the same reason.

Security Risk: Bitcoin exchanges are entirely digital. These digital systems are at risk from hackers, malware and operational glitches. Hackers can also target Bitcoin exchanges, gaining access to thousands of accounts and digital wallets where bitcoins are stored. All Bitcoin transactions are permanent and irreversible. It's like dealing with cash: Any transaction carried out with bitcoins can only be reversed if the person who has received them refunds them.

 Insurance Risk: There exists no insurance against bitcoins as the same is not a recognised currency.

Market Risk: Bitcoin values can fluctuate as any other investments.

Advantages and Disadvantages of Bitcoins

And the most important thing is Bitcoins are not REAL.