What is Bitcoin and is it a smart investment for you?
Investment experts such as Warren Buffet and Alan Kohler may be highly sceptical of Bitcoin – and for good reason – because it’s a very volatile commodity based on an intangible currency. But one thing’s for sure, the incredible rise of this enigmatic cryptocurrency has certainly held the attention of investors for the past year or so.
It has also spawned several other virtual currencies that may warrant more investor interest because they still have room to grow in value, such as ethereum and litecoin.
But for now, Bitcoin has everybody captivated and asking whether they should buy some. Exchange markets are created by those who invest; if people place value on buying Bitcoin, its worth rises. Lately, the governments of China and South Korea have intervened in the cryptocurrency’s market and its value has declined. So has Bitcoin’s ship sailed already, or will its value firm again, potentially making it a smart investment?
What is Bitcoin and how does it work?
In 2008, a mystery software developer using the moniker Satoshi Nakamoto created a virtual data platform called blockchain, which gave rise to the digital currency (or cryptocurrency) known as Bitcoin. The currency can be traded outside of the mainstream financial institutions and is used to buy things electronically. Bitcoins are created, using high-level computer software that allows users to “mine” or discover where in the virtual world the currency is hidden in a digital “vault”. Once you have acquired (bought or mined) Bitcoins, their notional value is stored in a virtual bank account called a “digital wallet” on the “cloud” or in a folder on your computer).
The major characteristic of Bitcoin is that it’s totally decentralised, meaning no institution controls it. Bitcoins are not tied to any country and in many jurisdictions are not regulated. You have total control over your Bitcoin wealth; you don’t need to give your real name or address, there are no transaction fees and you don’t need banks to buy, sell or use it.
How much is Bitcoin worth?
Online exchanges allow people to buy or sell Bitcoin using their own country’s currency. But Bitcoin doesn’t come cheap. At the time of writing, the digital currency now had a market value of more than US$272 billion. As of 8 December 2017, one Bitcoin would have set you back A$22,900. Last week, it crashed to A$14,000 – so you can clearly see the volatile nature of cryptocurrencies.
More and more online merchants are accepting Bitcoin as a method of payment: you can buy concert tickets, manicures and even pizza. Some people are simply buying them because they believe Bitcoin is a smart investment. People can send Bitcoin to each other in much the same way as a regular bank transfer, using mobile apps or computers.
What are the risks involved with Bitcoins?
The process of setting up a Bitcoin account may sound tricky but in fact, anyone can do it – it just takes time. However, as an unregulated marketplace, governments are concerned about taxation, security and lack of control. The names of buyers and sellers are never revealed, only their wallet IDs. This means purchases cannot be easily traced, making Bitcoin a favourite currency for people running illicit operations.
So, is it worth investing?
Unless you’re part of the one per cent, investing in Bitcoin means investing in part of one Bitcoin. One thing to note is that Bitcoin has zero correlation with the stock market, so it runs at its own speed.
There are a lot of mixed feelings about Bitcoin. Some economists are calling it the currency of the future, because it’s decentralising money and putting power back into the hands of individuals. Meanwhile, others are comparing it to Monopoly money, calling it a scam; an economic bubble that will burst with dire consequences.
Whether you know your way around investments, or you’re a newbie in the field, Bitcoin, like any other investment, is going to have its risks and rewards. If you can count on one thing, however, the rise in popularity and wealth of cryptocurrencies such as Bitcoin can’t be ignored, and will surely take us deeper into our digitised, economic future.
Read more at theguardian.com
Would you ever invest in a currency that you couldn’t handle? Would it be a good investment to buy a virtual currency today in the hope that in the future it will be worth so much more?
Join YOURLifeChoices, it’s free
- Receive our daily enewsletter
- Enter competitions
- Comment on articles