Where the heck did Bitcoin come from? I had never heard of it, and then suddenly it was everywhere. I read about it going through the roof and then crashing down again–and then going back up again, of course. It seems really exciting, and I don’t want to miss the boat on some huge investment opportunity, but I am a little concerned that I don’t understand it well enough to invest wisely. Can the experts tell me a little bit about how Bitcoin works, and whether or not it’s a good idea to invest in it right now?
Bitcoin is something called a “cryptocurrency.” That means that it’s a currency, like American dollars and British pounds, only with a few key distinctions.
For one thing, cryptocurrencies like Bitcoin don’t exist as paper bills or metal coins. They’re completely digital and exist only as an address in a digital record. Bitcoin isn’t the first digital currency, but it became popular because of the technology that made it so useful: blockchain. A blockchain is a type of digital record. It creates blocks of data that are linked together. Because of how the blockchain is structured, and because of its use of cryptography, a blockchain makes it very tough to alter the data in it. Bitcoin’s blockchain is used to record transactions, so that everyone knows whose bitcoins are whose.
There’s another difference between Bitcoin and more traditional currencies, and that’s that Bitcoin is not backed by a government. That appeals to some users, who like the idea of an independent, private currency. In fact, some of the first people to adopt Bitcoin were using it to make illegal purchases.
These days, Bitcoin is the best-known of the cryptocurrencies, all of which are having a moment. Investors are snapping up cryptocurrencies and blockchain companies, and things have gotten pretty volatile. Bitcoin has had a meteoric rise: in 2017, it went from being worth less than $1,000 to being worth $17,900 per Bitcoin. But it has also had its setbacks: it feel again to less than $14,000 by the end of that year, and dropped below $10,000 in a second crash in 2018. Yet, rIght now, Bitcoin is still quite valuable. According to Buy BlockChain, a cryptocurrency tracking and news site, one Bitcoin is worth around 10,000 U.S. dollars. That’s up from the last big drop.
Bitcoin is an investment with a lot of upside–and a lot of downside. You can certainly choose to invest in it, though you should be careful not to invest more than you can afford to lose. For the bulk of your investments, it is probably best to keep a diverse portfolio of stocks and bonds in large, stable companies. But that doesn’t mean a portion of your funds can’t be in Bitcoin, other cryptocurrencies, and blockchain companies.
“Bitcoin was created to serve a highly political intent, a free and uncensored network where all can participate with equal access.” — Amir Taaki