As Bitcoin value increases above $5,000, a lot of people are asking ‘what is Bitcoin?’ Digital currencies such as Bitcoin, Ethereum, Emercoin, are digital assets which are available solely online. The cryptocurrency is a technological revolution which seems to be next big breakthrough since the internet. The Bitcoin is the largest blockchain platform among these digital assets. Bitcoins are exchangeable for goods and services and its growing popularity will have impact on national and global economies. It is believed that the ‘bitcoin will be widely accepted by consumers who want to make secure purchases without costly bank or credit card fees’. Early adopters have made money by buying low and selling high (exchange for cash) later on. For example, if you had bought $100 worth of Bitcoin in 2010, you’d be worth over $450k in 2017.
The decentralisation of the Bitcoin design is a security benefit which protects it against risks such as inflation and the risk that the central bank would alter foreign exchange regulations (sovereignty risk). Being an emerging technology, the risks of investing in cryptocurrencies are high. This is because hitherto, the market has been driven by profit seeking investors who benefit from price fluctuations and those who invest in the blockchain technology.
However, the good news is that increasingly, consumers are now actually using cryptocurrencies in particular, Bitcoin. This extends the ecosystem because of 3rd party intermediaries. These include currency exchanges such as (Coinbase, Luno, BitPanda), online wallets such as (Electrum, Copay, Armory), investment services etc.
It is argued that cyber criminals could hide behind the anonymity cryptocurrency offers – the fear of correlation between Bitcoin and criminal activity. For example, the Petya ransomware case. The biggest risk for Bitcoin holders could stem from the 3rd party intermediaries particularly, in the event of the failure of currency exchanges.
As Bitcoin is increasingly being integrated into the global economy, the interest in Bitcoins is also increasing. People buy Bitcoins for various reasons; some use it to diversify their investment, others use it in buying and selling of goods and services. Early adpoter companies such as Microsoft and Overstock accept Bitcoin payments from customers. Stores like Amazon and BestBuy do not accept Bitcoins directly but there’s a way around that. Use Bitcoin to buy gift cards like eGifter and Gyft and then redeem the gift cards at Amazon.
The question is no longer whether the digital currency phenomenon is a fad, rather, it is in what ways would it evolve and in what ways can individuals, entrepreneurs, small business owners, investors etc., take advantage of this revolution. Investing in Bitcoin – like other high risk investments, the best advice is to proceed with caution: invest only what you can afford to lose.