One By 2011, many new cryptocurrencies hadOne By 2011, many new cryptocurrencies had

One
of the most talked about investments of 2017 was not a stock or real estate but
a cryptocurrency called bitcoin, primarily due to its rapid increase in
popularity and rising price. It has been soaring since last year and recently
hit the milestone of twenty thousand dollars. Lots of investors prefer bitcoin
over traditional currencies for a multitude of reasons, such as security and
anonymity. However, there is still a lot of skepticism around the concept of
cryptocurrencies and whether bitcoin is a reliable investment or a scam. However,
despite these skeptics, it seems as though bitcoin and cryptocurrencies will remain
a form of investment in the long-term.

The
History of Bitcoin

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            The history of bitcoin is both short
and eventful. Although other cryptocurrencies were in development beforehand, they
never became available to the public, so bitcoin became the first and was
officially established in 2009. With no other cryptocurrencies with which to
compare it, bitcoin itself established how it was mined/created and how
transactions were recorded and verified. Since bitcoin had never been traded
before, it held no monetary value until 2010, when someone traded ten thousand
Bitcoins for two pizzas. By 2011, many new cryptocurrencies had attempted to
compete with bitcoin, including Lite Coin. As a result of emerging competition,
as well as other factors, bitcoin experienced its first price cash in 2013. As
the price of bitcoin began to rise, slowly and steadily, it eventually hit the
one-thousand-dollar price point. However, this high was short-lived and would
soon after crash to around three hundred dollars. This crash proved to be a
serious blow to bitcoin’s reputation and it took almost two more years to reach
the one-thousand-dollar mark again. By 2014, bitcoin was being used in a number
of scams and thefts, including sports bets and illegal gambling activities. One
of the biggest scams involved the bitcoin exchange, Mt. Gox, discovering bitcoin
had been illegally withdrawn at a value of over $450,000,000.

Despite this damning association, it
didn’t prevent bitcoin from taking off between 2014 and 2017, and has largely
contributed to the cryptocurrency being made more available to use in more
retailers and websites. This increased popularity led to a wider audience
starting to mine and buy bitcoin, which resulted in its price soaring and the
market cap going from eleven billion dollars to over three hundred billion
dollars. As of 2017, bitcoin has passed the twenty-thousand-dollar mark and been
named one of the best investments of the year (‘An Abridged History of Bitcoin’
2013).

The
Problems with Bitcoin

While bitcoin has become one of the
top investments of 2017, skepticism and downsides to the cryptocurrency still remain.
Bitcoin is often used by hackers and online criminals because of its anonymity;
it cannot be tracked nor linked to an owner, unlike a credit card. This makes
it a popular target for hackers to try and steal, and they can often get away
with it. Large value thefts can severely damage the bitcoin community and even
ruin companies, such as when Mt. Gox declared bankruptcy after being hacked, or
like when the market crashed after trade exchange Britfinex was breached and
lost over sixty million dollars in 2016. Worse still, as bitcoin is both an
anonymous and unregulated currency, if someone steals it, there is no way for
the original owner to get it back.

Another issue that investors have
is that bitcoin no longer has a monopoly on cryptocurrency. Even though the
price of bitcoin has more than doubled in a year, it is losing market share to
the seven hundred other companies that have entered the cryptocurrency space. This
rise is competition has seen bitcoin’s previous eighty-five percent market
share in 2016 fall to around fifty percent in 2017. Thus, while bitcoin is
growing at a rapid rate, so is the cryptocurrency as a whole. Many investors have
predicted that cryptocurrency investment will continue to grow, but that
bitcoin might lose its position as market leader as alternatives, like altcoin,
offer cheaper methods of buying currency.

Further, bitcoin is considered extremely
volatile and investors believe cryptocurrency to be extremely risky. A large fear
is that because cryptocurrency prices are not regulated by any governing body, that
many will buy into bitcoin seeking to capitalize on its high price, only for it
to form a bubble that, when burst, could create widespread and significant
economic losses (‘What Are the Advantages and Disadvantages of Bitcoin’ 2014). Investor
Howard Marks says, “I think I
understand what a digital currency is, how bitcoin works, and some of the
arguments for it. But I still don’t feel like putting my money into it, because
I consider it a speculative bubble” (Kim 2017).

The
Benefits of Bitcoin

So, considering these risks, why do
people continue to invest in bitcoin? Bitcoin’s biggest advantage is that it
cannot be suspect to fraud. While credit cards or even checks can be forged,
cryptocurrency is digital and, so, cannot be counterfeited.

Also, bitcoin is a low-cost option
for buying and selling online. Online banking services, like PayPal, often include
a fee with every transaction, yet, because cryptocurrency is mined and
compensated by the network, most transaction fees are not enforced.

Another advantage is that bitcoin is
accessible to everyone and can be used anywhere in the world. Unlike credit
cards, PayPal, or other traditional banking sites, bitcoin is accessible to
anyone with internet access and has no required age limit.

Further, bitcoin offers its users a
sense of ownership unlike anywhere else. Owners are the only ones who control their
currency, unlike banks and sites like PayPal, who are the legal owners of your
account and so can freeze and cancel it if you don’t follow their terms of
service.

Finally, as bitcoin can be accepted
and used anywhere, and are considered peer-to-peer exchange, the cryptocurrency
doesn’t succumb to exchange rates and other third party regulations (‘What Are
the Advantages of Paying with Bitcoin’ 2014). This means that purchases made
with bitcoin are not taxed by any government or any other official body, nor
does any third-party body have the right to interfere or freeze bitcoin
transactions.

Experts’
View

Expert views by professional investors
on bitcoin remain wildly varied. Billionaire Mark Cuban summarizes it by
saying, “you’ve got to pretend you’ve already lost your money… It’s a flyer,
but I’d limit it to 10 percent,” and sees the investment as a risky “Hail Mary”
(Elkins 2017). Others, like JPMorgan CEO Jamie Dimon, call it a “Fraud” and
“It’s just not a real thing. Eventually it will be closed” (Kharpal
2017). However, some have a more optimistic view of bitcoin, such as
billionaire investor Peter Thiel, who says, “If bitcoin ends up being the
cyber equivalent of gold, it has a great potential left” (Kharpal 2017).

Conclusion

Overall, cryptocurrency is still
considered a new investment and currency exchange unit in society. While bitcoin
has its advantages, such as being a nontaxable global currency, it also has its
disadvantages, such as being a volatile, non-regulated currency with extremely
varying prices. Having recently passed the twenty-thousand-dollar mark, despite
being associated with gambling and hacking just a few short years ago, no one
really knows how valuable bitcoin and other cryptocurrencies will become in the
future. For now, investors and non-investors alike will likely continue talking
about and using cryptocurrencies, and it remains to be seen if bitcoin will
prove to be a bubble or a currency and investment strategy of the future.