Bitcoin (BTC for short) is the first cryptocurrency and most famous of more than 5,000 digital currencies. We’ve seen financial media cover the dramatic price changes, making BTC inescapable in the landscape. However, it is hardly the best choice for novice investors as it’s an enigma to them. There are some things that one should know about bitcoin.
What Is Bitcoin?
Bitcoin is a digital asset that uses public-key cryptography when signing, recording, and sending transactions over the blockchain. Launched in Jan 2009 by a computer programmer Satoshi Nakamoto (though the identity of Nakamoto is suspect), the Bitcoin network is an electronic peer-to-peer system of payment that uses native cryptocurrency to transfer value online or act as a store of value.
Each BTC contains 100,000,000 satoshis (the smallest units), hence individual BTC are divisible to 8 decimals. It allows people to buy fractions with little amounts as one American dollar. Bitcoin is built on a technology called Blockchain, wherein, as the name suggests, information is carried in a secure chain of blocks. The information available in these blocks can be in the form of contracts, certificates, bonds, and any document of importance. What matters in the transaction is the sanctity of agreement between the parties involved in the transaction.
How Did It Gain Popularity?
Bitcoin has crashed and rallied multiple times while paving roads toward decentralised finance. To better understand why bitcoin has a high status in the world economy, below is an overview of its history.
Satoshi Nakamoto- Bitcoin Genesis
In 2008 during the world catastrophic economic turmoil, an anonymous person introduced blockchain technology through a published paper. Under the pseudo name Satoshi Nakamoto, he shared a paper on the cryptography mailing list. Later the publication spread, primarily to cryptography researchers.
In the paper, Nakamoto showcased the blockchain network and explained how it could improve financial systems, mainly on the internet. Blockchain technology would offer users the ability to transfer money value through bitcoin. The transactions were cryptographically secured and irreversible to allow BTC to become the first viable digital currency in history. Hal Finney, a programmer was the first to receive a Bitcoin transaction.
Beginning of Bitcoin Markets
One year later, most internet users found out that bitcoin can have value. An anonymous individual proposed a platform to trade bitcoin called Bitcoinmarket.com. The person introduced what is today officially the first Bitcoin exchange. Though decentralized, BTC was also fragmented. The community could not determine prices, and miners agreed on asset ledgers but not the value. In March 2010, they launched the Bitcoin market.
In the beginning, one Bitcoin was only valued at $0.003.
During this time, they introduced a new Bitcoin exchange that could be the biggest in cryptos history. In 2011 Jeb McCaleb converted an old website that was called Mt. Gox. Later, he sold the exchange to Mark Karpeles. Soon, Mt. Gox was the largest crypto trading platform that ended dramatically due to security breaches, negligence, and other deficiencies.
New Cryptocurrencies and First Forks
In 2011, along with an increase in miners, the first blockchain developers came up. The developers introduced projects on the initial Bitcoin source code. In October 2013, Litecoin was created.
Notable Price Events
As an asset, the noteworthy part of its history is the price. Since its introduction in the market, bitcoins prices have been highly volatile over ten years.
The first event was in February 2011 as bitcoin reached $1. After a few months, the asset experienced its first bubble to $31 by June. Like other bubbles, this price crashed violently to single-digit value. In 2013 bitcoins value was $200. In November 2013, it traded around $1,000. Likewise, this price crashed after a few months.
2017: First Major Bitcoin Bubble
The digital currency gained following from miners, technology enthusiasts, and other groups. Bitcoin was to disrupt the world as the first digital currency that introduced decentralization to traditional financial systems.
After turbulent years of price action, investors rallied to faze everyone, including Bitcoin traders. June 2016, bitcoin was close to its all-time high, valued at $770. In March 2017, due to bullish investors, the value was at $1,345, an all-time high.
BTC later was in the parabolic phase as its value increased many times over. By December 2017, it was at a final ATH of $20,000
After attaining an ATH of $20,000, most early investors were selling profitable possessions in masses. This led to its decline in value. After gaining in a month, the currency continued the previous rally, revisiting prices not seen from 2017. In November 2020, it reached a new yearly high of $19,540.
Where Bitcoin Stands Today
According to Coinbase, bitcoin is the leading cryptocurrency with a market capitalization of over $1.17 trillion. As of 11th October 2021, its price was over $65,000.
What Are Security Concerns around Bitcoin, and What Are Experts Saying
Despite the hype, many wonder whether to invest in Bitcoin since digital currency also creates an array of concerns. Some worry that the currency is a bubble, susceptible to fraud, or too risky to invest, among other problems.
According to CNBC Make it, below is what experts have to say about the concerns.
Is the cryptocurrency too risky to average investors?
“Compared to other investments, bitcoin is highly risky and volatile,” James Ledbetter, fintech newsletter editor, told CNBC MakeIt.” When you observe bitcoin prices historically, there are occasions that it spiked, then later crashed quickly.”
While that might mean significant returns to others, to some, it’s a big loss. That’s the reason Mark Cuban likens BTC to gambling and recommends investing amounts you can afford to lose.
Despite the high selling price,” you can buy little as $5 of Bitcoin due to fractional shares called satoshis,” points Anthony Pompliano, a bitcoin investor.
Are The Bitcoin Wallets Safe?
Due to the widespread Twitter account hacks, there were illegal bitcoin transfers in hundreds of thousands, which prompted questions on safety.
“There are various cases of BTC fraud and theft that discourage new investors, mostly when investing substantial amounts. I think the fears are legitimate,” Ledbetter advises. But he also found them overblown.
While bitcoin allows transactions without revealing users’ identities or information, it isn’t anonymous. It is because transactions are documented on the digital ledger called a blockchain. The user wallets are as random letters and numbers on the blockchain. Through this, you can potentially trace scammers.
“I always remind investors that BTC has public ledgers,” notes Pompliano. Plus, it is challenging to hack due to blockchain. “
Ledbetter also notes, “Traditional stock accounts with brokerage could also be compromised. theres always potential risk or fraud.”
According to the Federal Trade Commission website, bitcoin scams are popular ways scammers trick people into sending their money, and they mostly appear as chain referral schemes, bogus business opportunities or investments and emails.”
Can Bitcoin Be Easily Converted Into Fiat and Transferred?
Most bitcoin and mainstream transactions convert BTC to fiat currency like the US dollar. For instance, in 2021, PayPal announced that consumers could use cryptocurrency for purchases. It means that when you pay with bitcoin, it will instantly convert to fiat currency.
“Currently transferring BTC to other accounts or converting to fiat currencies is quite slow,” notes Ledbetter.
Along with fees,” most sellers lack confidence to perform large transactions in bitcoin,” says investor O’Leary.
Pompliano predicts that innovation can lead to technologies for easier bitcoin spending with cheaper, more usable, and efficient transactions in the future.
Is The Digital Currency A Bubble?
People believe that the cryptocurrency rally today isn’t reminiscent of the 2017 bubble. Parabolic move in bitcoin in a short period is highly abnormal for any security,” David Rosenberg, a chief economist, told CNBC.
However, bitcoin bulls suggest the 2017 rally is different due to the drive-by retail investor’s speculation, whereas institutional investors that buy the coin drive the current rally.
What is next for Bitcoin?
When introduced, Bitcoin was to revolutionalize the finance ecosystem. However, the first decade is marked with wild price swings and missteps.
The next decade can be significant to the Bitcoin revolution in some areas of the ecosystem.
Currently, crypto is poised between a medium of daily transactions and a store of value. Both occurrences are not possible due to security challenges and scaling. Bitcoin should handle large transactions in short periods. Technologies like Lightning Network promise to scale operations.
In early 2021, Bitcoins price topped $60,000, later falling to $40,000. Large banks are taking notice of BTC, with BNY Mellon beginning its custody services and Goldman Sachs opening the crypto trading desk.
Citi notes,” institutional investors’ interest is increasing the popularity of BTC, but challenges with security, custody, and capital deficiency are a headwind to the asset.”
Today using decentralized and digitized transactions is popular among the masses. Along with safety, BTC delivers the transparency and anonymity that individuals seek through investments. Moreover, the security and ease of use are reasons more merchants accept cryptocurrency as means of payment. In case you have interest in other cryptocurrencies, you can go through our blog key things to know about cryptocurrency.