The Road to Riches or Ruin? Investing in Bitcoin

The internet is of course awash with money making ideas and in reality many of them are a waste of time. However there’s one option that has moved into the mainstream over the last few years – digital currencies. They are being talked about everywhere, and whether you hear stories of impending doom or vast riches – investing in these currencies has some merit. There are now many different types of these currencies, however by far the largest is that of Bitcoin.

Bitcoin is a brand new kind of electronic money with cryptographic keys that’s decentralized to a network of computers utilized by users and miners around the globe and isn’t controlled by a single organization or government. Like some other currency, users can use the electronic money to purchase goods and services on-line and also in some physical stores that accept it as a type of payment.  It doesn’t require any proof of identity,  and you can pay or receive payment almost anonymously without even needing to hide  your location.   However many people do try and hide their location using software like VPNs.  However you might have problems accessing some sites when using a VPN as some like the BBC have blocked them to enforce their region locks.

Currency traders may also trade Bitcoins in Bitcoin exchanges. Bitcoin doesn’t have a centralized authority or clearing house. The peer-to peer payment network is managed by users and miners around the globe. The currency is anonymously transferred directly between users throughout the internet without going through a clearing house.

Bitcoin is created through a process called Bitcoin mining. Miners around the globe use mining software and computers to solve complex bitcoin algorithms and also to approve Bitcoin transactions. They’re awarded with interchange fee and new Bitcoins generated from solving Bitcoin algorithms. There’s a limited amount of Bitcoins in circulation. The difficulty of extracting Bitcoin becomes harder as more Bitcoins are generated, and the maximum amount in circulation is limited to 21 million. This makes Bitcoins more valuable as more individuals use them. A public ledger called Blockchain records all Bitcoin transactions and shows each Bitcoin owner’s respective holdings. Everyone can access the public ledger to verify transactions.

This makes the electronic money more transparent and predictable. The transparency prevents fraud and double spending of the same Bitcoins. The electronic money can be acquired through Bitcoin mining or Bitcoin exchanges. The electronic money is accepted by a limited number of merchants online and in some mortar and brick retailers. Bitcoin purses are utilized for storing Bitcoins, private keys and public addresses and also for anonymously transferring Bitcoins between users. Bitcoins aren’t insured and aren’t protected by government agencies. They can’t be recovered if the secret keys are stolen by a hacker or lost to a failed hard disk drive, or due to the closure of a Bitcoin exchange.

In case the secret keys are lost, the associated Bitcoins can’t be recovered and will be out of circulation. The bitcoin has grown from around $14 to a peak of $11,200 USD this year before dropping back slightly during the time of writing. Bitcoin rose this year because investors speculated that the currency would gain wider acceptance and that it’d increase in price. The currency plunged 50% in December because BTC China announced that it could no longer accept new deposits due to government regulations.

James Collins

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