Bitcoin (BTC) is a new digital currency that is decentralized to a network of computers used by users and miners around the world and not managed by a single organization or government – with cryptographic keys. This is the first digital cryptocurrency that has attracted public attention and is increasingly accepted by merchants. Like other currencies, users can use digital currency to buy goods and services online, and some physical stores accept it as a form of payment. Currency traders can also trade Bitcoins on Bitcoin exchanges.
There are several key differences between Bitcoin and traditional currencies (such as the US dollar):
- Bitcoin does not have a centralized body or a single computing center (e.g., government, central bank, MasterCard, or Visa network). The peer-to-peer payment network is run by users and miners around the world. Currency is transferred anonymously to users via the Internet without going through the clearing house. This means that the transaction fee is much lower.
- Bitcoin is created through a process called “Bitcoin mining”. Miners around the world use mining software and computers to solve complex Bitcoin algorithms and validate Bitcoin transactions. They are rewarded with transaction fees and new Bitcoins from the solution of Bitcoin algorithms.
- There are a limited number of Bitcoins in circulation. According to Blockchain, as of December 20, 2013, there were about 12.1 million in turnover. The difficulty of extracting Bitcoins (solving algorithms) becomes more difficult as more Bitcoins appear, and the maximum amount in circulation is at the level of 21 million. The limit will not be reached until about 2140. This makes Bitcoins more valuable as more people use them.
- A public book called ‘Blockchain’ records all Bitcoin transactions and shows the proper ownership of each Bitcoin holder. Anyone can access the general ledger to check transactions. This makes the digital currency more transparent and predictable. More importantly, transparency prevents fraud and double spending of the same Bitcoins.
- Digital currency can be obtained through Bitcoin mining or Bitcoin exchange.
- Digital currency is accepted by a limited number of merchants on the web and in some brick-and-mortar saw shops.
- Bitcoin wallets (similar to PayPal accounts) are used to store Bitcoins, private keys and public addresses, and to transfer Bitcoin anonymously between users.
- Bitcoins are not insured and are not protected by government agencies. Thus, hidden keys cannot be recovered if they 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 cannot be recovered and can be withdrawn from circulation. Visit this link for a question about Bitcoins.
I believe that Bitcoin will be more accepted by the public because users can remain anonymous when buying goods and services online, transaction fees are much lower than credit card payment networks; the public book can be accessed by anyone, it can be used to prevent fraud; The supply of foreign exchange is at the level of 21 million and the payment network is managed by users and miners instead of a central authority.
However, I don’t think it’s a great investment tool because it’s extremely volatile and not very stable. For example, the price of bitcoin rose from about $ 14 to $ 1,200 this year before falling to $ 632 per BTC at the time of writing.
Bitcoin has risen this year as investors have predicted that the currency will be more widely accepted and will rise in price. The currency fell 50 percent in December as BTC China (China’s largest Bitcoin operator) said it could not accept new deposits due to government regulations. According to Bloomberg, the Central Bank of China has banned financial institutions and payment companies from engaging in bitcoin transactions.
Bitcoin will be accepted by more and more people over time, but its price is extremely volatile and the currency is very sensitive to news such as government regulations and restrictions that could have a negative impact.
Therefore, I do not offer investors to invest in Bitcoins unless they are bought for less than $ 10 per BTC, as this will allow a larger safety margin.
Otherwise, I believe it is better to invest in stocks where major companies have intrinsic values and a stronger foundation because they are more predictable, as well as larger business prospects and management teams.
Disclosure: Victor Liang has no position in Bitcoins and does not plan to change his position in the next 72 hours.