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With Bitcoin shooting up in value, here's what you need to know
By James Yeo
If you haven’t heard, Bitcoin reached an all-time high of over $2,500 recently on 25 May 2017. An investor holding a Bitcoin in the beginning of year 2017 is already up more than 100 per cent in six months. Should you jump onto this bandwagon, or stay far away from this bubble? Here are some things that you need to know about the Bitcoin craze:
1. What it is
Bitcoin is a cryptocurrency and a decentralised digital currency system created in 2009. It is the first peer-to-peer payment network that is powered by its users with no central authority or middlemen.
Cryptocurrency is defined by Oxford Dictionaries as “a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank”.
In simple terms, the Bitcoin cryptocurrency allows people to buy goods and services without any involvement by banks, credit card issuers or any government. To see the list of merchants that accept Bitcoins in Singapore, click here.
2. Bitcoin’s origins
Many people including myself are often curious about how Bitcoin started. Here’s a little history of the cryptocurrency.
The first Bitcoin’s open-source digital payment system was invented by an unknown programmer or group of programmers under the pseudonym “Satoshi Nakamoto”. The system is designed for a peer-to-peer basis where transactions take place between users directly, without an intermediary.
The anonymity of the Bitcoin creator often raises concerns due to the misunderstanding of Bitcoin’s open-source nature. That said, the Bitcoin community has since grown exponentially with the open-source code made available to everyone all the time.
Interested in finding out the history of Bitcoin? Click here for more.
3. What led to the meteoric rise of Bitcoin?
There is no right or wrong answer here, and the following is entirely based on my research and opinions. In my personal view, there are three main reasons for the meteoric rise in Bitcoin’s prices:
Increased acceptance worldwide: From eateries to online shopping, merchants are joining the bandwagon in the usage of Bitcoin.
Anonymity of Bitcoin: Recently, a global ransomware attack called “WannaCry” affected more than 200,000 computers and demanded Bitcoins as payment. They have leveraged on the anonymity of Bitcoin to possibly side-step authorities as no personally identifying information need to be given. As such, it may have give rise to the online black markets and potentially lead to transfer of ill-gotten gains.
Unrestricted movement of capital: For many people living in countries like Venezuela and China, where the government has restricted movement of capital outside of the country – Bitcoin presents an attractive alternative to transfer cash abroad.
Speculation: The circumstances and price increase of Bitcoin mimics that of the dot-com mania. People are jumping in to buy bitcoins after seeing how their friends have been rewarded for buying Bitcoins. That has probably fuelled the Bitcoin prices to constantly breaking all-time highs. To recap, the above mentioned are of my own views and by no terms accurate.
4. Why is Bitcoin so popular?
The usage of Bitcoin has been garnering popularity with many major technology and retail businesses accepting Bitcoins as another mode of payment. It is also popular for small businesses due to the relatively low transaction fees for transfers as compared to the costly transaction or credit card fees that banks and other financial institutions often impose.
Moreover, with Bitcoin’s steep increase in value, it is increasingly seen as a safe, appreciating and decentralised digital asset. This has further led to a boost in its popularity and usage globally.
Conclusion
Many people have come out to denounce Bitcoin as a fad and that it is a bubble to be popped. In fact, in a recent article by the Economist, it is now being compared to the tulip mania or the dot-com boom.
However, others have supported the rise of Bitcoin because of its wide uses and free of any 3rd parties (fully decentralised). An analyst from the Saxo Bank even predicted that the Bitcoin’s share price would go up to $100,000 in 10 years. So, where do you think Bitcoin is heading to? Let us know in the comments below.
James Yeo is a finance professional in the Asset Management industry for more than 6 years. He also founded an investment blog at www.smallcapasia.com which is dedicated to helping retail investors find winning stocks.
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