Probably one of the most discussed subjects online in recent years is Bitcoin. What do we think of it, and is it smart to invest money in it?
Bitcoin created a shockwave through the financial world. Together with other crypto currencies it provided an alternative to the FIAT currency markets and created an entirely new economy. One that is global and does not care about the economic situations of the different countries around the world.
But what is it? In simple terms Bitcoin and other crypto currencies are blockchains. A chain that is comprised of all transactions that ever happened, an algorithm and a huge amount of code. Nothing very special to the common man, but to computer technicians it is probably one of the most impressive things that ever happened.
Should you put your money in it? Especially over the last year the value of a single Bitcoin has risen to thousands of dollars. If you invested in Bitcoin at the start, and you bought a serious amount, you are likely laughing right now, because you made those millions. You are officially a millionaire and you did not really have to work for it. But what is the real tangible value of it?
Really the blockchain is nothing more than digital code. The only thing that makes a difference is that there is a limited amount of coins available. You can mine the coins, but the total amount of Bitcoin is a pre defined number. For this reason, in a technical sense, it can only deflate. Meaning the value should become higher, always. The only thing that is needed for that is that it is used more. So as more stores start accepting it, the value will keep rising. As more miners arrive, and more buyers, the value will keep on increasing. Focu on hyping it, and collectively you are forcing the world to make you a millionare.
Both Bitcoin and the alternative coin Litecoin have now been embedded in to the CFD market. Respected internet brokers like Plus500 allow you to invest in it without actually buying the coins, you simply buy the CFD contracts on the market. Using just 500 bucks you can invest in up to 100.000 dollar worth of Bitcoin. It works with a leverage system. And when it grows you make a huge profit. Want to learn more? Just visit that website. Big business is doing it, so why wouldn’t you?
On the other hand, it is just digital code, and like FIAT currencies, there is not much difference there. It is not a real thing, like a house, or a golden ring. It exists in the digital world and nowhere else. No matter how sophisticated the system is, in a true sense, it is not much more than a number inserted in a digital database. Like credits on a Poker site, really. The big difference there is that the blockchain is managed by all its users, and is completely open. Meaning every single event that ever happened is visible In the blockchain. Every payment, every coin mined, yes, really all of it.
So there is a system that is owned by the users, not so much by a single entity. In the case of FIAT currencies, like the dollar or the euro, these are also just digital numbers. Everything is digitalized meaning banks can simply change the number in the database and you are dependent on what happens next. There are the financial watchdogs who make sure there is no abuse. But with the blockchain, every user is a watchdog.
How does it relate to previous metals like gold and silver? Traditionally these resources have been used as an alternative to FIAT currencies. Whenever the economy went bad, investors jumped on the metal market and gold and silver would rise in value. Because there are limited amounts as well, and those metals are tangible. You buy a silver coin, its a real coin, and it can be exchanged for money at millions of locations worldwide. Usually at a rate that is very close to the market value. But gold can be mined as well, like crypto currencies, and there is no real way of knowing how much gold actually exists in the ground. So should a big discovery be made, the value might drop. However, countries in the world choose to keep their reserves in gold and silver. And it is used in the industry, so there is something to say for that.
At the moment I am writing this article the price of Bitcoin is close to 10.000 dollars for each coin. The real remaining question is, is something digital, something invented by some random guy on the internet, really worth the 10.000? I am not convinced of this. The hype is incredible and it is likely it will still grow bigger. So right now, yes, you can invest in it. Do not put all your hard earned money in it, but get at least a bit of Bitcoin. As it hits the mainstream markets now, it will surely increase more and you will make a profit. But for the long term? No. Make that profit and get something tangible with it. Buy a house, or a piece of land. Why? Because that is not created out of thin air by some internet guru, but it is something in the real world, and there is limited availability as well. And with real estate it is not a question of availability and demand, the demand will always increase in the long run, if the population grows.