Feb 072014
 

The concept of Bitcoins has taken the world by storm, ever since its inception in 2008. Since it is considered to be one of the best sources of legitimate cryptocurrencies, a lot of people and companies alike are beginning to see the importance of using Bitcoins to do their financial bidding.

There are 3 major ways to transact in Bitcoins: mining, buying and trading. Now the pertinent question here is, “Is it better to mine, trade or buy Bitcoins?”

Let’s check each in detail and see which comes out to be the best of the lot.

Bitcoin Mining

Bitcoin Mining is the process through which Bitcoins are created and circulated into the Bitcoin system, as well as added to the blockchain, which is a record of all Bitcoin transactions through time. The mining process is rather complicated and needs an expensive and well planned strategy in order to make a profit. A lot of Bitcoin mining today is run via large data centers and not in people’s homes. There are some reasons which make mining all the more difficult and cumbersome to carry out. These can be categorized in the following manner:

  • Security of the networkThe mining process is decentralized. Anyone who possesses a good strong hardware system and a stable Internet connection can carry out the mining process. However, if an individual or an organization possesses more than half the control of the Bitcoin network’s mining capacity, then there are chances of the network being unduly influenced. This is where the breach of security happens, making the procedure insecure.
  • Transaction fee: Given the high transaction fee involved with the mining of Bitcoins, there is a diminishing interest within the minds of people. The declining rewards and the increase in the transaction fee, creates a negative ripple in the market, causing a substantial shift in the minds of the people.
  • Mining complexities: The level of mining difficulty gets adjusted every 2 weeks. As the complexity level fluctuates, so does the mining possibilities. If more computational power is employed, chances are that the mining procedures would also become more difficult, causing miners to avoid mining in the long run.

Buying Bitcoins

Before you actually think of buying Bitcoins, you should think through all the options and then arrive at a well informed decision. Today, there are many great sources throughout the world to buy Bitcoins, like Coinbase. Here are some reasons why you may want to stay away from buying Bitcoins:

  • Losses: With some of the other financial instruments available in the markets these days, there are safety procedures in place, which help you in case of any imminent disaster. However, with Bitcoins, there is no such safety net, which can bail you out in case your Bitcoins get lost or stolen. While you can store the Bitcoins in a wallet on your hardware or keep them with a third party, there is still no surety, that your investment will remain safe eventually.
  • Regulation: If regulatory advice is to be believed, one would realize that there are higher chances of being swindled out of your hard earned investment as would be the case otherwise. The lack of strong regulation on this volatile virtual currency can leave you bare, making it hard to invest in Bitcoins.
  • Trading Bitcoins: Like any financial instrument, even Bitcoin trading is somewhat reliable and profitable. The trading procedures use the rise and fall in the price of the virtual currency, to actually estimate the profit/loss in the exchange. Sharp skills to trade Bitcoin’s value fluctuations is what makes a successful Bitcoins trader; a trader by profession is required to offer exchange services to other Bitcoin traders, so that he/she can himself make a net profit on other investors’ transactions. A trader can make buying offers, when the price is low, and later on sell the currency at a higher price, allowing him to make a profit. However, in order to be a successful trader, one has to possess impeccable knowledge on how the system works.

Conclusion

These are the three ways to transact in the Bitcoin economy, and in the process, gain some Bitcoin. Simply buying Bitcoin is the simplest of all but has a limited profit potential. Trading Bitcoin is risky but can have the highest return among the three methods.

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