Now We Dont Have Mass Adoption Yet But With Regulation Being Clarified Rapidly
#7 Bitcoin Offers Potential Profits
After its creation in 2009, the Bitcoin price has been on a parabolic uptrend.
Yes, there have been dips, peaks, and valleys, but zooming out we see a clear uptrend. That has pushed its price from less than $0.01 to where it is today.
A $50 investment in 2009 would have netted you $100 Million at Bitcoins peak in 2017.
Even people who bought at the peak of $200 in 2011 and the peak of $1400 in 2013 would still be well in profit if they didnt panic sell — but held onto their BTC.
After all, if you own a home and housing prices go down, you dont panic sell your home. You know that in 10-20 years the price is bound to have gone up. Its the same with Bitcoin.
So, should you invest in Bitcoin? If you intend to hold it for as long as a home, then yes, why not?
#8 Bitcoin inspires philosophical choices
For some investors, the question should I buy Bitcoin? is less about the price action and more about the ethos behind Bitcoin. For these people, Bitcoin is a movement.
The fundamentals of Bitcoin mean so much more:
- Transparency means less government big brother control and oversight.
- Immutability means no fudging the books or shady business since transactions cant be changed.
The early adopters of Bitcoin were not drug dealers or money launderers. They were visionaries and philosophers. They wanted financial liberty.
#9 Bitcoin is an excellent alternative to gold
#10 Bitcoin is a new asset class – Great for diversification.
Can Bitcoin Be Converted To Cash
Bitcoin can be exchanged for cash just like any asset. There are numerous cryptocurrency exchanges online where people can do this but transactions can also be carried out in person or over any communications platform, allowing even small businesses to accept bitcoin. There is no official mechanism built into bitcoin to convert to another currency.
Nothing inherently valuable underpins the bitcoin network. But this is true for many of the worlds most stable national currencies since leaving the gold standard, such as the US dollar and UK pound.
How Does Mining Help Secure Bitcoin
Mining creates the equivalent of a competitive lottery that makes it very difficult for anyone to consecutively add new blocks of transactions into the block chain. This protects the neutrality of the network by preventing any individual from gaining the power to block certain transactions. This also prevents any individual from replacing parts of the block chain to roll back their own spends, which could be used to defraud other users. Mining makes it exponentially more difficult to reverse a past transaction by requiring the rewriting of all blocks following this transaction.
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It Has A Utility Problem
The king of cryptocurrencies also has a utility problem. To date, only 18.51 million bitcoin tokens are in circulation, with an estimated 40% of these held by small group of investors. Even considering the fact that fractional token ownership exists, roughly 10 million to 11 million tokens in circulation aren’t going to go very far. For context, global gross domestic product was $81 trillion in 2017. Meanwhile, bitcoin has approximately $114 billion to $125 billion in tokens freely circulating and not held tight by investors. There’s minimal utility here.
What About Bitcoin And Consumer Protection
Bitcoin is freeing people to transact on their own terms. Each user can send and receive payments in a similar way to cash but they can also take part in more complex contracts. Multiple signatures allow a transaction to be accepted by the network only if a certain number of a defined group of persons agree to sign the transaction. This allows innovative dispute mediation services to be developed in the future. Such services could allow a third party to approve or reject a transaction in case of disagreement between the other parties without having control on their money. As opposed to cash and other payment methods, Bitcoin always leaves a public proof that a transaction did take place, which can potentially be used in a recourse against businesses with fraudulent practices.
It is also worth noting that while merchants usually depend on their public reputation to remain in business and pay their employees, they don’t have access to the same level of information when dealing with new consumers. The way Bitcoin works allows both individuals and businesses to be protected against fraudulent chargebacks while giving the choice to the consumer to ask for more protection when they are not willing to trust a particular merchant.
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How Much Could One Bitcoin Be Worth
Bitcoin price predictions have run the gamut from $1 million to worthless. The truth is almost certainly somewhere in between these extremes. Bitcoin isnt likely to crash and burn now. It has become too much a part of the global financial fabric. Nor is it likely to reach $1 million any time soon, or even ever for that matter.
It isnt possible to know the future what bitcoin is concerned. There are just too many variables to accurately predict where the price might be in six months, or a year, or a decade from now.
So, we might not know how much a bitcoin will be worth in the future, but its pretty certain it will be worth something. And given the features, characteristics, and optimism over the digital currency revolution that value could well be higher than it is today.
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A Lesson From The History Of Crude Oil
Prior to the late 1800s, crude oil was mostly a nuisance. Pioneers in the American West who dug wells searching for water would sometimes find oil and be disappointed. The problem was that oil had no identified utility. On the margin, it could be used for creating asphalt, and it was often used as medicine, but mostly it was ignored. Finding oil was about as interesting as finding mud.
Things started to change when George Bissell had a breakthrough in the 1850s: He wondered whether rock oil, as it was called, could be processed and be used as an illuminant and as a lubricant for machines.
Thats how the oil industry was born: One lonely scientist figured out that a sticky, seepy, ugly liquid could be used to create light.
For the first few years, however, demand remained low, as oil had issues. One was that it stunk, as crude oil has a naturally high sulfur content. But subsequent chemical refinements like desulphurizationfunded, interestingly, by oil producers like Standard Oilcreated new uses and markets.
The story doesnt end with kerosene lamps, of course. The turn of the century saw engineers experimenting with internal combustion engines. As automobiles grew from toys to essentials, demand for oil skyrocketed. By the end of the 1920s, 85% of oil production was used toward fuels.
Future Demand, Current Value
If most of the demand is in the future, you may be thinking, why buy bitcoin now?
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So Is There Anything Truly Valuable About Bitcoin
Yes, the technology behind it.
Bitcoin is built on the blockchain, a public ledger containing all the transaction data from anyone who uses bitcoin. Transactions are added to “blocks” or the links of code that make up the chain, and each transaction must be recorded on a block.
Even bitcoin critics like Dimon have said they support the use of blockchain technology for tracking payments.
What Are The Disadvantages Of Bitcoin
- Degree of acceptance – Many people are still unaware of Bitcoin. Every day, more businesses accept bitcoins because they want the advantages of doing so, but the list remains small and still needs to grow in order to benefit from network effects.
- Volatility – The total value of bitcoins in circulation and the number of businesses using Bitcoin are still very small compared to what they could be. Therefore, relatively small events, trades, or business activities can significantly affect the price. In theory, this volatility will decrease as Bitcoin markets and the technology matures. Never before has the world seen a start-up currency, so it is truly difficult to imagine how it will play out.
- Ongoing development – Bitcoin software is still in beta with many incomplete features in active development. New tools, features, and services are being developed to make Bitcoin more secure and accessible to the masses. Some of these are still not ready for everyone. Most Bitcoin businesses are new and still offer no insurance. In general, Bitcoin is still in the process of maturing.
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Choose How You’ll Pay
While there are thousands of cryptocurrencies being traded around the world, you’ll find that the most popular options are widely available for purchase in fiat currencies such as the U.S. dollar. If you’re a first-time buyer, you’ll very likely have to use regular money to buy cryptocurrency.
If you’re a more experienced investor, you may want to trade some of your existing crypto holdings for another type of cryptocurrency for instance Bitcoin for Ethereum.
Fraud/theft Is A Serious Issue
By no means are cryptocurrencies the only asset to be hacked by thieves, but there are serious fraud and theft concerns that accompany bitcoin. For instance, novice bitcoin investors may not understand the need to store their tokens in a digital wallet, thereby leaving them susceptible to theft by hackers.
Additionally, it’s been hypothesized by numerous blogs and publications that North Korea has turned to bitcoin mining and theft to funnel money into its isolated economy. Bitcoin is commonly viewed as the “currency” of choice for criminal organizations.
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The Value Of Digital Currencies
Any discussion about the value of Bitcoin must address the nature of currency. Gold was useful as currency due to its inherent physical attributes, but it was also cumbersome. Paper money was an improvement, but it requires manufacturing and storage and lacks the mobility of digital currencies. The digital evolution of money has moved away from physical attributes, and towards more functional characteristics.
Here’s an example. During the financial crisis, Ben Bernanke, who was then the governor of the Federal Reserve, appeared on CBS’60 Minutes and explained how the agency “rescued” insurance giant American International Group and other financial institutions from bankruptcy by lending money to them. Puzzled, the interviewer asked whether the Fed had manufactured billions of dollars. That wasn’t quite the case.
“So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed,” explained Bernanke. In other words, the Fed “manufactured” U.S. dollars through entries in its ledger. This ability to “mark up” an account exemplifies the nature of currencies in their digital form. It has implications for the velocity and use of currencies because it simplifies and streamlines transactions involving them.
What Gives Value To Cryptocurrencies
All types of currencies are usable only if theyre considered to be stores of value, or to put it in simple words, if you can rely on them to maintain their relative value over time, instead of decreasing in value. In the past, people used precious metals and commodities as a means of payment, due to the fact that people thought of them as things that have quite a stable value.
This turned out to be a problem due to the fact that people had to carry around commodities, such as gold, which can be quite heavy. So, in order to make their lives easier, people turned to minted mediums of exchange. What made these mediums of exchange a reliable store of value was that they were made from metals with long shelf life and they had a low risk of decreasing in value.
Over time, paper money replaced the minted mediums of exchange, but they didnt have the equivalent intrinsic value as the coins that were made out of gold or silver. Nowadays, the main mediums of exchange are the globally adopted fiat currencies, such as the US dollar . These currencies are issued and controlled by the monetary policy of a government, and they arent backed up by commodities.
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Blockchain Is Years From Being Mainstream
A sixth issue is that blockchain is still years away from gaining real relevance. Three years ago, when blockchain companies and cryptocurrency stocks were the hottest thing since sliced bread, it was expected that blockchain technology would be quickly adopted. Little did investors foresee the Catch-22 that would arise. Specifically, no businesses are willing to make the costly and time-consuming switch to blockchain without the technology being broadly tested — yet companies aren’t willing to make this initial leap to test the technology and prove its scalability.
In short, blockchain is years away from being a mainstream technology.
Is There A Legal And Legitimate Way To Invest In Bitcoin
Today, the leading exchange is offered by Coinbase, a startup that has raised more than $200 million from a number of top tier venture capital firms. Square, the payments service, is also rolling out a bitcoin product.
There are also bitcoin ATMs in scattered bodegas and convenience stores around the country, through companies like Coinsource. The ATMs let you exchange bitcoin for cash, or vice versa by scanning a QR code from the digital wallet application on your phone.
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A Monetarist Valuation Of Bitcoin
In order to place a value on Bitcoin, we need to project what market penetration it will achieve in each sphere. This article does not make a case for what the market penetration will be, but for the sake of the valuation, we’ll pick a rather arbitrary value of 15%, both for Bitcoin as a currency and Bitcoin as a store of value. You are encouraged to form your own opinion for this projection and adjust the valuation accordingly.
The simplest way to approach the model would be to look at the current worldwide value of all mediums of exchange and of all stores of value comparable to Bitcoin and then calculate the value of Bitcoin’s projected percentage. The predominant medium of exchange is government-backed money, and for our model, we will focus solely on that.
Roughly speaking, M1which includes M0 and is worth about $4.9 trillion as of 2020will serve as our current worldwide value of mediums of exchange.
M3 minus M1 is worth about $45 trillion. We will include this as a store of value that is comparable to Bitcoin. To this, we will also add an estimate for the worldwide value of gold held as a store of value. Though some may use jewelry as a store of value, for our model, we will only consider gold bullion.
What Happens When Bitcoins Are Lost
When a user loses his wallet, it has the effect of removing money out of circulation. Lost bitcoins still remain in the block chain just like any other bitcoins. However, lost bitcoins remain dormant forever because there is no way for anybody to find the private key that would allow them to be spent again. Because of the law of supply and demand, when fewer bitcoins are available, the ones that are left will be in higher demand and increase in value to compensate.
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Bitcoin Isnt Valued Like Traditional Assetsat All
To understand the valuation of an investable asset like Bitcoin, it helps to compare it to something more traditional. If anything, the direct comparison will serve to illustrate why Bitcoins price valuation over time is less predictable than a pig on LSD.
Now, if you sit down with a good financial analyst and give her enough time and coffee, she can generally explain why traditional assets are valued what theyre valued. Why are shares of GOOGL worth so much today? Why has the value of my condo risen so much?
Heres what shed have to say:
How Are Bitcoins Created
New bitcoins are generated by a competitive and decentralized process called “mining”. This process involves that individuals are rewarded by the network for their services. Bitcoin miners are processing transactions and securing the network using specialized hardware and are collecting new bitcoins in exchange.
The Bitcoin protocol is designed in such a way that new bitcoins are created at a fixed rate. This makes Bitcoin mining a very competitive business. When more miners join the network, it becomes increasingly difficult to make a profit and miners must seek efficiency to cut their operating costs. No central authority or developer has any power to control or manipulate the system to increase their profits. Every Bitcoin node in the world will reject anything that does not comply with the rules it expects the system to follow.
Bitcoins are created at a decreasing and predictable rate. The number of new bitcoins created each year is automatically halved over time until bitcoin issuance halts completely with a total of 21 million bitcoins in existence. At this point, Bitcoin miners will probably be supported exclusively by numerous small transaction fees.
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Why Traditional Currencies Have Value
There are six key attributes to a useful currency: scarcity, divisibility, utility, transportability, durability, and resistance to counterfeiting. These qualities allow a currency to find widespread use in an economy. They also limit monetary inflation and ensure that the currencies are secure and safe to use.
Currency is useful if it works as a store of value or, to put it differently, if it can reliably maintain its relative value over time. Throughout history, many societies used commodities or precious metals as methods of payment because they were considered to have a relatively stable value.
Rather than carry around cumbersome quantities of cocoa beans, gold, or other early forms of money, societies eventually turned to minted currency as an alternative. The first such currencies used metals like gold, silver, and bronze, which had long shelf lives and little risk of depreciation.
Assigning value to currencies is a matter of debate. Initially, their value came from intrinsic physical properties. For example, gold’s value comes from the costs of extraction and certain qualitative factors, such as luster and purity content.
This thinking hews closely to the modern credit theory for monetary systems. In this theory, commercial banks create money by lending to borrowers, who use the money to purchase goods and cause currency to circulate in an economy.