Bitcoin [BTC] is a new type of digital currency with an encryption key that has been distributed to computer networks used by users and miners around the world and is not controlled by a single organization or government. This is the first digital cryptocurrency that has caught the public's attention and accepted by more and more merchants. Like other currencies, users can use digital currency to purchase goods and services online and in certain physical stores that accept them as payment methods. Currency traders can also trade Bitcoin on the Bitcoin exchange.
There are several main differences between Bitcoin and traditional currencies such as the US dollar:
- Bitcoin does not have a central authority or clearing house [such as the government, central bank, MasterCard or Visa network]. Peer-to-peer payment networks are managed by users and miners around the world. The currency is transferred anonymously between users via the Internet without going through the clearing house. This means that transaction costs are much lower.
- Bitcoin is created through a process called "bitcoin mining." Miners around the world use mining software and computers to solve complex bitcoin algorithms and approve bitcoin transactions. They are awarded transaction fees and new bitcoins generated by the Bitcoin algorithm.
- The amount of bitcoin in circulation is limited. According to Blockchain, as of December 20, 2013, the liquidity was approximately 12.1 million. As more bitcoins are generated, the difficulty of mining bitcoin [solution algorithm] is getting bigger and bigger, with a maximum liquidity limit of 21 million. This limit will not be reached until about 2140. As more and more people use bitcoin, bitcoin will become more valuable.
- A public ledger called "blockchain." Record all Bitcoin transactions and display the respective holdings of each Bitcoin owner. Anyone can access the public ledger to verify the transaction. This makes digital currency more transparent and predictable. More importantly, transparency prevents fraud and double spending on the same bitcoin.
- Digital currency can be obtained through bitcoin mining or bitcoin exchanges.
- A limited number of merchants on the web and in some physical retailers accept the digital currency.
- Bitcoin wallets [similar to PayPal accounts] are used to store bitcoin, private and public addresses, and to transfer bitcoins anonymously between users.
- Bitcoin is not covered by insurance and is not protected by government agencies. Therefore, if the secret key is stolen by a hacker, lost or fails on the hard drive, or cannot be recovered due to the Bitcoin exchange being closed. If the key is lost, the associated bitcoin will not be recovered and will no longer be circulated. Visit this link to get answers to frequently asked questions about Bitcoin.
I believe that Bitcoin will gain more public acceptance because users can remain anonymous when purchasing goods and services online, and transaction costs are much lower than credit card payment networks; anyone can access public ledgers, which can be used to prevent fraud; currency The supply limit is 21 million, and the payment network is operated by users and miners, not by central agencies.
However, I don't think this is a good investment tool because it is extremely volatile and unstable. For example, bitcoin prices have risen from about $14 this year to a high of $1,200 this year, and then fell to $632 per BTC at the time of writing.
Bitcoin soared this year because investors speculated that the currency would be more widely accepted and its price would rise. The currency plunged 50% in December as BTC China [China's largest bitcoin operator] announced that it would no longer accept new deposits due to government regulations. According to Bloomberg News, the Central Bank of China prohibits financial institutions and payment companies from handling bitcoin transactions.
As time goes by, Bitcoin may gain more public recognition, but its price is highly volatile and sensitive to news such as government regulations and restrictions, which may have a negative impact on the currency.
Therefore, I do not recommend investors to invest in Bitcoin unless they buy Bitcoin at a price of less than $10 per BTC, as this will allow from
a much larger safety margin .
Otherwise, I think it's best to invest in fundamentals that have good business prospects and manage the team's stock because the underlying company has intrinsic value and is easier to predict.
Disclosure: Victor Liang has no position in Bitcoin and has no plans to change his position within the next 72 hours.