With Bitcoin’s price soaring over the past few weeks, growth of over 1000% during the past year, and thousands of new people purchasing bitcoins everyday, it is increasing important to understand Bitcoin and other cryptocurrencies. Therefore, I decided to write an article that outlines what Bitcoin is, where it started and what it can become.

What is Bitcoin?

Bitcoin is a form of cryptocurrency that was created in 2009 by a software developer who used the alias, Satoshi Nakamoto. Bitcoin is a digital infrastructure for financial transactions between various entities without the need of any intermediary. Bitcoins can be traded, bought and sold at any time and can be used to purchase goods from vendors who accept the Bitcoin currency.

Why Bitcoin?

Bitcoin has various advantages, many of which come from it being decentralized. This means that it can be transferred from person to person without needing to go through a bank or a financial institution. This lowers traditional fees associated with transferring currencies and allows bitcoins to be traded internationally. In addition, even though Bitcoin transactions are “public,” the bitcoins’ addresses are not linked to anyone's personal information, such as individuals names or addresses, so even though transaction information can be found, it cannot be linked back to a specific user. The privacy, reduced fees, and global usage of bitcoins are what makes them valuable.

How Are Bitcoin Made?

Unlike other traditional currencies like US Dollars, bitcoins are not printed. Instead, they are produced by computers all around the world that are computing complex mathematical problems. These computers solving problems, often referred to as “miners,” are rewarded newly-generated bitcoins for verifying transactions. After transactions occur the data from the transaction is recorded in a public ledger. However, unlike many other currencies Bitcoin has a maximum set limit on how many coins can be mined/created, which is 21 million. Currently, there are still several million coins that have not been mined. In addition, the coins can be broken into parts; bitcoins can be bought and sold in parts (as small as one hundred millionth of a Bitcoin).

How Do You Buy Bitcoins?

Bitcoins can be bought through various websites and can be kept in a digital wallet that is accessible through your computer or mobile device. Buying or selling bitcoins is essentially as easy sending an email. The website I currently use (and the most popular one) to purchase/sell bitcoins is called CoinBase, however there are also various other options, such as Bittrex, Kracken, and eToro.

Should You Invest?

Currently, the price of a Bitcoin in USD is around $16,000. The price has currently increased 117% since last month and 1975% since in the past year, so many early-stage investors have done extremely well. While I unfortunately do not have the power to predict the future price, I will identify a few of the many factors that could make the price of a bitcoin continue to grow or potential factors that could make it crash.

Potential Pros:

Price explosion through new customers:

Bitcoin trading has increased month over month with over 40,000+ new users buying it daily. In addition there currently over 260,000 food establishments and retail locations stores that are accepting the cryptocurrency. With more and more usage and new buyers all across the world, the price will continue to go up. Many analysts, such as Latium CEO David Johnson, are very optimistic about Bitcoin’s rapid growth as well, "I would say without question we will see Bitcoin above 20k before the end of the year," he said. "Momentum is growing daily and as momentum grows sellers have less reason to sell."

Increased Awareness and FOMO:

Many people are now hearing about Bitcoin success stories and are rapidly purchasing because of “FOMO” (fear of missing out). Many articles explain how people are buying bitcoins solely because other people are buying, which is pushing the price up. As awareness continues to increase exponentially around the world, the price will most likely continue to rise since supply is almost constant and demand is increasing.

Increased Legitimacy:

The legitimacy of Bitcoin will most likely increase with awareness and usage of cryptocurrencies. Many people are often skeptical of new innovations, so as people continue to talk about Bitcoin, more risk-averse individuals are more likely to invest, which results in a higher price.

Less Trust in Government Currencies:

Since Bitcoin is decentralized, it can still hold value even when a specific government’s market is not doing well. In countries around the world where currency, regulations and the market are not performing well, Bitcoin can potentially add security and value to people's money. Many people will choose to trust a global currency rather than the currency of their government.

Potential Cons:

It’s Not Real

Bitcoin has no “tangible” value, and it is not backed by assets like the US dollar. Its value is based entirely off of people’s willingness to accept it for different purposes. Many people have expressed that Bitcoin is worth less than a tulip. According to CNN money, the tulip comparisons stem from the 17th century, when speculation helped drive the value of tulip bulbs in the Netherlands to extremely high prices. Since bitcoins are “less real” than tulips, many people believe that the prices will soon crash.

1000 people own 40% of it:

According to Bloomberg, 40% of bitcoins are currently held by approximately 1000 people. This can be extremely dangerous for the price of a bitcoin if the owners decide to sell quickly, and could lead to an extremely rapid deterioration of its price.

The Bubble:

According to William Deringer, a historian at MIT, Bitcoin is resembling a bubble for many reasons, “A lot of bubbles historically involve some kind of new financial technology the effects of which people can't really predict." In addition he stated, “New financial innovations create enthusiasm at a speed that is greater than people are able to reckon with all the consequences." Many people believe that Bitcoin has grown way too fast too soon, and for that reason is going to see a huge crash and correction in the price.

Bitcoin is not what it was supposed to be:

One of Bitcoin’s original documents, the Bitcoin white paper, states that its intent was to be a peer-to-peer “cash” without the need of an intermediary. However, now most people are actually using a middleman to purchase it. Most transactions are now going through companies like Coinbase, which are collecting a ton of information about their consumers. In addition, since most bitcoin buyers are intimidated of buying bitcoins without using a similar website, when these sites crash or go down, they lead to an enormous drop in the price of bitcoins. These sites existence goes against the original principles of Bitcoin. Bitcoin’s original intent was to disintermediate the finance industry, however with most buyers now relying on intermediaries it has made its current price questionable.

The truth is that no one knows where Bitcoin will go, but everyone involved so far has definitely been in for an adventure. I would love to hear your comments, predictions and stories down below in the comments section. If you enjoyed the article make sure to like it and follow me to read more similar content in the future. Thanks!

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*Disclaimer* I do have some small investments in Bitcoin and a few other altcoins.