The Rise of Bitcoin and Other Cryptocurrencies:
Bitcoin is a Cryptocurrency created in 2009 by an individual or group under the pseudonym Satoshi Nakamoto. Transactions are completely decentralized and made without middlemen, meaning there is no central bank or government interference. In other words, transactions are made directly peer-to-peer from one person’s Bitcoin Wallet to another. Each individual bitcoin wallet holds a secret piece of data known as a private key or seed. So when a transaction is sent, it is digitally signed and secured using this secret piece of data. All transactions are then stored in the Block Chain, which is an encrypted online ledger of all bitcoin transactions.
The core features of bitcoin are faster transactions speeds, lower transaction costs, and of course, decentralization. Bitcoin users themselves dictate and validate transactions without the use of a central authority. While all this sounds like bitcoin may take over as the leading currency in the near future, it doesn’t come without flaws. While decentralization sounds great in theory, bitcoin certainly isn’t immune to hackers and other nefarious activities. Without bank or government control, there’s no safety net for lost or stolen bitcoins. Transactions can also be made anonymously, which creates an environment for criminal activities such as money laundering and tax evasion. So while cryptocurrencies like bitcoin, litecoin, and ethereum all facilitate exchange extremely well, the decentralized nature of them have both their benefits and drawbacks. It will be interesting to see how high the value of bitcoin can go and if it has staying power as a legitimate currency. Only time will tell.
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Hey!
That’s a nice little overview but I guess I’m still a bit lost on how someone can invest in something that doesn’t actually exist? When people say they invest in bitcoin are they investing in the company or in some line of code that someone invented somewhere? How does something that has no backing go up in worth? Sorry, lots of questions I know. Thank you and keep up the good work!
Hi Andrew – those are great questions. Bitcoin is a real thing that many people currently use as a form of exchange. It’s the most widely adopted cryptocurrency at this time. There are a handful of platforms where you can open up a bitcoin wallet, like coinbase for example, in order to purchase bitcoin. Just like you’d open up a brokerage account in order to buy stocks, you can open up a bitcoin wallet in order to buy bitcoin.
Just one bitcoin is currently worth around $15,000 (it was trading under $1,000 earlier this year just to give you an idea of how volatile it has been). So you can either buy bitcoin directly or even buy various stocks that are bitcoin-related. As you can imagine, there have been quite a few companies over the past few years trying to get involved in the cryptocurrency space. When bitcoin gets “hot”, these stocks tend to trend up with it. And when the bitcoin craze cools off, they tend to fade with it.
There are also individuals who don’t necessarily believe in bitcoin as the future of currency, but like the block chain technology behind it. This block chain technology can certainly have other real-world applications in the financial and medical spaces, for example, to encrypt client/patient information and the transactions associated with them. The simplest explanation of block chain is technology that records transactions in a database. Overall, there are quite a few methods for trading/investing in bitcoin both directly and indirectly.
To answer your last question, it’s really difficult to say how something with no backing has gone up so much in worth. It’s interesting because the thing that makes bitcoin so appealing to many individuals is the fact that it’s decentralized (no central bank or government interference). But at the same time, I can see that as being it’s undoing. Without the digital currency being backed by a government, it’s hard to trust it as a legitimate medium of exchange. The only thing backing it is other traders and investors willing to pay the same price or more for it tomorrow.
Bitcoin is very much it’s own “animal” and it’s hard to speculate what might happen next. One of the main aspects of currency is that it’s a stable store of value, which isn’t the case with bitcoin seeing how volatile it is. It can fluctuate tremendously from day to day. As promising as bitcoin may seem, there are quite a few concerns that need to be considered for it to become a widely adopted “real” currency. In any case, the run bitcoin has been on this year has been impressive to say the least.
I’m so intrigued by bitcoin after reading this. I learned a while back about bitcoin, but now I want to take action to be in cryptocurrency. I’ve decided to sign up for your e-book and learn how to trade stocks and make money through trading. I know that if I invested 100 bitcoins in 2009, I would have millions today…I want to catch a trend so I’m happy to learn as much as I can about different opportunities.