Cryptocurrencies are digital currencies that operate on a decentralised peer to peer network, with no centralized authority and managed by peers who maintain a public ledger. Bitcoin is a cryptocurrency and a digital payment system mysteriously invented by an unknown programmer or a group of them, under the name Satoshi Nakamoto, released as open-source software. Capturing the today’s trend, let’s find the answer to “Should I invest in bitcoin?”
What is Bitcoin?
A Bitcoin is basically an encryption key, kept in the ledger of a trader. Ownership of the encryption key entitles you to trade it for goods, services, or other types of cryptocurrency, with names like Ethereum, Ripple and Litecoin (which are just some other names in the grand design of this modern economy).
The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. Since the system works without a central repository or single administrator, bitcoin is called the first decentralized digital currency.
Every economy is uncertain. Referring to this or any economy as ‘uncertain’ is an unnecessary and pessimistic redundancy.
Is it just a small bubble in the economy?
It is not. In the last nine months, Bitcoin has carried its crypto-based friends to the big league, where it now is near-equivalent to $3000, and it has yet to turn into a frenzy before popping like a bubble. It’s limited supply is an assurance for the global market, and it possesses a better hedge against global uncertainties as compared to conventional assets like gold. It’s ultra low interest regrading money lending and funding is exemplary for the modern startup environment.
The beauty of bitcoin is that its a no-holds-barred international currency for the modern sophisticated geek, which has attracted the attention of the sharks of the world. Bitcoin is a real thing now, and therefore the question arises, should I invest in bitcoin or not?
Being a complete noob in international economy, I think I am not eligible to give you any sort of financial advice. The best I can humbly do is to compile a pro and cons list for you to analyse what’s good for your one true love, money!
Its on the rise. Speculators have driven its price to near $3000, and has even surpassed Gold to replace it as the king of safe investments. Gold has a static market value, whereas in the recent years, Bitcoin has become much more fruitful and reliable as an investment as compared to gold. It has a elevated in price a great deal since its inception, and there’s no stopping it now.
It is hyped. Bitcoin is the most liquid of all the cryptocurrencies. Japan’s decision to start recognizing it as legal tender in April seems to have led directly to the current run-up, where India will soon follow up as soon as the committee appointed by RBI approves it. This seems to be fueling a rally in other cryptocurrencies. Markets like Bitfinex, Bitstamp and BTC-e make it easy to set up an account and trade Bitcoin, but prices vary widely.
The world is unpredictable. The best reason for buying Bitcoin has always been as a hedge against market uncertainty. Advocates love stories about a coming market crash, the inherent corruption of the Federal Reserve and the ability of banks around the world to create “fiat money,” (inconvertible paper money made legal tender by a government decree) backed only by their local economies. There are places where this fear is real, and where cryptocurrencies — whose quantity is fixed by math — can be a great hedge. Countries like Zimbabwe, where the government has destroyed the local currency, now have active Bitcoin markets.
It’s Unstable. Story of Icarus gives us a wonderful lesson here. Bitcoin, unlike real currencies which normally move in small ranges, is highly dynamic in terms of its value. Bitcoin is great as a medium of exchange in Venezuela, where the currency is worthless. But its value as a medium of daily exchange is more questionable in the U.S., where it is an investment and a hedge.
Other Coin Is Better. While Bitcoin’s price has been rising, it has lost its supremacy in the market. While it represented 80% of cryptocurrency trading a year ago, its share is now less than 50% as the value of Ethereum, Litecoin, Ripple and others rise. Even Dogecoin, originally created as a joke in 2013 and using the face of an Internet meme in its logo, has skyrocketed recently, experiencing a twenty-fold gain. Such money, much wow!
If you love the freedom it entails, you will love to invest in Bitcoin. A powerful PC is enough to give you the ability to be a Federal Reserve, and it will start to generate you money as soon as someone is willing to accept to trade the encryption keys. Its not a market bubble, but I’ll advise you to make good of this situation as soon as possible, before it goes back to its humdrum existence in the ever-growing market of cryptocurrency.
With inputs from Cryptos Desk.