Bitcoin: All It's Hyped Around Be?

What makes Bitcoin so valuable is that there's a finite amount in existence. There will only ever be a maximum of 21 million Bitcoins and unlike normal fiat currencies you can't just print more of these whenever you feel like. This is because Bitcoin runs on a proof work protocol: to be able to create it, you have to mine it using computer processing power to resolve complex algorithms on the Bitcoin blockchain. Once this really is achieved, you are rewarded with Bitcoin as payment for the "work" you have done. Unfortunately the reward you obtain for mining has decreased drastically almost every year since Bitcoin's inception, which means that for many people the sole viable way to obtain Bitcoin is buying it on an exchange. At the existing price levels is a risk worth taking?

Many believe Bitcoin is just a bubble. I spoke to cryptocurrency expert and long haul investor Duke Randal who thinks the asset is overvalued, "I would compare this to many supply and demand bubbles over history such as for example Dutch Tulip Mania and the dot com bubble of the late 90s. Prices are purely speculation based, and when you look at Bitcoin's functionality as an actual currency it is practically embarrassing." For individuals who don't know, the dot com bubble was an interval between 1997-2001 where many internet companies were founded and given outrageously optimistic valuations based purely on speculation that later plummeted 80-90% as the bubble started initially to collapse in the first 2000s. Some companies such as for example eBay and Amazon, recovered and now sit far above those valuations however for others it had been the end of the line.

Bitcoin was originally created to be able to take power far from our financial systems and put people in control of their very own money, reducing the middle man and enabling peer to peer transactions. However, it is now one of the slowest cryptocurrencies on the market, its transaction speed is four times slower than the fifth biggest cryptocurrency and its nearest competitor for payment solutions Litecoin. Untraceable privacy coin Monero makes transactions even quicker, boasting an average block time of just two minutes, a fifth of that time period Bitcoin can take action in, and that's without anonymity. The world's second biggest cryptocurrency, Ethereum, already has a higher transaction volume than Bitcoin despite being valued of them costing only $676 dollars per Ether in comparison to Bitcoin's $16,726 per Bitcoin.

So why is Bitcoin's value so high? I asked Duke Randal the exact same question. "It all dates back to the exact same supply and demand economics, relatively there is not greatly Bitcoin available and its recent surge in price has attracted a lot of media attention, this combined with the launch of Bitcoin futures which many see as the very first sign Bitcoin has been accepted by the mass market, has led to a lot of people jumping on the bandwagon for financial gain. Like any asset, when there is an increased demand to get than to offer, the purchase price goes up. This is bad because these new investors are entering industry without understanding blockchain and the underlying principles of those currencies meaning they will probably get burnt ".

Another reason is that Bitcoin is extremely volatile, it's been proven to swing up or down tens of thousands of dollars in under a moment which if you should be not used to nor expecting it, causes less experienced investors to panic sell, resulting in a loss. This is still another reason Bitcoin will struggle to be adopted as a form of payment. That's why a method i.e. Bitcoin QR Code must be utilized. The Bitcoin price can move substantially between the time vendors accept Bitcoin from customers and sell it onto exchanges for his or her local currency. This erratic movement can eliminate their entire profitability. Will this instability disappear anytime soon?

Improbable: Bitcoin is a relatively new asset class and although awareness is increasing, only a tiny percentage of the world's population hold Bitcoin. Until it becomes more widely distributed and its liquidity improves significantly, the volatility will continue.

So if Bitcoin is pretty useless as an actual currency, what're its applications? Many believe Bitcoin has managed to move on from being a feasible type of payment to learning to be a store of value. Bitcoin is like "digital gold" and only will be properly used as a benchmark for other cryptocurrencies and blockchain projects to be measured against and traded for. Recently there were stories of men and women in high inflation countries such as for example Zimbabwe buying Bitcoin to be able to keep what wealth they've rather than see its value decline under the recklessness of its central banking system.

Can it be too late to try Bitcoin? If you believe in what these cryptocurrencies will do for the entire world then it is never too late to obtain involved, but with the cost of Bitcoin being so high could it be a vessel for some that has already sailed. You might be better off having a look at Litecoin, up 6908% for the entire year or Ethereum which will be up an unbelievable 7521% for the year. These newer, faster currencies hope to achieve what Bitcoin first attempt to do back its inception in 2009 and replace government run fiat currencies.