For non-financey types, the concept of Bitcoin can be daunting. Just when we were wrapping our heads around variable interest rates and term deposits, they go and create a whole new digital currency.
But with or without our approval, Bitcoin has become a thing, and for those who jumped on it early, a very profitable one.
To give you an idea of how far it’s come, in 2010 the bitcoin price was about 1.5 US cents.
Let’s all spare a moment for the guy who bought $25 worth, threw away his hard drive and then realised as of this month he essentially threw out $7.6 million. Ouch.
What is Bitcoin?
First of all, let’s start with the basics.
As defined by CoinDesk, “Bitcoin is a form of digital currency, created and held electronically.”
“No one controls it. Bitcoins aren’t printed, like dollars or euros, they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.”
Bitcoin is traded digitally, but that’s not what’s new or exciting about it. Where it stands apart is due to the fact it’s decentralised, meaning it isn’t controlled by any one institution.
Instead, it relies on a peer-to-peer structure, by a community of people that anyone can join.
These peoples are called ‘miners‘ and they use computing power to verify bitcoin transactions. As an incentive, every time they verify a block of transactions, they get bitcoin as well.
Who invented it?
Bitcoin was invented by Satoshi Nakamoto in 2008, but it didn’t go online until 2009. Also, because it’s the internet and anything can happen, Nakamoto’s actual identity has never been able to be confirmed.
Interestingly, Australian Craig Wright has claimed he is the true Bitcoin founder, though he has failed to provide sufficient proof.
Can Bitcoin make me money?
Ah. The million dollar question.
As we’ve covered before, if you bought some bitcoin when it first started and was trading at a measly couple of cents, you probably would be sitting on a yacht right now being fanned with a palm frond and not reading this article.
But millionaire status doesn’t only happen for those who invested at the very beginning. One Idaho teenager invested $1000 in Bitcoin just three years ago and now has over a million dollars.
But what about investing now?
It’s important to note there is a limit for how many bitcoins can be created, with a maximum amount of 21 million.
However even with this cap, there won’t ever be the full amount in circulation, as some unlucky people have lost their keys along the way.
According to Quora, “As of June 1st, 2017 there were 16,366,275 BTC out of a total 21,000,000 BTC in theoretical supply, which has yet to be mined“.
So, just as there is only so much gold to be mined in the world, there is only so much bitcoin, too. And the important thing to note is there’s still some left.
“Buying Bitcoin now is not too late,” CEO of digital currency management company Bron.Tech, Emma Poposka told HuffPost Australia.
“If we see full adoption in the future, or mainstream adoption, the price still has to go up in value because we have a limited supply.”
If you’re thinking, ‘But can’t they just make more bitcoin?’ that’s the beauty of the currency not being controlled by a single institution.
In order to change the protocol surrounding Bitcoin, every miner needs to vote on the decision.
Now, don’t forget miners are paid in bitcoin for their services, so why would they vote to decrease the value of their own assets?
Other digital currency
With all the hype surrounding Bitcoin, it’s easy to forget it’s not even the only digital currency out there. The reason it’s the most famous is because it’s the first of its kind, but it’s not alone.
“Bitcoin is not the only currency today which is valuable to — I wouldn’t say invest, I don’t like the term — but to buy or hold,” Poposka said. “There are other currencies as well.”
“So according to your idealistic views of the world or what you personally think is right, you can buy or hold or trade [whichever currency] you think is [promising].”
“So now we have Bitcoin, and the biggest rival of Bitcoin is ethereum.”
“My company as a company has a native currency The Bron, which is another currency people can buy, hold and trade.”
“It’s backed by an asset which we think in the digital world is valuable, which is data.”
“Bitcoin is the most popular because it’s the oldest.”
Digital currency may not be mainstream just yet, but there’s plenty of arguments to say it’s not going anywhere soon. Should you invest in Bitcoin before it maxes out at 21 million?
Maybe. Both Lim and Poposka think there is potentially money still to be made.
But should you take out a second mortgage? Perhaps not.
“What I tell to my friends and myself and my colleagues is yes, people should start experimenting and buying small amounts of Bitcoin. You don’t even need to buy an entire bitcoin — you can buy part of one for $10,” Poposka said.
“It’s an interesting technology and I think it’s worthwhile to buy small amounts you can play with and learn from”
“But I would never recommending seriously investing in something you don’t understand — and that applies to everything, real estate or stocks or Bitcoin.”
“I’d be more inclined to pay $50 for small portfolio of cryptocurrency and play with it. If everything fails you will lose $50 and that’s nothing.”
“Then if you learn enough and get excited by the technology, you can decide whether to buy more.”
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