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March 10 2016


What Is Bitcoin and Is It a wise investment?

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Bitcoin (BTC) is a new type of digital currency-with cryptographic keys-that is decentralized to a network of computers utilized by users and miners worldwide and is not controlled by way of a single organization or government. It is the first digital cryptocurrency containing gained the public's attention and is accepted by a growing amount of merchants. Like other currencies, users will use the digital currency to acquire goods and services online along with some physical stores that accept it as being a form of payment. Currency traders could also trade Bitcoins in Bitcoin exchanges.

There are numerous major differences between Bitcoin and traditional currencies (e.g. U.S. dollar):

- Bitcoin doesn't need a centralized authority or clearing house (e.g. government, central bank, MasterCard or Visa network). The peer-to-peer payment network is managed by users and miners all over the world. The currency is anonymously transferred directly between users through the internet without going through a clearing house. This means that transaction fees less complicated lower.
- Bitcoin is created via a process called "Bitcoin mining". Miners around the world use mining software and computers to resolve complex bitcoin algorithms and approve Bitcoin transactions. They're awarded with transaction fees and new Bitcoins produced by solving Bitcoin algorithms.
- There is really a limited amount of Bitcoins in circulation. According to Blockchain, there were about 12.2million in circulation as of Dec. 20, 2013. The difficulty to mine Bitcoins (solve algorithms) becomes harder as more Bitcoins are generated, as well as the maximum amount in circulation is capped at 21 million. The limit will not be reached until approximately the season 2140. This makes Bitcoins more valuable fat loss people use them.
- A public ledger called 'Blockchain' records all Bitcoin transactions and shows each Bitcoin owner's respective holdings. Everyone can access the public ledger to verify transactions. This makes digital currency more transparent and predictable. Moreover, the transparency prevents fraud and double spending of the Bitcoins.
- The digital currency can be found through Bitcoin mining or Bitcoin exchanges.
- The digital currency is accepted by way of a limited number of merchants on the internet in some brick-and-mortar retailers.
- Bitcoin wallets (much like PayPal accounts) can be used storing Bitcoins, private keys and public addresses and then for anonymously transferring Bitcoins between users.
- Bitcoins are not insured and are not protected by government agencies. Hence, they won't be recovered if the secret keys are stolen by way of a hacker or lost to some failed hard drive, or because of the closure of a Bitcoin exchange. If the secret keys are lost, the associated Bitcoins can not be recovered and could be out of circulation. Visit this link to have an FAQ on Bitcoins.

I believe that Bitcoin will gain more acceptance from your public because users usually stay anonymous while buying products or services online, transactions fees less complicated lower than credit card payment networks; the population ledger is accessible by anyone, which you can use to prevent fraud; the currency supply is capped at 21 million, and the payment network is run by users and miners instead of a central authority.

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However, I would not think that it is a great investment vehicle because it's extremely volatile and is not very stable. By way of example, the bitcoin price grew from around $14 to some peak of $1,200 USD in 2010 before dropping to $632 per BTC during the time of writing.

Bitcoin surged in 2010 because investors speculated that the currency would gain wider acceptance and that it would increase in price. The currency plunged 50% in December because BTC China (China's largest Bitcoin operator) announced it can easily no longer accept new deposits on account of government regulations. And according to Bloomberg, the Chinese central bank barred loan companies and payment companies from handling bitcoin transactions.

Bitcoin will probably gain more public acceptance after a while, but its price is extremely volatile and incredibly sensitive to news-such as government regulations and restrictions-that could negatively impact the currency.

Therefore, I wouldn't suggest investors to get Bitcoins unless they were bought at a less than $10 USD per BTC since this would allow for a bigger margin of safety.

Otherwise, I have faith that it is much better to get stocks that have strong fundamentals, and also great business prospects and management teams since the underlying companies have intrinsic values and are more predictable.

Don't be the product, buy the product!