By now, you must have heard about Bitcoin in the mainstream media or social media platforms. Many people wonder if it’s a totally safe investment or not; before pronouncing whether it’s legit or not, it is important to understand what bitcoin is all about.
What is bitcoin?
Arguably, the story of bitcoin surfaced in the year 2010 when a Florida-based programmer known as Laszlo Hanyecz swapped 10,000 bitcoins for two pizzas. The exchange was the first ever known bitcoin transaction. In present day, the bitcoin frenzy has really exploded.
So, what is Bitcoin? Simply, it is an online currency that is neither controlled nor regulated–meaning, there is no legitimate institution like bank supervising the flow of transaction, and it’s not supported by any government.
Risks associated with bitcoin
The blockchain technology, which is behind bitcoin transactions is revolutionary but hardly perfect. Blockchain technology acts like a ledger, and it records all the bitcoin transactions in the world.
There is the likelihood that blockchain may become prevalent in the World commerce, but it doesn’t mean that trading and using bitcoin as a currency will ultimately replace global currencies such as dollar, British pound, or euros before long.
It is a fact that blockchain technology secures individual bitcoins. However, most bitcoin traders often use exchanges such as coinbase to hold and sell digital currencies. These centralized exchanges,
in nature, are vulnerable as they are neither controlled nor regulated and could be easily hacked, hence compromising the security of your bitcoins.
Stiff competition is also another risk. Bitcoin is the most common cryptocurrency, and it is the first of its kind. The barriers to entry are minimal when it comes to crafting alternatives.
Today, there is the emergence of new cryptocurrency networks such as litecoin, etherium, zcash, and dash. These currencies offer different means of exchange, hence increasing the risks and uncertainties in the cryptocurrency market.
It is obvious that bitcoin never pays interest or even dividend. Stock and bond prices are always supported by cash flows, but there’s nothing vital supporting bitcoin’s price apart from what the next purchaser is willing to pay.
So, is it worth to invest in bitcoin?
The recent brouhaha over bitcoin displays signs of buyers willing to pay whatever amount of money because the prices have been skyrocketing.
The “greater fool theory” puts forward that the price of an item is never determined by its intrinsic value, but by irrational expectations of the market. Going by this,
someone somewhere will be left with a bag full of bitcoins and the real money gone. Thereafter, the price will go down without any warning.
It is undeniable that the bitcoin story is quite convincing and tempting, but it is worth watching from afar. Having said that, if you have to spit out your savings in bitcoin, then invest what you can afford to lose. Bitcoin may prove to be a worthy investment at some point in the future, but today, it is more of a gamble.