If you have heard of cryptocurrency, you have most likely heard of Bitcoins. You may not be very familiar with what it is about, but this article will serve as a guide to its history, as well as why you should invest in it if you can.
What is Bitcoin?
This is a cryptocurrency – this means that it makes use of cryptography to regulate its management instead of relying on central banks for regulation.
Its history goes back to 2008 with the registration of the domain name bitcoin.org. Its founder is unknown, though goes by the pseudonym Satoshi Nakamoto.
The aim of this currency was to provide an electronic currency that does not rely on intermediaries like central banks and governments to regulate it. There was a rise in use of digital cash technology, and the rise of this currency was to provide an electronic cash system without having to rely on trust, unlike banks, which require you to provide security.
The network formed officially in 2009, led by the first open source Bitcoin client and issue of the first coins. The creator mined all the first Bitcoins (also called blocks) – called the genesis block – and the reward was in terms of fifty coins.
The popularity of the coin spread quickly, with various people all wanting to mine their own blocks. This however led to a problem – verification of transactions. Certain individuals took advantage of this loophole on 15th August of the same year. Developers eliminated the weakness from the official log of transactions, and it resulted in upgrades to the network. This happens to be the sole vulnerability in the history of the coin, and no other incidents have occurred ever since.
Why is Bitcoin different?
The world of cryptocurrency can confuse new users because you will hear all sorts of investment advice. With all the information lying around, you may wonder what makes Bitcoins different from other currencies. Some reasons are:
- Accessibility – Bitcoins are one of the most popular cryptocurrencies in the world today. You will find merchants accepting it, as well as hardware and software supporting it. The factor leading to this is its liquidity – it has higher volumes in circulation compared to other coins. It also happens to have the biggest ecosystem for developers because of the extent of software and implementation.
- Valuable – the biggest risk of creating something like a cryptocurrency is watching it fail within a short time. However, Bitcoin has managed to stand the test of time for over eight years, and its usage around the world has expanded greatly. This is mainly because of the security it offers its users compared to other coins.
Alternative coins to use
You know very well that Bitcoin is a trendsetter indeed – with the massive growth it has had in less than ten years, it is easy to think it is the sole cryptocurrency in existence. However, other coins work equally as well if not better, and we have compiled a list of several of them.
Ethereum/ETH – a very recent one from 2015, it enables distribution of applications and running of smart contracts without interference from third parties.
Litecoin/LTC – launched in 2011, it has a distinction of being a highly sought after currency together with Bitcoins. Formed based on promoting open source payments without control from central authorities. For proof of work, there is generation “scrypts”, which are then decoded by CPUs.
Dash – markets itself as a “more secretive version” of Bitcoins. Formed in 2014, it works on a master-code network that enables transactions to be untraceable.
Ripple/XRP – this currency offers you immediate and affordable international payments. Another distinguishing feature is that you do not need to mine it, and therefore reduces computing power.
Zcash/ZEC – a 2016 product, which offers uses additional privacy and optional transparency in transactions.
Monero/XMR – 2014 was the launch year for this currency and its development is unique – it uses donations as well as the power of the community to improve its features. It allows for complete privacy as well through a technique called “ring signatures”.
Technology behind Bitcoin
Some people may see the currency as a passing phase, though the technology that powers it is not. The silent blockchain technology has revolutionized the accounting sector, and many other cryptocurrencies are adopting it for their operations.
How it works
In all transactions, the blockchain acts as an accounting book – it stores the transaction number, the number of coins moved, the digital signature as well as the recipient. For hackers, it is nearly impossible to hack because the data is not within a centralized database; it is in all computers with the software.
You also do not register with a password or username. Instead, you have a private key that allows you to access your Bitcoins and digital assets.
There are two major ways that you can trade Bitcoins – either buying it in the hopes of selling it later at a profit, or speculating on its value without purchasing the token (similar to betting).
Before you start trading in the currency, it (along with all other cryptocurrencies currencies) is very volatile, and prices are subject to very quick changes.
Its value is not from an industrialized economic base, but from the work your computer performs – this means you can trade it just like normal items. Many risks come with trading the currency, but as long as you understand them, you can become a player in the market.
- Find an exchange provider and open an account – because there is no official exchange provider. Several factors will determine the choice you make, including regulation and fees charge.
- Make sure to do your homework – this will help you keep track of the exchange rates.
- Make a strategy and implement it effectively
- Place a trade using the exchange provider
- Close your position after you achieve your targets
Bitcoin prices and trading history
The market value for the coin has been volatile, but the prices have risen since 2010 when it began official trading. Here is a brief history of the changes in its value:
2009 – It was not on the stock market. This year saw the creation of the Genesis blockchain, as well as the first exchange.
2010 – The highest price it reached was $0.39.
2011 – The price hit $1 for the first time on February 9th, and public interest began to increase. Its highest value came a few months later, when it reached $17.77 on June 19th.
2012 – The highest point was on august 17th, when it got to $13.31. WordPress also accepted the currency as a form of payment on November 15th.
2013 – This was the year of massive spikes in the value of the coin, with the highest value being $1132.26. It was also the year that china approved its usage except with financial institutions.
2014 – Speculation behind the creator increased, but the value of the coin decreased slightly. The highest value was $662.57. It was also the year that Dell and Microsoft accepted the Bitcoin as a mode of payment.
2015 – Speculation still increases over the identity of the creator. The maximum value was $397.52.
2016 – This year saw the quitting of a developer from Bitcoin, with the highest value being $726.36. It also saw the election of Trump as president of the US, and a resulting fall in the stock markets.
2017 – The first time Bitcoin has achieved a value of $1000, with the value being $2787.85. It also split into Bitcoin cash (BCH) and Bitcoin (BTC).
Is it worth trading in the coin?
This is a complicated question, because several authorities do not approve of investing in it. The reasons they usually give range from the highly volatile nature of the currency, the unpredictable nature of its value, and the fact that you cannot use it further than being a means of investment.
Based on all these factors, they point to it as carrying too many signs of danger. Also other voices point out the increasing value of Bitcoin investments – and that if you do not take a chance now, you will regret missed opportunities in the future.
Overall, even though the prospects of the investment look very good on paper, here are some reasons to go slow on it:
- Risk of becoming obsolete – technology changes every day. There may be development of coins that are better at energy efficiency than the Bitcoin, and render it irrelevant.
- Regulation – the essence of using Bitcoins and cryptocurrency in general, is eliminating intermediaries like central banks. This presents a challenge of regulation in its value, and leads to the very high and vast changes in its value. In a sense, it works like betting – only that the possible losses and rewards are bigger.
- Unique challenges – some countries ban the use of Bitcoin, while others are still sceptical about it. Whatever the case, it may not be a good idea to put a lot of your money into it, because governments can forbid its use.
The risks are great, but if you are prepared to shoulder losses as a probable cost, then you can start trading now.
The rise of Bitcoin is synonymous with the rise of digital cash. People want to spend money electronically without resorting to institutions like banks. The benefits are immense if you invest well, but it is best to be careful and not rely on it too much.