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What Is Bitcoin?

Investors and journalists have compared the mania for investing in cryptocurrencies such as Bitcoin to the mid-1800s American Gold Rush. Others compare the passion for digital currency to the Dutch tulip fever of the 17th century. It remains to be seen if Bitcoin and its digital relatives will thrive and become a new gold standard, or whether they will cause a market crash comparable to the Dutch tulip craze.

Digital Currency

Digital currencies, often known as cryptocurrencies, are digital tokens created by computer networks to replace traditional currencies. Digital currency is not equivalent to credit cards, debit cards, PayPal, or ApplePay, all of which electronically access conventional currencies such as U.S. dollars, British pounds, and Chinese yuan.

The value of digital currency’s electronic tokens is determined by the exchange of conventional currencies and commodities for the tokens via specialized online exchanges such as BitPay. These exchanges function similarly to PayPal, however, they are not affiliated with PayPal. As with gold, conventional currencies and commodities are valued according to international and national financial standards.

Developing Electronic Currency

A dispersed network of computers in a closed Internet-based community executes a series of difficult cryptographic algorithms to create cryptocurrency; the output of the specialized programs is cryptocurrency represented by digital tokens. Individuals and businesses can open accounts, often known as wallets, in the specific digital communities in which the tokens are valid for trading.

The founders of the communities restrict the number of tokens that can be generated by the computers supporting transactions within the community. The community-funding crowdsourcing operation is known as an Initial Coin Offering (ICO).

Bitcoin is one of the earliest and by far the most popular cryptocurrencies with a fixed maximum supply. In 2008, a person the alias Satoshi Nakamoto created Bitcoin and the technology to generate and administer the cryptocurrency. In his exchange, Nakamoto capped the number of Bitcoins generated by the distributed network of computers at 21 million. This limited supply ensures demand for the tokens, which causes their value to rise.

The Worth of a Bitcoin

At the end of August 2017, a single Bitcoin was assigned a trade value of approximately $5,000. This greatly exceeded the value of gold at the time, which was approximately $1,300. However, within two weeks of Bitcoin’s all-time high, its value plunged to approximately $3,000. Those who put real money in Bitcoin around the middle of August and did not exit the market before the price decline lost roughly 40 percent of their investment.

Due to Bitcoin’s reputation as the most popular digital currency in the world, the Bitcoin community has become a de facto standard, much like Wall Street, London, and Tokyo’s renowned stock exchanges. Therefore, when other digital currency markets decline, Bitcoin’s value also declines. In the instance of Bitcoin’s steep value decline at the end of August 2017, this was because other cryptocurrencies lost the approval of the Chinese government after multiplying in China at an alarming rate in 2017.

The Chinese government feared the expansion of complex pyramid schemes centered around cryptocurrency exchanges that issued their digital tokens similar to Bitcoin. As a result, the authorities ordered cryptocurrency exchanges such as BTCC, OKcoin, and Huobi to close by September 30, 2017. This decree sent shivers through global cryptocurrency exchanges, resulting in Bitcoin’s fast depreciation.

 

Now that it has been demonstrated that Bitcoin is more volatile than the gold standard and traditional currencies, it is unlikely that Bitcoin will soon become the global currency standard.

Bitcoin Security

Since 2010, there have been over a dozen hacking of bitcoin exchanges. The range of losses is in the hundreds of millions (dollars). During the same period, however, conventional banking and financial institutions have lost billions of dollars to hackers. Programmers and cryptocurrency groups are diligently identifying and repairing blockchain network issues. If bitcoin is accepted by merchants in the real world, the role of sovereign central banks may be usurped by smart computer algorithms.

Before accessing bank information and conducting transactions, everybody who invests in Bitcoin should implement the appropriate internet security measures.

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