Had you spent $27 on Bitcoin when it was developed by Satoshi Nakamoto in 2009 your investment would now be worth over $37,000,000?
Widely regarded as the best investment vehicle ever, Bitcoin has seen a meteoric rise during 2017 going from $777 all how you can $17,000.
Creating millionaires out of opportunistic investors and leaving financial institutions open-mouthed, Bitcoin has answered its critics at every milestone this year and some believe this is just the beginning.
The launch of Bitcoin futures on December 10th, which for initially will allow investors to enter the Bitcoin market through a major regulated US exchange, implies that we are only getting started.
Why is Bitcoin so valuable is that there is a finite amount in existence. There will only ever be a maximum of 21 million Bitcoins and unlike normal fiat currencies, you can’t just print more of them when you feel like. This is because Bitcoin runs on a proof work protocol: in order to create it, you have to mine it using computer processing power to fix complex algorithms on the Bitcoin blockchain. Once this is achieved, you’re rewarded with Bitcoin as payment for the “work” you have done. Unfortunately, the reward you get for mining has decreased drastically almost every year since Bitcoin’s inception, meaning for most of us the only real viable way to obtain Bitcoin is buying it on an exchange. At the existing price levels is a risk worth taking?
Many believe Bitcoin is simply a bubble. I spoke to cryptocurrency expert and long haul investor Duke Randal who thinks the asset is overvalued, “I’d compare this to many supply and demand bubbles over histories such as Dutch Tulip Mania and the dot com bubble of the late 90s. Prices are purely speculation based, and whenever you look at Bitcoin’s functionality as an actual currency it is almost embarrassing.” For many who don’t know, the dot com bubble was an interval between 1997-2001 where many internet companies were founded and given outrageously optimistic valuations based purely on speculation that later plummeted 80-90% whilst the bubble started to collapse in the early 2000s. Some companies such as eBay and Amazon recovered and now sit far above those valuations but also for others, it was the finish of the line.
Bitcoin was originally created in order to take power far from our financial systems and put people in control of their own money, reducing the middle man and enabling peer to peer transactions. However, it is now one of many slowest cryptocurrencies available on the market, its transaction speed is four times slower compared to the fifth biggest cryptocurrency and its nearest competitor for payment solutions Litecoin. Untraceable privacy coin Monero makes transactions even quicker, boasting an average block time of just two minutes, a fifth of the time Bitcoin can take action in, and that’s without anonymity bitcoin mixer. The world’s second biggest cryptocurrency, Ethereum, already has a higher transaction volume than Bitcoin despite being valued at only $676 dollars per Ether compared to Bitcoin’s $16,726 per Bitcoin.
So how come Bitcoin’s value so high? I asked Duke Randal the exact same question. “Everything goes back to the exact same supply and demand economics, relatively there is not greatly Bitcoin available and its recent surge in price has attracted plenty of media attention, this with the launch of Bitcoin futures which many see as the initial sign Bitcoin has been accepted by the mass market, has triggered plenty of people jumping on the bandwagon for financial gain. Like any asset, if you find an increased demand to purchase than to sell, the purchase price goes up. That is bad because these new investors are entering industry without understanding blockchain and the underlying principles of these currencies meaning they will likely get burnt “.
Another reason is that Bitcoin is very volatile, it has been known to swing up or down 1000s of dollars within just a minute which if you are not used to nor expecting it, causes less experienced investors to panic sell, resulting in a loss. That is just one more reason Bitcoin will battle to be adopted as an application of payment. The Bitcoin price can move substantially between the full time vendors accept Bitcoin from customers and sell it on to exchanges for their local currency. This erratic movement can eliminate their entire profitability. Will this instability disappear completely any time soon? Improbable: Bitcoin is really a relatively new asset class and although awareness is increasing, only a very small percentage of the world’s population hold Bitcoin. Until it becomes more widely distributed and its liquidity improves significantly, the volatility will continue.
So if Bitcoin is pretty useless as an actual currency, what’re its applications? Many believe Bitcoin has shifted from being a practical form of payment to being a store of value. Bitcoin is similar to “digital gold” and will simply be utilized as a benchmark for other cryptocurrencies and blockchain projects to be measured against and traded for. Recently there has been stories of individuals in high inflation countries such as Zimbabwe buying Bitcoin in order to hold on to what wealth they’ve rather than see its value decline under the recklessness of its central banking system.
Is it too late to get involved with Bitcoin? If you believe in what these cryptocurrencies can do for the planet then it is never too late to obtain involved, but with the expense of Bitcoin being so high is it a boat for a few which includes already sailed. You may be better off having a glance at Litecoin, up 6908% for the year or Ethereum that will be up an incredible 7521% for the year. These newer, faster currencies hope to attain what Bitcoin first attempt to do back its inception in 2009 and replace government-run fiat currencies.
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