One of the growing financial trends for individuals is to denominate a small part of their money in the digital crypto-currency called Bitcoin, for a number of strategic benefits such as having a store of value and a medium of exchange that is not susceptible to inflationary measures imposed by central banks. The Bitcoin digital currency itself is highly decentralized because it relies on a peer-to-peer communications network called the Bitcoin network in order to process orders and verify purchases.
Bitcoin: A Decentralized Digital Currency
It is important to remember that money itself is nothing more than a medium of exchange, and for most of modern history this medium of exchange has been enforced and controlled by central banks, national banks, and automated clearing house institutions. Because of this fact, most currencies have been slowly inflated and devalued as the government and central bank add to the amount of currency in circulation, therefore decreasing the value of each individual currency unit.
The reason Bitcoin is different is that it is not offered to the market by any specific company or bank, but instead it is based on a public key encryption algorithm which has been released on an open source basis. Instead of the need for a regular bank or automated clearing house to process and verify transactions and purchases, all Bitcoin transactions are calculated using advanced mathematical equations across a global network of computers that are connected on a peer-to-peer basis. This means that the mechanism behind processing transactions is inherently decentralized and therefore it is difficult to control or regulate by governments, and also not susceptible to inflationary market pressures.
Is Bitcoin A Safe Investment For Individuals?
There are both positive and negative aspects of government regulation, with the positive aspect being that these regulations will tend to protect consumers from industry insiders and scammers, and the negative side being an increased amount of pressure and control from a centralized authority. As long as the individual investor is willing to take the time to educate themselves about what Bitcoins are and how to protect their digital wallet, many are choosing to allocate a small part of their money in the form of Bitcoins.
Another risk associated with Bitcoins is the high volatility in the exchange rate between US dollars and Bitcoins, but many people are prepared to tolerate this change in market price in order to have their money denominated in currency units that are not controlled by a centralized institution. Bitcoins are becoming more widely accepted and are entering into the early adoption phase for individuals and technology pioneers alike, and by doing proper research you can decide if owning Bitcoins is appropriate for your personal finances.
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