The bitcoin virtual currency was introduced in 2009 and has gained considerable popularity over the years. Bitcoin transactions are made through a peer-to-peer network that is independent of any central authority. The money supply of bitcoin only increases by a pre-determined amount over time. For more info, you can use guidelines about bitcoin investment.
A bitcoin can be subdivided down to 8 decimal places which result in units smaller than 0.00000001 bitcoins called ‘satoshis’ (named after the bitcoin creator(s) satoshi nakamoto). 1 bitcoin = 10^8 satoshis = 100 000 000 satoshis.
The total number of Bitcoin units will be capped at 21 million BTC. Therefore, Bitcoin is inherently deflationary as demand for it goes up but the supply remains the same. Bitcoin’s deflationary nature is an issue that has been discussed at length in some of the Bitcoin forums. However, it can be argued that Bitcoin is not all that different from some central banks’ conduct of monetary policy through inflation targeting.
The Bitcoin economy has had its fair share of growing pains since it began in 2009 with many Bitcoiners becoming disillusioned with the crypto-currency as a result. The website “Bitcoin Obituaries” lists 58 times when Bitcoin suffered a crisis or was declared dead by someone involved in the Bitcoin community. Bitcoin is a decentralized entity that does not rely on any one nation’s economy or currency. Bitcoin’s independence may be its biggest strength but it can also be perceived as Bitcoin’s “Achilles heel”.
The Bitcoin community has successfully overcome the various challenges that Bitcoin has faced since its inception. One of Bitcoin’s main strengths is its resilience, which was proven by Bitcoin coming back stronger after every crash it experienced. Bitcoin will continue to face challenges in the future and may even flop due to unforeseen circumstances, but if Bitcoin keeps proving itself resilient, it will survive for many years to come.
Concerns have been raised about how much energy mining Bitcoins consumes. Mining requires intensive computation making it difficult for traditional computers to compete against FPGAs and ASICs. Bitcoin miners have been moving from CPU mining to GPU mining and FPGA / ASIC mining over the last few years in order to remain competitive.
About a year ago, Bitcoin was mostly mined by PCs with powerful graphics cards, now it is mostly done on specialized Bitcoin hardware called Asics that have been designed only for Bitcoin mining. Bitcoin has experienced a rapid increase in difficulty since 2011 which makes it harder to mine Bitcoins today than it did a year ago. This may be one of the reasons why Bitcoin’s value is soaring!
The number of daily transactions involving Bitcoin has increased exponentially over the past 12 months as more merchants have started accepting Bitcoins as payment. Increasing adoption will likely lead to even greater acceptance of Bitcoin payments worldwide leading to Bitcoin’s value increasing even further. Bitcoin has proven to be a safe haven during times of economic instability or hyperinflation, as was the case in Cyprus back in 2013.
Bitcoin is an emerging market that cannot be ignored by any serious investor seeking opportunities for portfolio diversification at their disposal. However, Bitcoin is still too volatile and experimental for most investors to justify including Bitcoin into their portfolios just yet!
Bitcoin & world economy
The Bitcoin community has been facing some challenges which have caused unease among Bitcoiners recently. Most notable may be the seizure of Bitcoins belonging to former Silk Road operators and the subsequent sale of those coins by US authorities on various exchanges causing considerable price fluctuations and panic selling. There is also evidence that Bitcoin users who used Bitcoin prior to March 14th, may be connected to Bitcoin transactions from the now-defunct Silk Road. Bitcoiners were also disappointed by a ruling from Canada’s Central Bank which declared Bitcoin as a currency as opposed to commodity-like money as previously determined.
In an attempt to address Bitcoin volatility and fluctuation issues, Bitcoin exchanges have implemented various strategies such as hedging and transaction fee mining schemes. These attempts at stabilizing Bitcoin prices were not enough to calm Bitcoin investors’ unease about what was going on with their investments in the crypto-currency. The good news is that Bitcoin will continue being traded even if one of the major Bitcoin exchanges goes belly up thanks to the decentralized nature of Bitcoin!
Money flow & trade
Bitcoin has been treated as a security in some jurisdictions and Bitcoin exchanges have been actively targeted by hackers in recent months. Bitcoin companies like Bitcoinica, Bitcoin Solutions, and Bitcoin Central all suffered breaches of their Bitcoin wallets with Bitcoinica alone reportedly losing over 43000 BTC. Bitcoin has also seen an increase in use for illegal activities such as gambling and extortion via the Bitcoin ransom approach!
Despite all these setbacks, Bitcoin continues to be adopted by more businesses worldwide and is becoming recognized as a legitimate currency even by countries like Germany and Thailand. Bitcoin has become more acceptable than ever before with popular travel booking websites Expedia and CheapAir adding Bitcoin payments support while blogging website WordPress started accepting Bitcoins too!
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