If you had invested $1,000 in Bitcoin in 2009, your investment would be worth $99 billion today. What makes a 15-year return like this possible in the world of currencies?
The first cryptocurrency introduced to the public, Bitcoin was intended to be used as a form of payment outside of federally issued forms of currency. Since its introduction in 2009, Bitcoin’s popularity has surged and it has even become a form of official currency in a few countries.
What exactly is Bitcoin? We hear the name thrown around all the time, in spam emails, on the news, on social media and in the stock market. So what exactly is this relatively new currency and what does it have to offer us?
Bitcoin is a cryptocurrency that has gained a large global following since its creation because of its wild price swings and surging value, influenced directly by the demand for it. The price goes up when demand goes up, and prices fall when demand goes down.
Bitcoin is one of the most popular types of cryptocurrencies, which are digital mediums of exchange that exist solely online. Bitcoin runs on a decentralized computer network that tracks transactions of the currency. When computers on the network verify and process transactions, new Bitcoins are created, or mined. These networked computers, or miners, process the transaction in exchange for a payment in Bitcoin.
Bitcoin is powered by blockchain technology, which powers many cryptocurrencies. A blockchain is a decentralized ledger of all the transactions across a network. Groups of approved transactions together form a block and are joined to create a chain. Think of it as a long public record that functions almost like a running receipt. Bitcoin mining is the process of adding a block to the chain.
In order to successfully add a block, Bitcoin miners compete to solve extremely complex math problems that require the use of expensive computers and enormous amounts of electricity, and the difficulty only increases as more miners join the network.
If a miner is able to successfully add a block to the blockchain, they will receive 3.125 Bitcoins as a reward. The reward amount is cut in half roughly every four years, or every 210,000 blocks.
Bitcoin, among other cryptocurrencies, has become very popular as a method of transaction because of its anonymity.
Cryptocurrencies are not regulated by any governments. Instead, they are decentralized networks based on blockchain technology, granting them immunity from government interference and making the currency’s value equal across all countries.
Bitcoin, or any other cryptocurrency, is obtained through cryptocurrency exchanges where you can wire money from your bank account to a virtual wallet. As a digital currency, there is no way to track or identify who is sending or receiving Bitcoin and no limit to the amount of money you can transfer to accounts, hence the large following of scammers using cryptocurrencies as a way to scam people with no way of tracing it back to them.
So what are the risks of using cryptocurrency? Cryptocurrencies are still relatively new, and the market for these digital currencies is very volatile. Since cryptocurrencies don’t need banks or any other third party to regulate them, they tend to be uninsured and are hard to convert into a form of tangible currency such as U.S. dollars or euros. In addition, since cryptocurrencies are technology-based intangible assets, they can be hacked like any other intangible technology asset. Finally, since you store your cryptocurrencies in a digital wallet, if you lose access to your wallet, you have lost your entire cryptocurrency investment.
But these risks have not deterred many. As of right now there are 13,217 cryptocurrencies in existence and 420 million cryptocurrency users across the globe.
Although crypto as a form of currency may not seem beneficial to Americans and our economy, in other countries that suffer from high inflation and volatile economies, crypto could prove to be not only a viable but advantageous solution. Many countries are even offering tax breaks or not taxing crypto income at all to promote its usage.
As for us in the United States, it is important to stay updated on crypto with the rise of a pro-crypto treasury and TrumpCoin, president-elect Donald Trump’s cryptocurrency. The value of cryptocurrencies, like Bitcoin, could experience a large boom and our interaction with crypto as a form of currency could forever be changed in the near future.
