Cryptocurrencies and Bitcoin have inspired many investors over the last eight years (Bitcoin started in 2009). In fact, the value of a bitcoin has increased 1,627% year-to-date as of writing on 12/13/17. Obviously, this has many of us pondering whether to invest. Part of that decision requires understanding what is a bitcoin.
A bitcoin is a unit of currency, created online, that can be traded internationally. There is no intrinsic value in a bitcoin and anybody can create one, provided they spend the time and energy to code the algorithm. Since only so many people are creating bitcoins, the supply is limited and people are currently willing to pay $16,725 for one.
The blockchain is an online record of all transactions made among bitcoins. This means each bitcoin carries a history of every transaction made with it. Although some people doubt the value of bitcoin, nobody questions that blockchain has tremendous applications including medical records, property titles, and financial transactions.
I mentioned earlier that there is no intrinsic value in a bitcoin, but the market value is set by how much people are willing to pay. As a normal consumer, we can’t buy much with bitcoin and that makes it worthless for a lot of people. Some people, those who are buying bitcoins, think bitcoin will eventually be universally accepted and will be worth a lot more. Currently, most bitcoin transactions occur through the black market which is another reason the public questions its legitimacy.
Good news came for bitcoin believers on November 30th when PwC Hong Kong accepted bitcoin as payment for advisory services. This legitimizes the cryptocurrency and might be a sign for the future. We’ll have to see how things play out in the coming years. There are a lot of arguments for both sides of the argument but at the end of that day, that’s case for every trade an investor makes.