To understand whether you should invest in Bitcoin, you need to be aware what it is, why it it’s expected to gain value, and the risks involved with investment.
The fundamentals are explained below.
What is Bitcoin?
Bitcoin is the original cryptocurrency. At the time of writing, it remains the most commonly-owned cryptocurrency, and therefore, the most valuable.
The main differences between Bitcoin and fiat currency are:
Bitcoin is borderless: Bitcoin is traded using blockchain technology, which can exist simultaneously on unlimited ‘nodes’ with an internet connection, rather than within in a single database.
The first advantage of this are that the fees for money transfers are miniscule, especially compared to traditional international money transfers. They tend to occur much faster too.
The second advantage is that there’s no central government to ban you from owning a digital wallet, nor to control Bitcoin’s value through measures such as quantitative easing.
Bitcoin is limited: The amount of Bitcoins available to trade is controlled by an immutable computer algorithm and will be limited to 21 million. This, along with its borderless nature, means Bitcoin’s value is unlikely to be affected by your home country’s economy.
How is Bitcoin Valuable?
The value of Bitcoin is determined solely by supply and demand. As the ultimate supply is fixed, it gains value the more people want to buy it.
The more businesses accept it as payment, the more demand among consumers is likely to grow.
Both of these factors have grown every single year since Bitcoin was formed in 2008.
What are the Risks?
Although Bitcoin has been tipped to become a global currency in the near future, this isn’t a guarantee.
Many governments have made moves to prevent the trade of Bitcoin within their borders.
There is the potential for other governments to follow suit, in which case Bitcoin’s use (and therefore its financial value) will be limited.
Because of this uncertainty surrounding the future of Bitcoin, its value tends to be very volatile.
If you believe in the future of Bitcoin as a global currency, it’s well worth investing now, as its value will surely skyrocket in this scenario.
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