Bitcoin has been stealing news headlines all over the world on the strength of its monumental growth in value. At the end of 2016 Bitcoins were worth $750. By May 2017 they were trading at $2,000. As at the end of September they were trading at over $4,000. Of course, they are volatile and there have been ups and downs – but the trend has clearly been toward stratospheric growth in value.
So what exactly are Bitcoins and what other types of this sort of investment are there on the market?
Bitcoins are what is know as a form of Cryptocurrency. They are now controlled by the banking system, nor are they subject to the control of any government. they are not printed and exist only virtually – yet they have value and can be used to conduct transactions over the Internet.
The value of Bitcoins is based on a number of issues. Firstly the users of Bitcoins are anonymous. The importance of this cannot be overstated. In a world where online retailing is increasingly the shopping method of choice for a growing number of people, credit cards and debit cards are simply not secure enough. The increasing numbers of hackers who are using online transactions and insecure storage to obtain personal details of shoppers is increasing. Bit due to the way it is structured by and large does away with this threat.
Cryptocurrency is based on a decentralized system. Users all over the world participate in transactions. The information on all Bitcoins held is stored on thousands of computers. Information on each user is obscured. The system itself uses a public ledger called a Blockchain to store and manage all this information. This means that the system itself is tremendously robust. even if a large number of computers go down – the Blockchain is still maintained.
There is also the question of fees. Unlike traditional banking institutions Bitcoin transactions are by and large fee-free. International transactions do not attract the sometimes exorbitant fees that are charged by banks.
The transactions themselves are fast – almost instantaneous. There are simply no waits for financial institutions to clear funds.
For online merchants, the structure of Bitcoins holds immense attraction due to the fact that once a Bitcoin transaction occurs it is done. It cannot be undone. Many merchants suffer significant losses when clients pay with credit and debit cards then raise an objection with their bank and have the transaction overturned. With Bitcoin, this risk is significantly lowered.
And the way that Bitcoin – the most valuable cryptocurrency is structured there only ever going to be 21 million coins ever produced. That increases value and makes them immune from inflationary pressures, another very attractive aspect to investing.
Users with significant amounts of processing power at their disposal can also create Bitcoins and other cryptocurrencies by ‘mining’, using their computers to solve extremely complex algorithmic problems which then results in the production of cryptocurrency. Coins can also be purchased from specialized brokers and stored in what are called ‘cryptographic wallets’ either online or on real-world hardware.
There are a number of cryptocurrencies currently available.
there is Bitcoin, the most valuable of the cryptocurrencies, followed in decreasing order of value by Ethereum, Ripple, and Litecoin. Most of these share similar attributes – however, most do share in the Blockchain system and a distributed ledger system. Some may have other attributes that would be attractive to individual investors.
there can be no question that cryptocurrency is still in its infancy and like any technology has possible risks for the investor. However, it does seem to be a system of currency that has certain inherent strengths that make it extremely resistant to negative market forces and interference by banking systems and government. The can also be no question that it is far more secure than traditional payment methods which are used for the majority of transactions that take place online.
These attributes and the sheer growth in the value (as well increasing numbers of merchants accepting the currencies) make it an extremely attractive option for those who want the opportunity to turn relatively small investments into large paydays. The return on investment – if all goes well is something that cannot be ignored.