Unless you have been living in some isolated mountains in the Himalayas (lucky you), you have already heard about the recent surge in the bitcoin prices. From a modest $1000 at the beginning of 2017 to the present day price of $14000, Bitcoin has gained immense popularity. There are numerous cases of people having made millions by investing at the right time. Now, some experts predict the price could reach $20,000 leading to even more investors planning to invest some before they miss the bus. Is it really worth it? Let’s check some basic facts.
What is Bitcoin?
At its core, Bitcoin is a digital currency which is not printed by traditional governments. It is not regulated by the agencies, hence cannot be manipulated. Technically, it is driven by blockchain technology wherein every transaction is approved by the network to avoid double or false transactions. Using the Hashcash Proof-of-work, the network assures that certain requirements are met to reach a tamper-resistant consensus.
Since it is not printed by any government, Bitcoin is developed via mining. Using computational power a complex mathematical problem needs to be solved to find the next block. As more and more blocks are found, the difficulty level goes on increasing so that there is a steady supply. The entity that finds the block receives a certain transaction fee and a bounty which is currently 25 Bitcoins. Thus, in a nutshell, Bitcoin is a decentralized currency that is not controlled by any particular entity.
— Freakonometrics (@freakonometrics) December 4, 2017
The question is who are these mining companies? Since the difficulty level rises with the discovery of each new block, it is difficult for individuals to mine new Bitcoins due to lack of computational powers. At present, most Bitcoins are mined by mining pools located across the world. Notably, as of writing this article, 81 percent of Bitcoin is mined in China by world’s eight largest mining pools. So, if China decides to stop mining Bitcoin, your investment will be nothing but some random string of numbers.
Is Bitcoin A Bubble?
Fundamentally, a bubble is a situation when the prices of assets diverge from its fundamentals. For Bitcoin, the fundamental value is hope of its use in future and the desire to acquire it before it becomes scarce. As we have seen earlier, Bitcoin relies on a number of complex processes to remain decentralized and secure.
— CNN (@CNN) December 7, 2017
The fundamentals of Bitcoin will include the mining difficulty, hash rate, block-size, and the actual volume of transactions. One needs to plot the price over the years and look for explosive characteristics. If there is an explosive component, but if that correlates to the fundamentals, then that is certainly not a bubble.
Bitcoin has seen huge bubble bursts in the history and the current run does seem like a bubble. The price at present shows explosive behaviour without any corresponding change in fundamentals. So the next obvious question is should you invest in Bitcoin?
Well, that is totally up to you. There are no accurate methods to predict a bubble or bubble burst. So, the Bitcoin price rally may continue up to $ 20,000 or the bubble can burst and the price can fall down drastically. It is advisable that you consider your risk appetite and only invest funds that you are ready to lose.
How To Buy Bitcoin In India?
Despite the myth, Bitcoin is not illegal in India, nor is it legal. So, you can safely buy Bitcoin in exchange for Fiat currencies (INR, Dollars, Euro). There are several exchanges such as Coinsecure, Unocoin, Zebpay, etc. that allow you to buy Bitcoins. You need to open an account with KYC akin to what you do for your stock trading accounts.
— TechCrunch (@TechCrunch) December 7, 2017
You can deposit money at these exchanges and swap it for Bitcoins. The complicated part is to store Bitcoins since you do not own anything physically. Storing Bitcoins safely is way more difficult than buying. In the next article, we will discuss the safe methods to store your Bitcoins.
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