What Is Bitcoin and Is It a Good Investment?

Bitcoin (BTC) is a new type of digital currency with an encryption key. It has been dispersed into a computer network used by users and miners around the world, and is not under the control of a single organization or government. It is the first digital cryptocurrency that has attracted public attention and is accepted by more and more businessmen. Like other currencies, users can use digital currencies to purchase goods and services online and in certain physical stores that accept the currency as a payment method. Currency traders can also trade Bitcoin on Bitcoin exchanges.

There are several main differences between Bitcoin and traditional currencies (such as the U.S. dollar):

  1. Bitcoin does not have a central authority or clearing house (such as the government, central bank, Mastercard or Visa network). The peer-to-peer payment network is managed by users and miners all over the world. The currency is transferred directly and anonymously between users via the Internet, without going through a clearing house. This means that transaction fees are much lower.
  2. Bitcoin is created through a process called “Bitcoin Mining”. Miners all over the world use mining software and computers to solve complex Bitcoin algorithms and approve Bitcoin transactions. They were awarded transaction fees and settled new bitcoins generated by the bitcoin algorithm.
  3. The number of bitcoins in circulation is limited. According to Blockchain data, as of December 20, 2013, the circulation is approximately 12.1 million. As more bitcoins are produced, it becomes more and more difficult to mine bitcoins (solving algorithms), and the maximum circulation is capped at 21 million. This limit was not reached until about 2140. As more and more people use Bitcoin, Bitcoin becomes more valuable.
  4. A public ledger called “blockchain” records all bitcoin transactions and shows the respective holdings of each bitcoin owner. Anyone can access the public ledger to verify transactions. This makes digital currencies more transparent and predictable. More importantly, transparency can prevent fraud and double spending of the same bitcoin.
  5. Digital currency can be obtained through Bitcoin mining or Bitcoin exchange.
  6. A limited number of merchants on the Internet and in some brick-and-mortar retailers accept the digital currency.
  7. Bitcoin wallets (similar to PayPal accounts) are used to store bitcoins, private keys and public addresses, and transfer bitcoins anonymously between users.
  8. Bitcoin has no insurance and is not protected by government agencies. Therefore, if the secret key is stolen by a hacker, a lost or malfunctioning hard drive, or because the Bitcoin exchange is closed, it cannot be recovered. If the key is lost, the associated bitcoins will be irrecoverable and will cease to circulate. 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 fees are much lower than credit card payment networks; anyone can access the public ledger, which can be used to prevent fraud; currency The supply is capped at 21 million, and the payment network is operated by users and miners, not by a central agency.

However, I think this is not a good investment tool because it is extremely volatile and unstable. For example, the price of Bitcoin rose from approximately $14 this year to a high of $1200 this year, and then fell to $632 per BTC at the time of writing.

Bitcoin’s surge this year is because investors speculate that the currency will gain wider acceptance and its price will rise. As BTC China (the largest Bitcoin operator in China) announced that it would no longer accept new deposits due to government regulations, the currency plummeted by 50% in December. According to Bloomberg News, the Central Bank of China prohibits financial institutions and payment companies from processing bitcoin transactions.

Bitcoin will gain more public recognition over time, but its price is extremely volatile and is very 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 are purchased at a price of less than $10 per BTC, as this will allow Greater safety margin.

Otherwise, I think it is best to invest in stocks with strong fundamentals, good business prospects and management teams, 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.