What is Bitcoin and Is It a Good Investment?

Bitcoin (BTC) is a new type of digital currency — with cryptographic keys — that is decentralized on a network of computers used by users and miners around the world and is not controlled by one organization or government. It is the first digital cryptocurrency to get public attention and is accepted by a growing number of traders. Like other currencies, users can use digital currency to purchase goods and services online as well as at some physical stores that accept it as a form of payment. Money traders can also sell Bitcoins on Bitcoin exchanges.

There are several major differences between Bitcoin and traditional currencies (e.g. US dollar):

  1. Bitcoin has no centralized authority or clearing house (eg government, central bank, MasterCard or Visa network). The peer-to-peer payment network is managed by users and miners around the world. Money is anonymously transferred directly between users via the internet without going through a clearing house. This means that transaction fees are lower.
  2. Bitcoin is created through a process called “Bitcoin mining”. Miners around the world use mining software and computers to solve complex bitcoin algorithms and to approve Bitcoin transactions. They are provided with transaction fees and new Bitcoins generated from solving Bitcoin algorithms.
  3. There is a limited amount of Bitcoins in circulation. According to Blockchain, there were about 12.1 million in circulation as of December 20, 2013. The difficulty of mining Bitcoins (solving algorithms) becomes even more difficult as more Bitcoins are created, and the maximum amount of circulation is limited to 21 million. The limit will not be reached until approximately the year 2140. This makes Bitcoins more valuable as more people use them.
  4. A public ledger called ‘Blockchain’ records all Bitcoin transactions and displays the individual assets of the Bitcoin owner. Anyone can access the public ledger to verify transactions. This makes digital currency more transparent and predictable. Above all, transparency prevents fraud and double spending on the same Bitcoins.
  5. Digital currency can be obtained by mining Bitcoin or exchanging Bitcoin.
  6. Digital currency is accepted by a limited number of web merchants and some brick -and -mortar retailers.
  7. Bitcoin wallets (similar to PayPal accounts) are used for storing Bitcoins, private keys and public addresses as well as for anonymous transfer of Bitcoins between users.
  8. Bitcoins are not insured and not protected by government agencies. Therefore, they cannot be recovered if the secret keys are stolen by a hacker or lost on a failed hard drive, or due to the closure of a Bitcoin exchange. If the secret keys are lost, the associated Bitcoins can no longer be recovered and are no longer in circulation. Visit this link for a Bitcoins FAQ.

I believe Bitcoin will gain more acceptance from the public because users can remain anonymous while purchasing goods and services online, transaction fees are lower than credit card payment networks; the public ledger is accessible to anyone, which can be used to prevent fraud; the money supply is limited to 21 million, and the payment network is run by users and miners rather than a central authority.

However, I don’t think it’s a good investment car because it’s much faster and less robust. For example, the price of bitcoin grew from about $ 14 to a high of $ 1,200 USD this year before falling to $ 632 per BTC at the time of writing.

Bitcoin soared this year because investors speculated that the currency would gain wider acceptance and that it would rise in price. The currency fell 50% in December because BTC China (China’s largest Bitcoin operator) announced that it would no longer accept new deposits due to government regulations. And according to Bloomberg, China’s central bank has banned financial institutions and payment companies from handling bitcoin transactions.

Bitcoin is likely to gain more public acceptance over time, but its price is extremely volatile and highly sensitive to news — such as government regulations and bans — that can negatively affect the currency.

Therefore, I do not recommend investors to invest in Bitcoins unless they are purchased for under $ 10 USD per BTC because it will allow greater margin of safety.

Otherwise, I believe it is better to invest in stocks with strong fundamentals, as well as good business prospects and management teams because underlying companies have intrinsic values ​​and are more consistent. an.

Disclosure: Victor Liang has no Bitcoins positions and has no plans to change his position in the next 72 hours.