Bitcoin: All It's Hyped Up To Be?
If you had spent $27 on Bitcoin in 2009 when it was
created, your investment would be worth more than $37,000,000.
Bitcoin is widely considered the best investment vehicle
ever, and has experienced a meteoric increase in 2017 from $777 to $17,000
Bitcoin is making millionaires from opportunistic
investors, and financial institutions are open-mouthed. Some believe that this
is only the beginning.
Bitcoin futures were launched on December 10, which will
allow investors to access the Bitcoin market via a major US exchange. This is a
sign that we are only just getting started.
Bitcoin's finite supply is what makes it so valuable. There will be 21 million
bitcoins in existence at any given time. And unlike other fiat currencies, you
cannot print more. Bitcoin works on a
proof-of-work protocol. To create it, you must use computer processing power to
solve complicated algorithms on the Bitcoin blockchain. As payment for your "work", you will receive
Bitcoin. Since Bitcoin's inception almost
every year, the reward for mining has declined dramatically. This means that
most people can only get Bitcoin by buying it on an exchange. Is that worth the risk at current prices?
Many believe Bitcoin is a bubble. I spoke with Duke Randal,
a long-term investor and cryptocurrency expert who believes the asset is too
expensive. "I would liken this to many supply bubbles in history such as
the Dutch Tulip Mania or the late 1990s dot com bubble." The speculation behind the prices is purely speculative.
It's almost embarrassing to consider Bitcoin's actual currency functionality. The dot com bubble, which was between 1997 and 2001, was an
era in which many internet companies were created. These valuations were based
on speculation. However, they plummeted to 80-90% when the bubble burst in the
early 2000s. While some companies, such as
Amazon and eBay, have since recovered and are now valued at much higher levels
than they were in 1997 and 2001 respectively, others saw it as the end of the
line.
Bitcoin was created to remove financial power and empower
people to manage their money. It also cuts out middlemen and allows
peer-to-peer transactions. It is one of the slowest cryptocurrencies currently on the
market. Its transaction speed is four-times slower than the fifth largest
cryptocurrency and its closest competitor for payment solutions, Litecoin. Monero, an untraceable privacy coin, makes transactions
faster. It boasts an average block time just two minutes. This is five times
quicker than Bitcoin's time. And that's all without anonymity. Ethereum, the second largest cryptocurrency in the world,
has already seen a greater transaction volume than Bitcoin, despite being only
$676 per Ether, compared to Bitcoin's $16,726.
Why is Bitcoin's price so high? Duke Randal was also
interested in the same question. It all
comes down to the same supply-demand economics. There is relatively little
Bitcoin available, and the recent price surge has attracted much media
attention. This, combined with the launch Bitcoin futures, which many consider
the first sign that Bitcoin is being accepted by mass markets, has led to a lot
people jumping on the bandwagon in search of financial gains. The price of Bitcoin goes up when there is more demand to
buy than sell. This is bad as these
investors don't understand blockchain or the underlying principles behind these
currencies, and they will likely get burned.
Bitcoin's volatility is another reason. It can swing up
and down thousands of dollars in under a minute. This is a phenomenon that can
cause panic selling by less experienced investors, which can lead to a loss. Another reason why Bitcoin
is unlikely to become a popular payment method is that it can be difficult to
accept. Between the time that vendors
accept Bitcoin from customers, and when they sell it to exchanges for local
currency, the Bitcoin price can fluctuate significantly. Their profitability can be wiped out by this unpredictable
movement. Is this going to end soon? It is unlikely. Bitcoin is still a relatively young asset
class. Although awareness is growing, Bitcoin is only held by a small fraction
of the global population. The volatility
will not abate until it is more widely distributed and has a significantly
improved liquidity.
What are the applications of Bitcoin as a currency? Many believe that Bitcoin
has evolved from being a payment method to being a store of value. Bitcoin is like digital gold and will only be used to set a
standard against which other cryptocurrencies and blockchain projects can be
measured and traded. Recent stories have
shown that people living in high-inflation countries like Zimbabwe have bought
Bitcoin to keep their wealth and not see it lose value due to reckless central
banking systems.
Is it too late for you to get involved with Bitcoin? It is not too late to
invest in Bitcoin if you believe these cryptocurrencies can do great things for
the world. However, the price of Bitcoin is so high that it may seem like a
boat for those who have already been on it. You might want to take a look at Litecoin which has risen
6908% over the past year, or Ethereum which has risen an amazing 7521% over the
same period. These faster, newer
currencies are aiming to replace government-run fiat currencies by achieving
what Bitcoin originally set out to do in 2009.
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