The investment world is going crazy over Bitcoin. It seems you can’t open a web page these days without seeing news about cryptocurrencies, with Bitcoin always leading the charge in the headlines.
But what is Bitcoin, and what opportunities does it present to the tech-savvy investor? Bitcoin is a cryptocurrency, which means that its value is stored in digital form on a computer using sophisticated encryption with a corresponding key to verify authenticity.
Bitcoin currency is not monitored by any central authority or government, so its value is solely determined by what people around the world are willing to pay for it. The identity of Bitcoin’s founder remains a mystery, with the only credit to its creation going to the pseudonym Satoshi Nakamoto.
The original intent behind Bitcoin was to facilitate the transfer of funds between two parties, most often anonymously, and independent of any central authority. However, the recent frenzy in investment has limited Bitcoin’s ability to be used as an everyday means of payment for goods and services.
Investment activity on the network has caused transferal fees to skyrocket. It’s possible that a $5 cup of coffee will attract a fee in the range of $30 to $40. The level of network activity also limits the ability of transactions to take place in a timely manner, as computers all over the world struggle to finish the calculations needed to complete the transfer.
While Bitcoin, in its current state, is not a viable currency alternative for buying coffee or groceries, it does provide plenty of opportunities for investors to make bank.
Bitcoin supply is arbitrarily limited to 29 million bitcoins, and in 2011 one Bitcoin was worth less than a dollar. As cryptocurrency entered the mainstream, more investors took the plunge and bought into the market. With a growing pool of buyers hungry to cash in on the Bitcoin frenzy, the price soared to incredible heights.
In December, Bitcoin reached a value of nearly $20,000. A recent run on the product has since seen the price stabilize at around $11,000, providing a cost advantage for investors who want to get in at a lower price and realize higher gains in the future.