Your Easy Guide
We are really getting into it now.
We've already knocked off what the blockchain is, and covered in a bit more depth the wonderful world of cryptocurrency. So what's next?
Well, how about something we've already touched upon quite a bit in this series? Bitcoin itself.
If cryptocurrencies are vehicles driving wealth and flexibility for their users, well then Bitcoin is Mercedes-Benz.
• It was there before the rest.
• It is arguably the most famous.
• And it performs better than most.
Just like a Mercedes-Benz!
Note that we said "better than most" here. Bitcoin is a superstar in the world of crypto, but it's not necessarily the best choice for investors.
But before we get into this thorny question, let's begin with the basics. What is Bitcoin?
What is Bitcoin exactly?
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Bitcoin is a cryptocurrency.
You know this already.
Bitcoin is probably the best-known cryptocurrency around.
You know this already, too. In fact, this is probably why you are here.
Bitcoin is a blockchain-based cryptocurrency that was the first of its kind, and has provided that blueprint for most cryptocurrencies that have come since.
This is more like it. Let's examine this a bit further.
Quick must-know facts about Bitcoin
Bitcoin is the name of the network.
Bitcoin is also the name of the coin that is traded on the network – although this may be represented in the form BTC.
Transactions on the network are written into blocks that are then added to the chain – this is where the blockchain first appeared.
Blocks are added to the chain by nodes, which are computing devices owned by users. These devices are connected to the network.
The nodes write blocks to the chain in a process known as mining. When one block is complete, it is added to the chain, and a copy of the chain is stored in all active user nodes.
This copy is used to create consensus within the network about what the chain should look like. This, in turn, means the chain cannot be corrupted or co-opted.
Bitcoin uses the proof-of-work system. When a node mines a block, it completes a complex mathematical equation that "proves" to the network that the work has been done. Then, a percentage reward is delivered to the user in the form of BTC.
The proof-of-work system makes the network completely self-sustaining.
That was a bit of a whirlwind, but these eight facts give you a nice foundation into exactly what the Bitcoin network offers and an insight into why it is such a revolutionary bit of digital engineering. Have you ever heard someone stumble over their words at a party in response to the question "so what exactly is Bitcoin?" Well that someone ain't you!
What is the history of Bitcoin?
Considering how cutting-edge Bitcoin is considered to be, it's actually pretty old. You'd have to cast your mind back to the heady days of 2008 to reach the beginning of the story. Twelve years is a long time in tech, so it's impressive just how ahead of its time Bitcoin really was.
The story begins with a man. Or perhaps a woman. Or maybe a group of men and women acting under a collective name. Truth be told, no one is quite sure who, or what, Satoshi Nakamoto really is. Regardless, it was this name that sat at the head of the revolutionary essay, Bitcoin: A Peer to Peer Electronic Cash System, which was released in October of 2008.
Only a few months later, as 2009 rolled around, the 0.1. version of the network and currency was launched. Not long after, the first transactions were carried out, and the rest – as they say – is history.
But a load of boffins sitting at their computers does not a cryptocurrency make. Instead, the Average Joe and Josephine in the street have to be aware of its power and its potential. Well, they wouldn't have to wait long. Soon, the media was awash with stories of this exciting new currency, and the value of Bitcoin began to soar. Less than a decade later, the value of one Bitcoin was pushing $3,000. That's quite an increase, especially when you consider you could get over 1,300 BTC for a single dollar back in 2009.
So the term "Bitcoin Billionaire," in only a few years, went from being a snappy bit of tech speak to being a very real proposition indeed. Those who had the foresight to invest in Bitcoin in those early days were able to cash in their moderate stakes for vast sums of fiat currency.
And therein lies both the wonder of Bitcoin and the issue with the currency. As human beings, we naturally like our currency to be stable. Enormous explosions of value are exciting, but they are reminiscent of the booms and busts of past economic disasters. A currency that is growing in value exponentially is surely too good to be true, at least in the eyes of the general public.
Factor in the shady beginnings of the network, the fact that it is still not broadly understood by many people, and its lack of anchorage to "real world" assets, and it is easy to see where this lack of trust has stemmed from.
But maybe this is unfair. After all, the galloping value of the currency was driven on by speculators and curious investors. With a stabilized value and more widely understood real-world applications, the best years of Bitcoin could still be ahead.
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As of April 4, 2020, the price of a single Bitcoin was over $6,700, and continued to fluctuate. Its 24-hour range at this point was $6,630 to $7,000. And yet this high price was not the highest the currency had been valued in recent memory. Nine months earlier, in July of 2019, the currency was trading hands for over $11,000. And, only two months earlier in 2020, it had pushed north of $10,000.
In the weeks leading up to this date, the value of the coin has been steadily increasing, after a sudden drop in early March, and the year-on-year value is more or less stable. But these wild fluctuations do not instill confidence in everyday users, and the extremely high price of Bitcoin makes it unsuitable for groundfloor investors.
So, what exactly is Bitcoin's function today?
There were 18.3 million Bitcoins in circulation at the beginning of April 2020, representing a total market capitalization (the combined value of all available coins in the network) of $123.31 billion. In order to maintain the value of the currency, the supply of coins is limited, and the current circulation is 87 percent of the total Bitcoin supply,
Of course, these BTC units are not, in many cases, just sitting in users' wallets. Instead, they are being used for transactions, which are then written into the blockchain and recorded as discussed earlier on. And these transactions are perhaps more common than you might think.
For example, by the end of 2019, there were over 42 million bitcoin wallets around the globe. That's a lot of interest, but it's misleading. This is because the average user has more than one wallet, and not all of these wallets are active. To get a better picture of the current level of activity, there are over 7.1 million active users on the Bitcoin network, and around 5 percent of Americans are believed to have invested in Bitcoin.
It is also estimated that there may be millions of active users in emerging markets, adding to this global total. South American markets in Brazil, Colombia, and Venezuela are seeing significant rises in active use levels, while currency exchanges in South Africa and other locations across that continent are seeing similar upticks in activity.
Has Bitcoin finally become what it was intended to be? A truly global peer-to-peer trading network? Well, not quite, but it's on its way.
Bitcoin as a viable investment
The percentage of people who are actively using Bitcoins for transactional purposes is increasing. But this number is still outweighed by the percentage of users who are speculating on the currency's value. As of August 2018, these figures sat at 2.3 million and 4.8 million, respectively, or 11 percent and 23 percent of active users.
Increasing numbers of active users is undoubtedly good news, but it's not the be-all and end-all of a cryptocurrency. Such networks still need speculative investors to drive value, all of which begs the question, "Is Bitcoin still a good choice for investment?"
The currency's Weiss Rating of B+ would seem to indicate so. This rating gives information to investors regarding the comparative safety and risk factors of their investments. However, to pick up a significant stake of Bitcoin, you are going to have to go big on your initial investment – like, tens of thousands of dollars, big.
So, Bitcoin is a good choice for investment, but there may be better options out there.
Currency exchanges are awash with exciting currencies, which are priced far lower than BTC. Do your research, shop around, invest in Bitcoin if you like, but don't ignore the alternatives.
Find out more about Bitcoin and other cryptocurrencies at www.dweb.info