In recent times, there has been great talk about Bitcoin and all the potential that it encompasses due to the new technology that it is currently using. Even more than that is the great storage of value that Bitcoin encompasses, even going as far as reaching $7000 USD in a matter of days. To truly know what all the hype is about with regards to Bitcoin, we have to first understand what the technology is about. Without further ado, here is a comprehensive review of Bitcoin and what it does.
Bitcoin was first proposed as a form of currency, one that would not be under any organisation, government or authority what so ever, and has its vision set on being a worldwide digital payment system. But what sets it apart from other currency is the fact that it is being operated on a decentralised network, one where no authority would be able to manipulate it. The very technology behind Bitcoin was even invented by a group of or an unknown person under the alias of Satoshi Nakamoto back in 2009. The system uses a peer to peer network where transactions would take place, similar to the use of a torrent network. Each time a transaction goes through, it will be written on a distributed ledger that is recorded publicly.
The most important use of a cryptocurrency like bitcoin is as a protection against currencies that are high in inflation. Many people in countries such as Zimbabwe utilise bitcoin as a currency to protect the true value of their currency. On the other hand, bitcoin was also intended as a medium of exchange but could only work if a large number of merchants decide to adopt it in its system. However, from 2014 onwards, Bitcoin has transformed from a currency to one that is more of an investment. Because of its volatility, it has largely limited the use of Bitcoin as a store of value or as a form of transaction in stores. Largely because of speculation and onset of the uses of blockchain technology, the limited knowledge of the mass majority, has resulted in speculation of bitcoin’s value.
The Potential Fall of Bitcoin
Before understanding why a crash in bitcoin might happen, we have to first understand why bitcoin was rising. The main reason why speculators decided to enter bitcoin is that of a certain event called “forks” These forks result in bitcoin splitting its currency into two separate currencies and both of which will have different values. Now although both coins will end up taking different values on the market, it would potentially multiply the wealth of the investor. Now when such an event happens, many people would participate in the classic “pump and dump”, resulting in the coin crashing after the initial rise. To add to that, most investors go in without having an idea of the actual uses of bitcoin, creating unnecessary hype and uncertainty in the market. The question then becomes: should you invest in Bitcoin? As with all fundamental problems, you should understand what the technology is, before making a judgement and not buy into the hype.