Whenever we talk about digital currencies, the first name that comes to our mind is BITCOIN. Such an impact it has created, introduced just a decade back i.e. in 2009 by Satoshi Nakamoto, it has been a great success. Bitcoin is the first decentralized digital currency that can be transferred using blockchain technology i.e. without any intermediary like banks, government, etc. It is mainly used as a source of online purchasing, payments, transfers, and held even as an investment.
It has gained quite a popularity because it leads to faster transfers across the globe with no or fewer fees and such transactions are secured i.e. inability to counterfeit through blockchain technology. Since it is a decentralized currency, there is no control or charging of fees by the government, so people are free to make transactions at their own will. It is transparent i.e. transaction’s information i.e. the volume and number are accessible to the public whereas the user information is hidden.
Understand the Bitcoin Success
To understand the success of Bitcoin, there is a need to know about the Blockchain technology used. It is a public distributed ledger where the transactions of a digital currency are recorded in chronological order. It is cryptographically secure, immutable, and decentralized. As the name itself indicates, a Chain of Blocks i.e. the transactions are stored in containers called Blocks and all these blocks together form a bigger chain.
Each block contains a Previous Hash (which links the current block to the previous block by indicating it’s hash), Data (related to the transaction), Nonce (a random value which distinguishes the blocks by generating a hash), Hash (resultant hash formed using all the other three components of a block, indicating the identity of the current block).
The most important aspect of Bitcoin is Bitcoin Mining. It is a process of verifying the Bitcoin recorded in the Blockchain. The verification is done by the participant users termed as “MINERS”. Any user can be a miner if he has mining hardware and an internet connection. Now, a very interesting aspect of mining is to give a “proof of work” i.e. solving a mathematical puzzle to validate a transaction after producing a nonce and whoever solves it first gets a reward of 12.5 bitcoins which is very huge in today’s date. If a miner is unable to solve this puzzle, he will have to return to modify the nonce followed by puzzle-solving and if it is solved, then only one can assign a hash to the block.
Origin Of Bitcoin
To get to the current rise and the upcoming future of Bitcoin, we needed to understand it’s working. What led to the origin of Bitcoin was the financial crisis of 2008 where the banking system failed and there was a need to introduce something which bypassed the government and banks, so a virtual currency was introduced. It took time to adjust to the market and make people believe why it was better than the fiat currency. There is a set-limit of 21million bitcoins i.e. no more could be further supplied in the market. Currently, 18.5 million are already mined leaving behind just a 2.5million bitcoins to be yet mined.
At the time of launching, it was just worth $0.0008. Then, it started rising in around July 2010, and then getting to a price of $17.96 in June 2011, it faced a fall. Then, it saw some baby fluctuations i.e. rise and fall until 2016. 2016 brought the biggest change in its value, it started at a very high pace, it grew exponentially, the supply was limited but due to the hype and actual demand, its price reached around $1000 and it never looked back.
From the 2016 year onwards, the mathematical puzzle’s level of difficulty increased a lot. It was because earlier it was available in larger quantities but by the end of 2016, around 16.8million bitcoins were already mined and the number of exchanges, countries involved in it increased. Since it is a commodity similar to gold, oil, etc. price is determined by the market forces of demand and supply, the value of reward i.e. 12.5bitcoins is a kind of a big deal nowadays. The puzzle was solved using CPU(Central processing unit) initially but it turned out to be inefficient to solve such tough puzzles, then came GPU(Graphically processing unit) but it consumed way too much power, but now all of the miners use ASIC(Application Specific Integrated Circuit) which is efficient in every aspect.
Reason for hike in the Bitcoin Price
The reason for such a hike in the price of bitcoin is the hype created especially amongst the youngsters, easy conversion of black money but if the government gets to know that bitcoin is illegally sold, it auctions the bitcoins to the general public which further increases its value. Some countries are legalizing it, another way of increasing its demand and hence, price.
The worth of bitcoin is not going to be the same as it is today in the next 10 years. It is considered by all the experts that it is bound to increase at a very high pace looking at the current scenario. The current price of bitcoin is estimated to be around $13500 to $15000.
It is also considered that the value may reach $100K t0 $500K within next 10 year. It can help shape the economy and build a better future for all. It can be used to create wealth within a shorter period, provide an environment where there is a massive wave of baby boomers retiring with record debts, and central banks and the governments need to figure out the way to stimulate the economy. It can bring a beneficial rise in economic activities bringing great opportunities for poorly banked countries. The transactions will be at a lower cost but with increased transparency and more power will be in the hands of entrepreneurs since there will be no government intervention. It has provided a parallel system to get into where trusted ownership and blockchain security have played a very major role.
Also read – Bitcoin Price Prediction 2050
Gold has always been a major source of currency, so if bitcoin is introduced in this form, then it is expecting a great future ahead too. This new era with help in managing a business cycle and hence, problems like financial crises won’t be a big deal now.
Reasons to Be Careful
But again, there are reasons why one shouldn’t invest in bitcoin. Either one can earn or lose millions of money in it. It is such a volatile instrument that one can never be sure of what the returns could be, it is very risky to invest. Further, there is always a lack of clarity on whether to consider it as a commodity or a currency. It is an unregulated space i.e. not managed by any authority so it can lead to a lot of problems while investing. It is not even legalized in many countries, a major example being India. There is even a risk of fraud or misinformation like the Ponzi schemes.
Despite the facts stated above, we are still aware of its benefits and this attracts people to invest in it. There is nothing wrong with investing as long as one is interested in it and has the complete information from its working to risks involved.