Bitcoin has gained a lot of attention over the past years and has steadily increased in value. Add Elon Musk’s Mida’s touch and it has sent the internet abuzz. But what exactly is Bitcoin and why did it skyrocket in value over the years? And why do the seasoned investors have a different and mostly conflicting opinions about it?
Factors affecting Bitcoin Price
There are three main factors affecting the price of Bitcoin influencing people to buy Bitcoin.
- The media buzz over its boom in value, drawing in new buyers looking to make quick bucks.
- More traditional finance firms joining in and making Bitcoin gain more credibility.
- Comparisons between bitcoin and gold’s scarcity, which makes people give it more value.
But what exactly is Bitcoin anyway?
Bitcoin is a cryptocurrency (nothing to do with crypts) or simply put, an electronic for of money. Just like regular paper money, paper doesn’t have value on its own. Paper money is valued because it is universally treated as a store of value. People are willing to trade with you because they deem money even though it’s just paper as something valuable.
But what is unique about Bitcoin then?
Bitcoin is not regulated by governments. Transactions are made directly with zero traditional middlemen (no exhorbitant fees!). There aren’t many regulatory measures with Bitcoin yet and so transactions are readily available anytime. But how is Bitcoin maintained? Bitcoin is created, stored, traded, distributed using a common publicly accessible ledger system called “blockchain.”
How are BitCoins Obtained?
Bitcoins are called “cryptocurrencies” because you can only have one by the process called “mining.” The current system is generated by the collection of computers running its program that run the bitcoin program and store the information in the blockchain. Each computer running the bitcoin program is called a “node.” Each node is responsible for filing all the transactions in the blockchain. Therefore, all the nodes have the same basic information about where each bitcoin goes. It records to whom the bitcoin is sent, how much, and when the transaction took place. And since each node is responsible for processing and tracking all of the transactions in the blockchain and are rewarded with the release of a bitcoin and/or transaction fees in bitcoin. These nodes are also responsible for solving a very complex puzzle to uncover/mining a block after solving a very complex puzzle.
Can I Join Mining Bitcoins?
Certainly. However, only powerful computers are recommended to mine bitcoins because it takes a lot of computing power to mine one. There are only 21 million bitcoins that are available to mine and that the algorithm for the release of each bitcoin is at a fixed declining rate. Meaning, it will be more difficult to mine a bitcoin over time. It might be less economical to manage a bitcoin network of computers with the scarcity of bitcoins going out in the market.
Isn’t it dangerous if everyone sees the transactions taking place?
Yes and No.
No because everyone is given a unique public and private key. The public key is like your account number, this is used to send and receive transactions. And even though it’s public, it is not tied with your name since there are no regulatory measures involved in the use of Bitcoin. While the private key is like your ATM pin, you’re meant to keep it as a secret.
If Bitcoin is so Expensive Now, Why is Everyone Else Able to Buy?
Just like a dollar that can be broken down into cents. Bitcoin can be digitally broken down further into smaller value. One bitcoin is divisible to eight decimal places. The lowest unit of bitcoin is called “Satoshi” after the founder of bitcoin technology a guy or group’s pseudoname “Satoshi Nakamoto.” In the future, it is possible for Bitcoin to be even more divisible as long as the miners accept this change.
How Do I Buy and Sell Bitcoins?
Popular “digital wallets” offer the service of buying and selling bitcoins. The most popular ones are Coin Base, Bitstamp and Gemini. These digital wallets offer other kinds of cryptocurrencies too.
Why Should I Buy Bitcoin?
You should buy Bitcoin the way you should buy an investment. You expect its value to go up in the future. And since a lot of people and companies have started to accept Bitcoin as a currency, there will be a higher demand for its use.
Higher demand = Higher price.
What makes things looking good for Bitcoin is because like gold, it is limited. There are only a total of 21 million Bitcoins available for mining. Finite objects appreciate in value. At the time of this writing, there exist only 18 million Bitcoins, 3 million to go!
Potential Problems with Bitcoin:
There can’t be purely good things about bitcoins right?
Of course. Since Bitcoin is a relatively new store of value, the volatility of its price is very high. It can move up and down in a matter of days and in thousands of dollars.
Government regulators are starting to look into the use of Bitcoins because since only transactions are recorded anonymously, shady businesses/people favor it.
Much of bitcoin’s rise in value is because of speculation. No one really knows what will happen in the future. Just like Laszlo Hanyecz, the guy that bought 2 boxes of pizza for 10,000 Bitcoins! He didn’t know that these would skyrocket in value in just 10 years. In the short-term, bitcoin might be a great investment but on the long-term, no one knows for sure.
Bitcoin isn’t the only cryptocurrency out there. Other popular ones are Etherium and DogeCoin. Who knows if one of these cryptocurrencies would replace Bitcoins’ popularity.
Do we advise you to invest in Bitcoins?
Like any other investment instrument, you should study it in detail before taking a bite!