Bitcoin (BTC) is a new kind of digital currency-with cryptographic keys-that is decentralized to a network of computers employed by users and miners all over the world and is not controlled by the single organization or government. Oahu is the first digital cryptocurrency which has gained the public’s attention and it is accepted by a growing variety of merchants. Like other currencies, users are able to use the digital currency to acquire goods and services online along with some physical stores that accept it a form of payment. Currency traders can also trade Bitcoins in Bitcoin exchanges.
There are numerous major differences between Bitcoin and traditional currencies (e.g. U.S. dollar):
– Bitcoin won’t have a centralized authority or clearing house (e.g. government, central bank, MasterCard or Visa network). The peer-to-peer payment network is managed by users and miners around the world. The currency is anonymously transferred directly between users through the internet without going through a clearing house. Which means that transaction fees less difficult lower.
– Bitcoin is created by having a process called “Bitcoin mining”. Miners around the globe use mining software and computers to resolve complex bitcoin algorithms and also to approve Bitcoin transactions. They may be awarded with transaction fees and new Bitcoins produced by solving Bitcoin algorithms.
– There is a limited amount of Bitcoins in circulation. According to Blockchain, there were about 12.A million in circulation as of Dec. 20, 2013. The problem to mine Bitcoins (solve algorithms) becomes harder as increasing numbers of Bitcoins are generated, and also the maximum amount in circulation is capped at 21 million. The limit are not reached until approximately the entire year 2140. This makes Bitcoins more valuable as increasing numbers of people use them.
– A public ledger called ‘Blockchain’ records all Bitcoin transactions and shows each Bitcoin owner’s respective holdings. Now you may access the public ledger to make sure that transactions. This makes a digital currency more transparent and predictable. More to the point, the transparency prevents fraud and double spending of the same Bitcoins.
– The digital currency can be had through Bitcoin mining or Bitcoin exchanges.
– The digital currency is accepted with a limited number of merchants on the internet in some brick-and-mortar retailers.
– Bitcoin wallets (similar to PayPal accounts) can be used storing Bitcoins, private keys and public addresses and then for anonymously transferring Bitcoins between users.
– Bitcoins usually are not insured and are not protected by government agencies. Hence, they won’t be recovered if your secret keys are stolen with a hacker or lost to a failed hard drive, or due to the closure of a Bitcoin exchange. In the event the secret keys are lost, the associated Bitcoins can not be recovered and would be out of circulation. Visit this link with an FAQ on Bitcoins.
I believe that Bitcoin will gain more acceptance in the public because users can remain anonymous while buying products and services online, transactions fees less difficult lower than credit card payment networks; the general public ledger is accessible by anyone, which can be used to prevent fraud; the currency supply is capped at 21 million, as well as the payment network is operated by users and miners rather than a central authority.
However, I don’t think that it is a great investment vehicle since it is extremely volatile and is not very stable. For instance, the bitcoin price grew from around $14 to a peak of $1,200 USD this coming year before dropping to $632 per BTC at the time of writing.
Bitcoin surged in 2010 because investors speculated how the currency would gain wider acceptance which would increase in price. The currency plunged 50% in December because BTC China (China’s largest Bitcoin operator) announced that it could no longer accept new deposits as a result of government regulations. And based on Bloomberg, the Chinese central bank barred loan companies and payment companies from handling bitcoin transactions.
Bitcoin will likely gain more public acceptance with time, but its price is extremely volatile and very sensitive to news-such as government regulations and restrictions-that could negatively impact the currency.
Therefore, I wouldn’t suggest investors to purchase Bitcoins unless they were bought at a less than $10 USD per BTC since this would allow for a much larger margin of safety.
Otherwise, I have faith that it is much better to buy stocks that have strong fundamentals, as well as great business prospects and management teams because the underlying companies have intrinsic values and are more predictable.