Best Bitcoin Investment Options: Where To Invest?

Bitcoin was the first cryptocurrency to be created, and it continues to be the most popular and valuable cryptocurrency on the market. It is a decentralised transaction verification system that has revolutionised the way we think about digital security. Bitcoin's decentralisation and transparency make it appealing to investors and users. However, critics have raised concerns about its energy-intensive, proof-of-work consensus mechanism and difficulties scaling the network.

Bitcoin's price has skyrocketed as it has become a household name. In May 2016, one bitcoin was worth about $500. As of August 2024, a single bitcoin's price was around $62,407. That's a growth of 12,381%.

Despite its popularity, Bitcoin is prone to volatility and unpredictable price changes. It is also highly dependent on the success of Binance, which has been targeted by regulators in several countries.

Overall, Bitcoin is a good investment option for those looking to enter the cryptocurrency market. However, it is important to remember that it is a risky investment and should only make up a small part of your overall portfolio.

Bitcoin's price history

Bitcoin started with a value of less than a cent in 2009 and has since grown to be one of the most valuable assets in the world. In May 2016, one bitcoin was worth about $500. As of August 2024, a single bitcoin was worth around $62,407, representing a growth of 12,381%. Bitcoin reached its all-time high of nearly $73,700 on 14 March 2024. This particular price hike was connected to the approval of Bitcoin ETFs in the United States. Previous hikes in 2021 were due to events involving Tesla and Coinbase, with Tesla announcing it had acquired $1.5 billion worth of the digital coin.

The cryptocurrency market is known for its volatility and unpredictability, but it has generated incredible gains for long-term investors.

Bitcoin's advantages and disadvantages

Bitcoin is the world's first and most popular decentralised digital cryptocurrency. It was created in 2009 by a pseudonymous programmer or group of programmers known as Satoshi Nakamoto.

Advantages of Bitcoin

• Accessibility and liquidity: Bitcoin is a versatile currency that can be used to purchase goods and services from a growing list of places that accept it.
• Independence from central authority: Bitcoin is not regulated by a single government or central bank, meaning governments cannot control it like they can with centralised fiat currencies.
• Protection from payment fraud: Bitcoin transactions are secure, and users' rights are protected.
• Transparency: Bitcoin transactions are built on blockchain technology, which ensures high levels of security and transparency.
• Decentralised issuance: No government or central bank can regulate or value Bitcoin, and it cannot be created or distributed by any authority.
• Lower fraud risks: Bitcoin transactions do not require users to disclose any confidential financial information, reducing the risk of data breaches.
• Fast and inexpensive: Bitcoin transactions are quick and cheap, regardless of the amount or destination.

Disadvantages of Bitcoin

• Volatility: Bitcoin prices are highly volatile, with drastic changes on a daily and monthly basis. This makes it a risky investment.
• Unregulated: The lack of regulatory oversight means that investing in Bitcoin can be risky, as cryptocurrency laws and taxes differ across the world and are often ambiguous.
• Risk of loss: If a Bitcoin wallet is lost or corrupted, there is no way to recover the Bitcoins stored within it.
• Environmental concerns: Bitcoin mining requires a significant amount of energy, leading to concerns about its environmental impact.
• Not accepted everywhere: Despite growing acceptance, Bitcoin is still not widely accepted as a form of payment, limiting its use.

Bitcoin's transaction costs

Bitcoin transaction fees are a crucial component of the Bitcoin network. They incentivize miners to validate transactions and support network security by keeping miners profitable. The more a user pays, the higher the chance their transaction will be picked up immediately as there is only a limited amount of space in each block.

Transaction fees are closely linked to the process of mining. They are necessary because they are part of the rewards miners get for participating in the network. In the case of Bitcoin transactions, the reward for miners consists of two things: all transaction fees in the block that the miner validated and the additional incentive of a specific block reward of newly minted coins.

Bitcoin transaction fees are fixed at a couple of cents, regardless of the amount you send. However, the actual fee you have to pay varies and depends on the network. For example, the median transaction fee reached $34 at the end of 2017 due to network congestion. Thanks to second-layer solutions like Segregated Witness (SegWit) or the Lightning Network, transactions can now be sent for as little as a few cents, regardless of the amount.

Bitcoin wallets attempt to recommend a reasonable fee based on the current and recent levels of activity on the Bitcoin network. Most wallets allow you to adjust your fees or at least set a general fee preference (low, medium, or high). If your wallet supplies you with that info, you can then use the feerate estimation table to figure out how much you need to pay to be included in the next block.

In addition to network transaction fees, Bitcoin exchanges and brokerages charge an entirely separate fee for using their service. Exchanges facilitate matching buyers and sellers and charge a fee for doing so. They calculate their fee in two ways: a flat fee per transaction or as a percentage of 30-day total transaction volume.

Bitcoin's energy consumption

Bitcoin is the original cryptocurrency, created in 2009 by a person or group using the pseudonym Satoshi Nakamoto. It is a blockchain-based, decentralised transaction verification system that has revolutionised digital security. However, it has faced criticism for its energy-intensive, proof-of-work consensus mechanism.

The Bitcoin Energy Consumption Index was created to provide insight into the energy amounts consumed by the Bitcoin network and to raise awareness of the unsustainability of the proof-of-work algorithm. Bitcoin's energy consumption is comparable to the power consumption of Poland and the carbon footprint of Uzbekistan. A single Bitcoin transaction could cost as much water as a backyard swimming pool.

The energy used to mine Bitcoin is primarily sourced from fossil fuels. The process of producing a valid block is based on trial and error, where miners make numerous attempts to find the right value for a block component called the "nonce". Mining is sometimes compared to a lottery where you can pick your own numbers. The number of attempts per second is given by the mining equipment's hashrate. This is typically expressed in Gigahash per second (1 billion hashes per second).

The continuous block mining cycle incentivises people worldwide to mine Bitcoin. As mining can provide a solid stream of revenue, people are willing to run power-hungry machines to get a piece of it. Over the years, this has caused the total energy consumption of the Bitcoin network to grow to massive proportions.

Bitcoin's massive energy consumption is a significant concern, but the fact that most mining facilities in its network are powered by fossil fuels is perhaps a bigger problem. Determining the exact carbon impact of the Bitcoin network has been challenging due to the constantly changing location of miners.

A comparison with another payment system like Visa helps put the energy consumed by the Bitcoin network into perspective. Visa consumed a total of 740,000 Gigajoules of energy globally for all its operations. This means that Visa has an energy need equal to that of around 19,304 US households. With the help of these numbers, it is possible to compare both networks and show that Bitcoin is far more energy-intensive per transaction than Visa.

The limited scalability of the blockchain also contributes to the high energy consumption per transaction. A block for Bitcoin's blockchain can contain 1 megabyte of data, and a new block is generated only once every 10 minutes on average. This data limit prevents the network from handling more than seven transactions per second. In contrast, the global financial system handles more than 700 billion digital payments per year.

Proponents of Bitcoin argue that second-layer solutions like the Lightning Network will help with scaling, but this requires a funding transaction on the main network, which would take the Bitcoin network 35 years to process for all 7.7 billion people on the planet.

Bitcoin could potentially switch to a more energy-efficient consensus algorithm, such as proof-of-stake, which could save at least 99.85% of the energy currently required to run a proof-of-work-based system.

Bitcoin's future outlook

Bullish Case

• Bitcoin's decentralization, transparency, and inflation protection make it appealing to investors. It offers a hedge against fiat currency debasement and provides security and anonymity in transactions.
• The limited supply of Bitcoin (capped at 21 million) and the decreasing block reward can drive up its value over time.
• The approval of spot Bitcoin ETFs has added legitimacy and attracted significant institutional investment.
• The improved development of scalability within the Lightning network can enhance Bitcoin's utility and adoption.

Bearish Case

• Bitcoin's energy consumption and environmental impact have drawn criticism and regulatory scrutiny.
• The decreasing block reward and potential lack of demand may threaten Bitcoin's long-term security and sustainability.
• Regulatory changes and government interventions could negatively impact Bitcoin's price and restrict its usage.
• Bitcoin's association with scams, fraud, and illegal activities may deter wider adoption and institutional investment.

Overall, the future of Bitcoin is highly speculative, and it remains a risky investment. While some predict Bitcoin's price to reach millions of dollars, others caution that it may face significant challenges and downward pressure.

Frequently asked questions