At this point in time, we all have heard of Bitcoin. For most, it’s something that they have a surface-level idea of, while there are quite a few that know all the ins and outs of the system. Simply put, Bitcoin is a new, radical way of creating, acquiring, and distributing money. Investing in Bitcoin can make a difference in your portfolio.
In more than ten years since its inception, Bitcoin has become the topic of praise and criticism. The accolades always come from those who gained from the system, while the less than glowing recommendations are from those who genuinely have a working knowledge of current financial situations. In this article, we’re looking into Bitcoin and its future, and how it can be the future of all things finance:
A small refresher
In 2009, Bitcoin was released by a person, or as later widely-theorized, a group of people, who since identified themselves as Satoshi Nakamoto. It was invented a year before, having been a project that only a few were privy of. The first version of Bitcoin was open-source software, with the first block opened by Nakamoto. In the years to follow, the future of bitcoin was molded by several internal and external factors.
This first “block” was named “block number 0” which, in turn, had a reward of 50 bitcoins. Satoshi Nakamoto authored the system’s white paper, as is the first version of the reference implementation. After the genesis block was created, the first client became available. Programmer Hal Finney was the first person to download the open-source Bitcoin software. For this milestone, Finney was rewarded by Nakamoto with 10 bitcoins.
In the early days of Bitcoin, mining was reportedly easy. Nakamoto was alleged to have mined at least a billion bitcoin before stepping out of the community. Before disappearing, Nakamoto handed over further development to developer Gavin Andresen. The Bitcoin Foundation, for all intents and purposes, is the only semblance of a public “face” for Bitcoin.
So what is Bitcoin? The short answer to that is it is a cryptocurrency. It’s a form of digital currency, decentralized in structure and nature, without an administrator. Bitcoin is essentially the reward for the mining process that users do.
This digital currency can be sent from a peer-to-peer network. Compared to the current financial system, Bitcoin’s structure lends itself to more volatility. Transactions aren’t regulated but verified by network nodes through cryptography.
Every transaction that happens in the network, whether it’s mining, transfer, exchange, etc. is recorded in a public distributed ledger. This is called the blockchain. As of writing, there are at least 3,000 cryptocurrencies in the world. These are further classified into three categories: Bitcoin, altcoins, and tokens.
With all of this information, one may ask: what’s the end game for Bitcoin mining? Every Bitcoin that is in possession can be exchanged for other currencies, physical and digital products as well as services, among others. One bitcoin is estimated to exchange at least $16,000, but rates can be unstable. The highest recorded price of the cryptocurrency is $19,783.
What do you have to gain?
One of the most attractive benefits of Bitcoin is that it’s versatile. More and more merchants, banks, and other service providers are acknowledging Bitcoin’s inherent value. Since the system is decentralized, your mined Bitcoin is yours, and will not be value-controlled by a group of people like central banking institutions or national and federal governments.
User anonymity is also a hallmark of Bitcoin mining and trading. The source code to which Bitcoin is mined has top-notch privacy protection. The recording of the public ledger only identifies the activity that transpired, without ever recording the people involved, their locations, and other relevant data.
What’s the future of Bitcoin?
Bitcoin’s future looks rosy. Aside from major criticisms and reservations from top finance analysts, CEOs, and experts, the idea of a decentralized currency is too attractive to pass up. Since its inception, Bitcoin has had some ups and downs. Its volatility remains its biggest downfall, but it also makes the currency exciting. The risk-reward system that’s in place when someone wants to invest in it could take some time to chew through.
Although there is quite a list of merchants nowadays that has adopted Bitcoin and all of its equivalents as real money, there still isn’t a universal adoption of it like credit and debit cards do. Microsoft only allows Bitcoin transactions through its Xbox Store, but Twitch, the streaming service, allows Bitcoin payments for all user subscriptions. On the retail side of things, several major name brands have also started to set up Bitcoin payments like Starbucks, Bed Bath and Beyond, Whole Foods, and Home Depot.
There is still an uphill battle when it comes to Bitcoin mass adoption. Most vital in its assimilation is user-friendliness. Most people want the advantages a cryptocurrency affords, and are keen on the benefits, but the process of mining, for the uninitiated, can be daunting. Paying for goods and services is the main thing that’s needed to create mass adoption for Bitcoin.
Another setback that’s making the adoption harder is regulation. Since Bitcoin is decentralized, lawmakers don’t know how to approach it. Countries like Japan and South Korea are making waves through clear regulations, but the rest of the world doesn’t seem to be making progress. To make Bitcoin a regular asset, there needs to be a clear system framework.
A speculative bubble
Most dissent against Bitcoin use is based on the fact that it can be considered as a “speculative bubble”. Several Nobel laureates have agreed and deemed the current system as flawed, with a real and existing problem for illegal transactions. A speculative bubble, or in layman’s terms, a market bubble, happens when the price of an asset is based on inconsistent factors. In this case, Bitcoin is the asset–it’s volatile and there are no clear guidelines, so there is no certainty that can be gleaned from it.
Takeaway
There you have it. The future of Bitcoin is promising, but the risks are present as well. If you want to invest in it, make sure to do all due research. If you are already mining, cutting your possible losses is key.
