Bitcoin: What Should We Think?

Bitcoin for Dummies

        Bitcoin has quickly surged to become the most talked about crypto-currency in the world, and one of the most highly valued, yet volatile assets that you can invest in today. It could hypothetically alter the way we value money in society, and continue to change our lives. Now I don't claim to be a guru on the in-and-outs of this highly complex technology, but I certainly have become very interested in the topic and would love to join the conversation. 

        Bitcoin has been a huge success story in a short amount of time. To put it in perspective, if you owned just $5 of Bitcoin 7 years ago, that $5 would be worth $4.4 million today. With this being said, I'm sure the first phase of your questions originates with the question "What even is a crypto-currency?". Today, crypto-currencies have become a global phenomenon that can be traded digitally as a secure and anonymous form of payment. Bitcoin was the first of it's kind to be created in 2009, and set a trend for more of these currencies to develop. Today, there are over 900 crypto-currencies in the world, but none more successful and highly valued as Bitcoin. 

        Interestingly enough, Bitcoin lets people exchange money electronically as easily as sending an email or a text; it's that easy. The algorithms and encryption codes involved keep everything anonymous and secure from fraud or third party involvement such as a government agency. However, even though it's easy to use and exchange Bitcoins, the technology behind it is significantly more complex. 

         It works similarly to cryptography, which was originated in World War II in order to keep military messages secure and secret across different communication channels. To put it simply, Bitcoin uses a technology known as Blockchain that essentially codes and encrypts algorithms that are so complex that they can't be tracked, falsified, or regulated by an outside organization. These algorithms effectively create accounts owned by various people that have their own complex code that isn't traceable, and certainly can't be hacked (at least for now). 

        One of the reasons why Bitcoin has become so prominent is that it comes with many advantages that no other currency in the world offers. For starters, this is a decentralized currency, meaning no single government or entity can regulate the supply or value. Additionally, this crypto-currency is easily transferred from person to person via the world wide web, without going through a bank. This means that the fees are much lower, you can use them in every country, and they can be purchased in multiple currencies such as Euro's, Japanese Yen, American Dollars, and more. The fact that these assets have become highly valued just adds incentive to invest in them. But why/how do they have this value if it's not backed by anything?

        The American Dollar is valued through extensive valuation of foreign exchange rates, coupled with the supply and demand for the currency all around the world. The Federal Reserve also backs the value of the dollar, and highly regulates interest rates, supply, and inflation, etc. But Bitcoin is different, there's no government organization regulating the value or supply of this currency. It's not valued as a physical commodity like gold or silver an is not widely accepted as legal tender like the dollar. The reason Bitcoin is worth so much is narrowed down to the fact that it is popular. What I mean by this, is people are accepting and trading in Bitcoins because it has become widely known and accepted, and people want to own this asset for top dollar prices. The reason one Bitcoin is worth over $7,000 today, is because this is what people will buy them for and value them as. As long as people are wiling to buy these coins for $7,000 or more, then this is essentially their value! If people decide that this crypto-currency is worthless tomorrow and no one will buy them for more than $5, then this is essentially their value in this circumstance. 

        The concept and integrity of this technology is truly world-changing, and the rippled effect is starting to become more and more mainstream. My insight to this new crypto-currency is not by any means incredibly elaborate or extensive, but if this interests you there's so much out there to learn about crypto-currencies, and it is truly a very interesting read. Who knows what the future holds for this technology?