In early 2009, a man named Satoshi Nakamoto debuted a project that he had been working on for several years. Designed to be an experiment in something that would later become well-known as “cryptocurrency”, this project was named Bitcoin. It was created as a way for individuals to exchange payment in exchange for goods and services without a centralized banking institution, sensitive financial data or third-parties having to be involved.
Over the past five years, this once unheard-of digital currency has become a powerhouse in the world of online commerce, and now enjoys a total market value of around $6 billion. There have been countless success stories of individuals who bought in early and made millions as confidence surrounding the currency continued to grow. Are these opportunties still available to investors, what exactly is Bitcoin and what does the future hold for it? We’ll discuss these concepts below and help you make the best financial decision regarding the currency.
The Basics of Bitcoin
Bitcoin functions as a decentralized, P2P (peer-to-peer) currency. Many people often refer to Bitcoin as a cryptocurrency or simply “crypto”, due to its relatively anonymous and secretive nature. Ecah Bitcoin can exist as a whole unit, but can also be broken down into smaller units, with the smallest one being known as a “satoshi” (0.00000001 BTC; worth around 1/2000000th of a penny at the time of this publication). As the currency grows, this ability to split and combine coins will increasingly come in handy.
Every Bitcoin user has a digital wallet, where coins can be stored on a digital device. Coins can also be stored offline and in “paper wallets”, for retrieval at a later date. Whenever the owner of a Bitcoin wishes to spend his or her funds, he or she simply sends the payment from the Bitcoin wallet (which has one or more unique addresses associated with it) to the address associated with the recipient’s wallet. Within just a couple of hours, the payment is fully available to the new owner and the coins can be spent freely.
Bitcoin Security and Use
Bitcoin is a secure system that allows for people to buy Bitcoin easily but also enables easy payment. But as with any financial information, your fortune is only as secure as the devices used to access and safeguard it. Nobody can steal your Bitcoins from an offline device, nor can they can be duplicated or hacked. If your Bitcoins are stored on a machine that has been compromised, however, then they can be stolen. Likewise, many people keep funds in online currency exchanges; if these exchanges are compromised, the funds can be stolen.
Despite being digital, Bitcoin functions more like cash than credit: once a payment has been sent, it cannot be reversed (unless the recipient of the payment decides to refund/return the money). This makes Bitcoin an attractive solution for many people, including those who wish to engage in illicit activities and those who want to make a quick buck with virtually no reprecussions.
All in all, though, Bitcoin is a secure and modern method of payment that is growing in popularity by the day.
Success Stories of the Past Five Years
When the first Bitcoin exchange debuted in 2009, the currency could be traded for as little as $0.01. At the time, very few people bought any significant number of coins due to a low amount of demand. Some people, however, saw investment opportunities and grabbed a large number of coins at the time. As of this publication, Bitcoin is currently worth around $500 per coin; for every $1 invested in 2009, an investor would possess $50,000 worth of coins today. Someone who threw cool a cool $500 back then would possess roughly $25,000,000 of the currency today.
A finite number of coins will be produced, or “mined”, via computer software that anyone can utilize. Your graphics processing power is the most commonly-used form of power to generate hashes, which are best compared to purchasing lottery tickets. At regular intervals, a “block” of Bitcoins are mined and one random entity receives them. Those who began mining Bitcoins in 2009, 2010 and 2011 and held onto their coins have made many, many times their initial investment in electricity and hardware.
Investment Potential for the Future
Despite now being in existence for five years, it has only been within the past couple of years that the currency has gained real steam. Both the market value and number of Bitcoin users have exploded, which has led to bouts of volatility and speculation. Many people consider the currency too risky.
There is money to be made in Bitcoin, however, via short-term speculation and possibly through long-term investment. Nobody at the onset expected Bitcoin to be anywhere near what it is worth today, but the exact future of Bitcoin cannot be predicted. A massive collapse could occur tomorrow, or a huge rally could send the coin to new heights.
Bitcoin’s all-time value reached $1,200 in late 2013, and as of March 2014, has since lost more than half of that. While that may sound devastating, similar situations occurred in 2010, 2011 and 2013. In all cases, the cryptocurrency ultimately rebounded and reached new all-time highs.
Investors who want to make a quick buck can invest funds and use one of the many popular exchanges – such as BTC-e or Bitstamp – and attempt to speculate. As with all forms of investment, there are risks, but many people have been able to double their investments in a single day when markets are volatile.
What Should I Do?
Bitcoin is a relatively new phenomenon and therefore subject to risks, potential regulation and a variety of other issues. Many people have made tons of money off of the cryptocurrency, while others have had disastrous things occur. Ultimately, it is much like any other type of investment: you win some and lose some. For those who simply want to purchase goods and services without fear of transmitting financial information, Bitcoin is a solid currency that is gaining momentum. Even if people do not universally adopt Bitcoin and it ultimately fails as an individual method of payment, the concept of cryptocurrency is something that is here to stay.