What Is Bitcoin?
If you’re reading this, you’re likely asking the multibillion-dollar question: What is Bitcoin?
We say multibillion-dollar question because Bitcoin is now the foundation of a multibillion-dollar market. If anything, it was the seed that sprouted the $500 billion cryptocurrency market that we're seeing today.
At the time of writing this report, Bitcoin was worth over $10,000:
And over the course of its 10-year life, Bitcoin’s price has increased from $0.08 to over $19,000.
Since that $19,000 high, Bitcoin’s price, along with the prices of many digital assets, retreated under threat of government regulatory measures.
But according to many experts, Bitcoin is far from done. In fact, CEO Shopin Eran Eyal expressed “no doubt” that Bitcoin will reach a value exceeding $100,000. And those projections mean that many investors are still interested in Bitcoin and other digital currencies.
But what makes these kinds of gains possible? These numbers are so hyperbolic that many investors are quick to brand Bitcoin as a scam or Ponzi scheme.
In truth, Bitcoin does have traits that could make it worth its valuation — at least in the eyes of governments, individuals, and corporations.
Bitcoin possesses the ability to act both as a store of value and a new kind of currency.
That being said, Bitcoin has some shortcomings when compared to some of the other digital currencies on the market.
Our goal in this report is to help new investors in understanding Bitcoin, some of its possible benefits, and a few of its shortcomings.
Of course, you don’t need the knowledge that we offer to make a profit. Like with all technologies, investors don’t need to understand the confusing inner workings of Bitcoin to see green.
But heck, if you’re here, you’re probably one of those responsible investors who are asking questions and trying to understand the best place to put their money.
And the answers to all of these questions start with a white paper that was published anonymously almost 10 years ago…
Who Made Bitcoin and How Does It Work?
Bitcoin came into the world through a white paper published in 2008. This white paper was penned by an individual known as Satoshi Nakamoto.
Today, no one knows who Nakamoto is. But many people believe the name is just a front for a group of individuals.
Either way, the mind (or minds) behind the Bitcoin white paper proposed the token as the world’s first decentralized currency for individuals. The first line of the white paper reads: "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."
Just the idea of a decentralized currency is novel...
A decentralized currency isn't backed by any government or national power. It isn't controlled by a single entity.
And the modern world has never seen a currency that hasn't been tied to a federal government or banking system.
Bitcoin is regulated by the miners and users who choose to use and benefit from the Bitcoin network.
In order for a Bitcoin transaction to be confirmed, a miner must solve an algorithm. When the miner solves this algorithm, the transaction is added to the Bitcoin blockchain and the miner is rewarded with bitcoins.
This may seem far-fetched, but it’s actually an incredibly smart way of regulating a system. For the miners, they have the incentive to mine. For the individuals, they have the incentive to spend bitcoins (Bitcoin, and I will get into this more in the next section, eliminates many of the annoyances that come with fiat currencies).
It’s a win-win.
And the world clearly liked the idea.
Within months of Nakamoto’s white paper being published, Bitcoin collected a cult following that was determined to promote and strengthen the digital currency.
And even today, long since Bitcoin’s anonymous creator disappeared from the limelight, that community continues supporting and promoting Bitcoin. But now, it isn’t just a small cult. A growing number of individuals are hearing about Bitcoin and are becoming enthusiasts.
And this leads us to the next question: Does Bitcoin have real-world value?
If we’re looking strictly at its function, then yes, Bitcoin does have value. It can act as a currency, just like Nakamoto proposed.
It also, because of its finite supply, can act like a modern version of gold...
Why Is Bitcoin Valuable?
Many praise Bitcoin as the “new gold.” There are others who insist that Bitcoin is just a new currency.
In its current state, Bitcoin is a bit of both...
The bulk of Bitcoin investors are holding bitcoins with the hopes that they'll continue increasing in value. A very small faction actually uses bitcoins to make purchases.
Either way, Bitcoin has proven to be both a store of value and a functional currency.
Its ability to do these things rests in the technology it uses: blockchain.
We aren’t going to go into blockchain in this report. If you're curious about blockchain, keep an eye on your inbox, because Wealth Daily covers it frequently.
That being said, blockchain allows Bitcoin to be protected against a wide range of issues. Below are just a few:
- Government-produced hyperinflation. Like the world’s oldest commodity, gold, the amount of Bitcoin that can exist is finite. This means there will only ever be so many bitcoins. The exact number is 21 million bitcoins. This prevents Bitcoin from losing value in the way that federal currency loses value. In many dicey financial situations, federal governments chose to produce more money, slowly devaluing the currency. Bitcoin’s finite nature also positions Bitcoin as valuable in the same way that gold is valuable — it’s a hedge against economic turbulence and political uncertainty.
- Freedom. With Bitcoin, individuals are free to send money overseas with low transaction fees. If you can find a vendor who accepts Bitcoin, then two individuals can exchange funds without changing currencies. Bitcoin transactions don’t need to go through any bank or government.
- Fraud. Fraud is a big problem in our current monetary system. Both merchants and individuals have fallen victim to identity theft. Bitcoin’s blockchain could help with this by keeping transactions transparent but by allowing individuals to make purchases without revealing their identities.
All these traits position Bitcoin to be an economic powerhouse. And even if it loses ground and allows another digital currency to become the leading form of digital money, Bitcoin could still operate as a form of digital gold.
That being said, there are some concerns that investors should take to heart before venturing into Bitcoin:
- Volatility. As an evolving and largely unregulated market, digital currency is highly volatile and should be approached with caution. If the chart at the top of this report indicates anything, it's that investors should be prepared for stomach-churning ups and downs until more regulation is put in place.
- The competition of new coins. As the first digital currency on the market, Bitcoin broke the ice. That being said, many digital currencies have emerged in its wake — including digital currencies that may be better at fulfilling Bitcoin’s lofty mission. This includes Litecoin and Ethereum. Investors interested in Bitcoin should also be paying attention to other players in the game.
- Still developing. Bitcoin had to hurdle a lot of issues in 2017, including scaling issues that almost brought the network to its knees and were a major point of contention within the Bitcoin community. Investors should be aware of this strife before venturing into the world of Bitcoin.
How Do You Buy Bitcoin?
Depending on whom you ask, there are a lot of answers to this question. There are currently dozens of exchanges that investors can use to buy Bitcoin.
Of those exchanges, the following two are frequently used for the purchase of Bitcoin: Coinbase and Gemini.
Both of these platforms are fairly easy to navigate and setting them up isn’t much harder than setting up a run-of-the-mill Facebook account.
Bitcoin is also available on a range of altcoin exchanges, which can be a bit trickier to navigate.
If you're interested in learning more about how to navigate the trickier digital currency exchanges, including Bittrex, Kraken, and Poloniex, make sure you sign up for Wealth Daily’s free digital currency education service.
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The Wealth Daily Research Team