Bitcoin is a fascinating, complicated, new-age currency that exists only online and allows the user to be somewhat anonymous. Bitcoin might be the most talked about currency in the world, but it remains an enigma to many.

What is Bitcoin?

Bitcoin is a currency – a type of cryptocurrency, designed to pay for goods and services, just like Euros or U.S. Dollars. But that’s where the similarities end.

Bitcoin, unlike a traditional currency is:

Decentralized—no government or central bank controls the currency supply.

Digital —there are no physical Bitcoins or Bitcoin bills. The currency lives entirely online, tracked by blockchains, continuously growing groups of records that provide a complete history of each Bitcoin. (Imagine, for example, that you could use the serial number on a ten-dollar bill to look up every single time it changed hands).

Anonymous —Bitcoins are tied to a wallet ID rather than your personal information.

Bitcoin was developed in 2008 by someone with the pseudonym “Satoshi Nakamoto.”

The reason people are so drawn to Bitcoins is the lack of middlemen and banks with hefty fees. Since it exists entirely online, your wallet ID is what is used in transactions, not your name and other information, unless you give it.

Cryptocurrency is super trendy these days and worth looking at, but it’s important to first educate yourself about it and to do your own research so you can make informed decisions.

 

Let’s define what Cryptocurrency is?

 

1. What is Cryptocurrency?

Cryptocurrency is essentially virtual coins or digital money that is not tied to any traditional financial institution, banking or currency system which can be transferred between individuals without the need for any financial intermediaries.

Investopedia defines it as “a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.”

Examples include Bitcoin (the first and most popular), Litecoin, Ethereum… just to mention a few – there are currently hundreds of Cryptocurrencies out there.

 

2. Is Cryptocurrency like gold?

Many people consider Cryptocurrency to be a form of digital gold. Just like gold is a limited resource (limited by what’s available to be mined from the ground), Cryptocurrencies are also limited in the sense that there is a limit to how much of it can be created via it’s digital mining processes e.g. only 21 million Bitcoin can ever be mined due to the digital nature of how it’s created.

However, the main difference between Cryptocurrency and gold is that gold has associated value because it’s actually used in industries and to make things like jewelry etc and so the demand for gold doesn’t just come from the commodity itself, it comes from the associated industries and products in which it is used. Cryptocurrency on the other hand, does not have this same associated value (right now) and it’s worth it determined pretty much by what investors are willing to pay for it. So basically, investors speculate to accumulate.

 

3. What risks are associated with buying Bitcoin or Cryptocurrency?

Investing in Bitcoin or Cryptocurrency is considered high risk because it is a very volatile and highly speculative investment based on supply and demand and while high risk investments also generate high returns, it’s important to only invest what you can afford to lose. Should your long-term retirement savings be in Cryptocurrency? I would not recommend it.

In addition, Cryptocurrencies are susceptible to a certain level of hacking despite high security because all their online transactions ever made are stored in online ledgers. Just ask Bitcoin, they’ve been hacked over 40 times.

Also keep in mind that there is a chance that many of these different Cryptocurrencies we are hearing about today may not be around long-term. So again, when investing in a high risk asset such as Cryptocurrency, only invest what you can afford to lose.

 

4. Is all Cryptocurrency the same?

The answer is no. The same way all currency is not the same. For example, the American Dollar is different from the British Pound in terms of value, buying power, supply, demand, inflation and other economic factors.

When buying Cryptocurrency, you’ll need to do some serious research to determine what type to buy. There are Cryptocurrencies out there that have no practical purpose or real value outside of the fact that people seem interested in buying them.

 

5. Where is your Bitcoin stored?

When you invest traditionally in stocks and bonds, you have access to your investments via a brokerage account. Well with Bitcoin or any other cryptocurrency, your assets are stored in a digital wallet (which is basically a secure digital wallet used to store, send, and receive digital currency) and it’s important that you back it up  securely as well as keep your pin or access details secure. If you happen to lose access to your wallet or lose your access details, it could be a nightmare to recover.

Read more on https://julietkapena.com/16-insane-facts-bitcoin/

Are you investing in Cryptocurrency? Please share your thoughts and your experience.