What is Bitcoin? The oldest cryptocurrency, Bitcoin is a Peer-to-Peer Cryptocurrency Payment System. It was established in 2009 by Satoshi Nakamoto. Bitcoin has the highest market cap value of any cryptocurrency.
It is an open-source, block chain-based technology that was designed as a peer-to-peer payment system. Bitcoin is a decentralized electronic payment method. Payment is conducted semi-anonymously between individuals. Much like digital cash, each payment is registed on the blockchain. The other intent of Bitcoin is to solve the double spend, trust problem. Electronic currency experiments in the past had this problem.
Using block chain technology to maintain its functionality, cryptocurrency miners contribute to the system. In order for users to send and receive cryptocurrency, the block chain depends on miners. Moreover, computers operate as miners, completing complex calculations. The blocks are then added to the block chain. Miners are rewarded with Bitcoin as payment.
Bitcoin was born in January 2009. It is unknown who invented it; however, a developer named Satoshi Nakamoto (probably a pseudonym) released a 9-page white paper entitled, “Bitcoin: A Peer-to-Peer Electronic Cash System.” The Bitcoin white paper describes Bitcoin’s purpose and how it works.
Finally, Bitcoin was the first cryptocurrency to experience widespread use and adoption. However, its use case has evolved over the years from a peer-to-peer payment method to a store of value model. Many users hold it much like you would hold silver or gold in an investment portfolio.
Bitcoin Limited Supply
There is a limited supply of Bitcoin. Only 21 million Bitcoins will mined for circulation. Therefore, by definition, it is a deflationary money. This is in stark contrast to how central banks around the world like the Federal Reserve Bank print more money, continuously creating inflation.
Currently, approximately 18.5 million Bitcoins exist from mining. In theory, there are only 2.5 million Bitcoins remaining for miners. This means that 88% of all Bitcoins that will ever be produced are already circulating. Once 21 million Bitcoins have been mined, no more coins will be produced. As a result, cryptocurrency mining will cease. In addition, limited supply of it is what is so exciting about the prediction of its price.
What is Cryptocurrency?
Cryptocurrency is a digital asset that can beused as payment from person to person on the internet. The best cryptocurrency uses cryptography to secure transactions on a network. Block chain technology is part of what makes the network secure. Miners use powerful computers to solve advanced equations in order to earn cryptocurrency. Finally, mining makes the distributed ledger network secure. In addition, it ensures that transactions are completed. As a result, no one can cheat the system.
History of Cryptocurrency: Cryptography and the Cypherpunks
In the 1970s, a loose affiliation of programmers and mathematicians in the United States began communicating about issues related to cryptography. Prior to the 1970s, cryptography was the domain of governments, military and spy organizations. Cryptography is the study of writing and solving codes.
The Cypherpunks formed in the 1970s and 1980s. Computer development began later. The Cypherpunks debated privacy and security issues. Soon, these issues became directly related to communications between computers. In the 1980s, individuals associated with the Cypherpunk movement began experimenting with digital cash, one of the predecessors to modern cryptocurrency. Ultimately, the groundwork laid by these pioneers led to development of modern cryptocurrency using newer technology.
What is Block Chain?
At its simplest form, the block chain is data stored on a public database. The blocks of information include transaction data, participant data and distinguishing data. Each block of data stores thousands of transactions under cryptographic lock and key. A network of computers operate the blockchain. They make the network run and keep it secure by solving algorithmic hashes. The network computers earn cryptocurrency for their work.
What is the Best Cryptocurrency?
The best cryptocurrency is a project that is the most secure and has the strongest user base. In addition, it has been operating the longest and has the highest capitalized market. Using these standards, Bitcoin is the best cryptocurrency.
Pros of Owning Cryptocurrency
Owning Cryptocurrencies Requires Belief That They Will Save a Failing System
Owning cryptocurrencies requires some dogmatic belief that they can save our failing system. In addition, cryptocurrency is inherently risky for investors. Furthermore, cryptocurrencies are highly volatile. If you believe that the financial system is failing, then crypto might save it.
Bitcoin doesn’t require using a bank; the cryptocurrency holder is the bank. Making borderless payments between friends became easier and more private. In addition, cryptocurrency is deflationary, with only 21 million Bitcoins available for use. And if you are starting to have doubts about government money printing and overspending, then it is an obvious candidate for safe haven status.
Cons of Owning Cryptocurrency
Fraud, Theft and Volatility Are Still Issues with Cryptocurrencies
There are some downsides to owning cryptocurrency. Cryptocurrency and the block chain space are a very new industry. Bitcoin is only 11 years old and there have been growing pains in the space. First, cryptocurrency has been vulnerable to fraud in the past. Second, scams have been a problem in the industry, especially with new projects. Finally, price volatility has frightened away many new potential users.
Bitcoin Continues to Grow
There are a couple of things to understand about Bitcoin growth. First, it is growing in popularity and use worldwide. Users are adopting it as a store of value like gold and using it as a payment method in places where banks don’t exist. Second, Bitcoin is growing in price.
When users began mining it on laptops in 2009, it had little value. In contrast, one Bitcoin is equal to approximately $10,000! Around 2020, billions of Dollars of institutional money began to flow into cryptocurrency investments.
Examples of Institutional Money Investments in Bitcoin:
- ARK Investment Management and Kinetic Portfolios Trust, two large investment funds representing wealthy clients, have begun investing in the Grayscale Bitcoin Trust.
- Wall Street billionaire investor Paul Tudor Jones has invested approximately 2% of his investment portfolio in Bitcoin
- Michael Saylor, Founder and CEO of MicroStrategy invested over $400 Million in Bitcoin in 2020.
- Twitter/Square CEO Jack Dorsey invested $50 Million in October 2020 in Bitcoin.
There are many other known examples of institutional investors who invested in Bitcoin.
Trace Mayer, Bitcoin Ambassador
One of the early champions of Bitcoin was Trace Mayer. He is one of the OG Crypto investors. In fact, he began purchasing Bitcoin when it cost $0.25. But he’s also one of the brightest Bitcoin ambassadors as well. For example, Mayer has developed what he calls the seven network effects of Bitcoin.
The seven network effects of bitcoin are the keys to why Bitcoin will continue to grow and increase in value. In addition, the network effects that he has outlined are not hype. In contrast, the network effects of Bitcoin are logical and reasonable market factors that drive Bitcoin.
Bitcoin Network Effect
From day one, Bitcoin has been viewed as a novelty. It is a blockchain cryptocurrency that can be exchanged for other currencies. Bitcoin is somewhat outside the regulatory oversight of many governments and it’s hard to track. It is also very volatile because of its small market cap and price fluctuations. As a result, it is popular among speculators who don’t mind the unpredictability of volatile financial markets.
2. Merchant Adoption
Some merchants adopted Bitcoin because of its functionality. For example, accepting it as a payment method allows businesses to avoid paying credit card fees and chargebacks.
3. Consumer Adoption
Incentives for using Bitcoin are provided to consumers making purchases online. Examples include using the Purse App to shop on Amazon (20% discount), buying items that are not available to Americans such as Cuban cigars and Persian rugs.
Merchant, consumer, and speculator adoption lead to a higher price and thus incentivize more miners to participate and secure the system. The decentralized, immutable transaction ledger also serves as a form of Triple Entry Bookkeeping, wherein Debits plus Credits plus the Network Confirmations of transactions increase trust and accountability across the system.
5. Developer Mindshare
Bitcoin is a dumb and predictable network with simple rules and a publicly-auditable codebase. It is ideal for development of complicated algorithms and machine-to-machine payment protocols. In addition, this includes smart contracts, and other tools. Its decentralized nature allows for innovation without permission. Altcoins pose little threat as Bitcoin is already dominant as a store of value and as a medium of exchange in the cryptocurrency space.
Bitcoin will eat up progressively more of the market share of legacy banking institutions in areas such as remittances, micropayments, peer-to-peer lending, and the exchange of stocks and securities. This process has already begun (consider NASDAQ’s support of Open Assets/Colored Coins for the transfer of securities, NYSE’s investment in Coinbase, etc.). Old money risks dying out unless it embraces new protocols such as Bitcoin.
7. Adoption as World Reserve Currency
Eventually, all transactions will settle on the blockchain. For example, house titles, stock purchases, car titles, and other monetary instruments and currencies can be on the blockchain. Network effects one through six culminate in this final network effect. Any newcomer in the realm of cryptocurrency or traditional currency, for that matter; would need to beat Bitcoin in all seven of these areas. This is unlikely considering the pace of development in Bitcoin Core, the level of investment in Bitcoin companies around the world, the growth in Bitcoin’s user base, and on and on; Further price increases will only accelerate the process. Finally, a speculative attack could dramatically boost the value of Bitcoin almost overnight.
The Security of Bitcoin is Based Upon a Strong Network of Users Over Its 11-Year History
The security of the network has proven itself time and again. Over the 11-year history there have been many challenges to the network that could have spelled failure. However, cryptocurrency lives on. For example, a large Bitcoin hack occurred in 2014. Moreover, $800 Million was stolen from the Mt. Gox cryptocurrency exchange. However, it’s important to note that many of the most infamous hacks have been of the exchanges that handle cryptocurrency. As a result, experts have faulted the exchanges lack of security for the hacks and not the Bitcoin network itself.
Block chain networks handle cryptocurrency transactions on a distributed ledger. This means that the mining computers that run the network share information on the ledger and ultimately, must reach a consensus. As a result, the more computer users that operate on the network means the ledger becomes more distributed among users. This inherently creates security and decreases the chances of one hacker group to gain control of the network.
One other security factor is the price of Bitcoin. In the early days, manipulation of Bitcoin price was possible. However, today the price of Bitcoin fluctuates around $10,000. Influencing the Bitcoin network requires billions of dollars. A hack like this is all but impossible.
Bitcoin has a long history of community support. It has a growing community and network of individuals who believe in the project and who contribute to Bitcoin’s success. The cryptocurrency community includes people like crypto enthusiasts, coders, technology developers, currency users and block chain startups. Reddit and Telegram are two popular and active Bitcoin communities where ideas and information is shared regarding Bitcoin.
A Decade of Success
Bitcoin was first introduced to the world in January 2009. Many people doubted its efficacy and durability. In fact, many writers announced that it was dead on numerous occasions. For example, in September 2017, Jamie Dimon, CEO for JP Morgan Chase Bank, said that it was a “fraud” and it was “worse than tulip bulbs.” However, Mr. Dimon reversed course in 2019 and began developing a digital coin similar to cryptocurrencies.
$200 Billion Market Capitalization of Bitcoin
The total market investment in Bitcoin is around $200 Billion dollars and growing. It has always been the dominant cryptocurrency in the market and remains so. Moreover, its market dominance is approximately 60% against the other cryptocurrencies. In addition, approximately $6 out of every $10 in the cryptocurrency market is used to purchase Bitcoin.
It seems clear that in 2021, Bitcoin will begin its next phase of expansion and adoption. As a result, Bitcoin’s price will likely go much, much higher.
Anthony Pompliano and Max Keiser, two well-known investors in the cryptocurrency space believe that the Bitcoin price will exceed $100,000 in the next few years. Other investors like Mike Novogratz and Chamath Palihapitiya believe it is destined to go even higher to levels like $400,000 and $1,000,000, respectively. It should be noted that the investors mentioned are worth Billions cumulatively and clearly understand money and markets. As a result, their predictions should be seriously considered.
Disclaimer: It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.
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