Should I Buy Bitcoin or Should I Not? Well, Read This First

By the end of August 2018, bitcoin was valued at over $7,000. This was up from $572 in August 2016, representing a rise of over 1000%. In December 2017, it reached an all-time high of $19,783.06, making several coin holders millionaires. The craze eventually began to decline and so did price. That notwithstanding, bitcoin appears to be here to stay. With such a potential for returns, it is important to understand bitcoin before deciding whether or not to buy into the rave.

What Bitcoin Is

Bitcoin is a virtual currency that uses blockchain technology to ensure end-to-end encryption of transactions between users and to regulate the generation of newer units. Created by Satoshi Nakamoto in 2009, bitcoin has an advantage over traditional money in that it is not centrally regulated. There is no central authority to decide how much of it can be reproduced. Currently, only 21 million coins exist, the majority of which have already been created. Other forms of digital currencies that rely on blockchain technology include Bit Cash and Etherium.

How Bitcoin Works

Bitcoins are basically snippets of codes that are traded between users on a secured platform. Each user is identifiable only by a given private key. This ensures anonymity and allows for neutral access to the platform. To purchase a coin, you have to log into a coin exchange like Coinbase and Bitbargain. Because it is a digital piece, a user can purchase a millionth of a coin; a hundredth of a millionth of a bitcoin is a Satoshi.

How Are Bitcoins Made?

Like all cryptocurrencies, bitcoins are snippets of codes generated on powerful computers using complex mathematical equations. This process is known as mining, and involves the addition of new transactions to a public ledger known as the blockchain. A successful miner is rewarded with a number of bitcoins. These codes that have been created can then be traded using end-to-end encryption which secures the identity of users.

A series of connected servers authenticate the trade between parties, helping to eliminate fraud and false transactions. Once entered, a coin’s historic transaction status cannot be altered, neither can it be reversed. The emphasis on security and a seemingly democratic creation process has made bitcoin appealing to many investors.

Bitcoin as a Legal Tender

Traditional money is backed by governments. This assurance makes them widely accepted. This means wherever you go with a genuine dollar bill, you will be able to exchange it for any good or service, or at worst, be able to exchange for another currency that is accepted. Cryptocurrencies, however, are still yet to receive general acceptance by governments. They have gained grounds among technology geeks and risk-seekers. Any decision to buy bitcoin should, therefore, be with the realization that unlike a Visa card, not many online or physical shops will accept digital coins.

Risky Business or Is It?

There have been major swings in the value of bitcoin over time due to government policies, media attention, and a host of other issues. Increased coverage seems to help the cryptocurrency surge in value, while a sharp rise will certainly be followed by a major correction as the dust settles. At the end of 2010, bitcoin was worth a mere 39 cents. With August 2018 trading value at over $7,000, bitcoin has risen by about 1.8 million percent. Within that period, however, there have been major swings in weekly and monthly values. Bitcoinist indicates how bitcoin approached $20,000 in December 2017, only to dip to about $6000 two months later. But as the saying goes, risk goes with reward. But it’s just not meant for everybody. It is important to know what your risk tolerance level is.

The Road Ahead

As with any medium of exchange, bitcoin will thrive if more outlets accept it as a medium of exchange for goods and services. Companies like Microsoft, Dell, REEDS, Gesatech and many others now accept bitcoin. And so if your interest in bitcoin is to use it to buy stuff on the internet, your options are increasing by the day. Due to fluctuations in its value, however, bitcoin is mostly used as an investment vehicle. The Commodity Futures Trading Commission now classifies bitcoin as a commodity, paving the way for a regulated bitcoin-based futures and derivatives market.

The cryptocurrency space is definitely worth your attention. Whether you are an investor or just a consumer, it is beneficial to pay attention to developments in this market. As to whether to dig in now or watch cooly from the fringes, well, that depends on your appetite for risk and your objectives.