Bitcoin became all the rage among many investors in 2017 – and even people who don’t regularly invest have gotten in on the action with this cryptocurrency.
Some of you may also be thinking: What exactly is this currency anyway?
Well, before you plunk down your hard-earned dollars to jump into the cryptocurrency market, you should at least know some facts, and not just listen to all the hype.
Here are 7 facts about this currency, as well as some insights into deciding whether it is right for you.
7 Facts about Cryptocurrency
Fact #1: There are no actual coins
This electronic currency exists only on the Internet. It is money built online with “blockchains,” through a decentralized cash system that has no defined national barriers.
A blockchain is basically a digital ledger for anything and everything that has virtual value.
Fact # 2: This cryptocurrency has a lot different names
Speaking of “virtual value,” you’ll also hear people call this currency “virtual currency.”
Other generic names for bitcoin include: crypto-currency, digital currency and even software currency.
Fact #3: This cryptocurrency is just one of many crypto-currencies
Even though this currency is super hot right now, it’s definitely not the only game in town. Some people favor other cryptocurrencies, like ethereum, which hasn’t seen the same explosive price gains as this currency, and therefore proponents say has better upside potential.
Besides this currency and ethereum, some other crypto currencies include: NEO, Litecoin, Monero, Dash and Zcash.
Fact #4: Supply and demand affects this cryptocurrency, like all investments
If you’re wondering what’s driving the price of bitcoin, some of it – besides pure investor speculation – is the law supply and demand.
As you probably know, when an item has high demand but low supply, the price for that item will rise. That’s part of what’s going on with bitcoin.
By various estimates, there are roughly 16.7 million mined of this currency, and as many as 20 million overall, currently in circulation. And right now, there’s awful lot of demand, so that’s pushing up the prices.
Fact #5: You can buy this cryptocurrency fairly readily
Many people in the U.S. buy this currency from Coinbase. It’s a company that acts like a digital wallet. They let you connect your bank account to your Coinbase wallet so you can easily makes future payment transfers. You just need to make sure you have the internet at my address so you can ensure you are going to get online to access the blockchain. From there you can then buy this currency very easily.
Coinbase also lets you automatically buy this currency at regular intervals. (This might sound like dollar cost averaging, but it’s not).
Fact #6: This cryptocurrency is definitely in a bubble
Right now everyone from Uber drivers and hairdressers to schoolteachers and cashiers are buying this currency – even though many of these folks have never previously invested a day in their life.
That’s one reason this currency is up from $1,000 in the beginning of the year to well above $19,000 as of this writing, in late December 2017.
Still, bullish bitcoin advocates say bitcoin could hit $40,000 or even $50,000. Meantime, detractors argue that bitcoin is extremely over-priced, has no underlying value, and therefore its price trajectory is completely unsustainable.
Regardless of which viewpoint you believe, this currency meets the traditional definition of a “bubble” based on recent pricing and market trends alone.
Fact #7: The cryptocurrency market is tiny
This currency is currently a $300 billion market – but that’s extremely small compared with other major asset classes. For example, compare its size to some other well-established assets that have been around for well over a century:
- Bitcoin: $300 billion market
- Gold: $6 trillion market
- S. stocks: $25 trillion market
- S. bonds: $38 trillion market
As you can see, this currency has a long, long way – some say impossible – to catch up to more established financial markets.
Now you at least know the basics about this currency.
In my next article, I’ll explain the pros and cons of investing in cryptocurrency to help you make a “yes” or “no” decision about purchasing this cryptocurrency.
FAQs:
What is bitcoin and how does it work?
This decentralized digital currency allows peer-to-peer transactions via a technology called blockchain. It’s not controlled by any government or central bank.
How do I buy bitcoin safely?
You can buy this cryptocurrency through reputable exchanges like Coinbase or Binance. Always use strong passwords, enable two-factor authentication, and consider transferring your assets to a secure wallet.
Is bitcoin a good investment?
This cryptocurrency can be a profitable investment but carries high volatility and risk. It’s best viewed as a speculative asset within a diversified portfolio.
Can I lose money investing in bitcoin?
Yes. Bitcoin’s value can fluctuate dramatically. Prices can drop quickly, so only invest money you can afford to lose.
What is the difference between this cryptocurrency and other cryptocurrencies?
This cryptocurrency was the first in its class and is primarily used as a store of value. Other coins like Ethereum offer additional functionalities, such as enabling decentralized applications and smart contracts.