Virtual cryptocurrency ‘Bitcoin’ has been in the media spotlight recently after a number of high profile security issues, and the massive fluctuation in the value of the currency has cemented its status as a cultural icon.
However, is Bitcoin a good investment, or something to avoid at all costs? In this article we attempt to come to a decision on whether Bitcoin is a viable investment or not.
About Bitcoin
Bitcoin is a virtual cryptocurrency introduced in 2009 by developer Satoshi Nakamoto. Bitcoins can be created by ‘mining’, in short, a process which involves users using the power of their computers to process and record payments into a public ledger.
Bitcoin can also be obtained in exchange for physical money, products and services.
Unlike traditional money, bitcoin exists only online. To create, or “mine”, the currency, computers guess solutions to complex math problems and send them to other computers on the bitcoin network.
As time goes on and more coins are mined, it becomes more difficult to create bitcoins. Right now, about 12 million bitcoins have been found, with about 9 million yet to be uncovered.
Bitcoin has been the subject of scrutiny in relation to concerns it can be used for illegal activity. In October 2013, the FBI shut down the Silk Road online black market and seized over 140,000 bitcoins, which at the time was worth in excess of US$28 million.
Since the seizure, Bitcoin value has fluctuated greatly as it’s presence was brought into the global spotlight.
Is It a Good Investment?
According to Bitcoin Foundation executive director Jon Matonis, Bitcoin are only a good investment if you can afford to lose them all. The volatility of the Bitcoin market means that the coins are only worth what the people who want them think they are worth, and that is not always in line with what people who currently own them think they are worth.
It’s limited supply has made bitcoin an attractive currency to people with concerns about the inflation rates of traditional currency, whilst it’s inherent anonymity makes it a favorite among those making illegal transactions.
Many proponents of bitcoin believe that it could become an integral part of the remittance market, since bitcoins can be sent to relatives abroad with lower fees and less hassle than the more traditional money transfer services.
Bitcoin investor Raoul Pal, a former hedge-fund manager and founder of Global Macro Investor thinks that although there is a likelihood that bitcoin will end up being worthless, there’s also a significant chance that it could end up taking over gold’s traditional role as a store of value and if it does, the potential upside for bitcoin is possibly hundreds of times the current price.
Another way of putting it is that a small amount of bitcoin is similar to a lottery ticket, it will likely be worth nothing, but if it’s worth something, it could potentially be a massive amount.
In conclusion, as Jon Matonis stated, if you can afford to lose your initial investment, bitcoin is definitely worth a punt, potential returns are massive, and if you start out small, losses are probably going to be insignificant. However, if you aren’t prepared to potentially lose thousands of pounds, bitcoin is not the investment for you and will only end in disappointment.
Bradley Shore is an experienced travel and investment blogger, his main interests being property investment as you can see in his recent work for emerald knight investments. He also likes to write about all different types of investments to help build his readers knowledge.