Five years ago, you could have invested in the cryptocurrency Bitcoin for six cents per coin. Today’s average price is over $6,000 per Bitcoin, a fine profit for early investors. However, the current price is a far shift from just last year when the price spiked to over $15,000 a coin, causing potential investors to push as much cash as they could into buying Bitcoin. Those investors who bought high are currently suffering from the major price drop and hoping to see positive market trends in the future. However, will this happen? Is Bitcoin a gold mine or a failed experiment?
A potential investor in Bitcoin needs to be aware of the technology and history that created cryptocurrencies. Bitcoin was started by an anonymous entrepreneur who uses the name Satoshi Nakamoto. The idea of Bitcoin was to create currency that was in the control of the people; essentially the government would have no control over the creation and regulation of the currency. This idea seemingly backfired on potential investors who have come to realize that a single man is in charge of an entire currency.
To become involved in trading and using Bitcoin, investors have to download a specific software which is not user friendly to most computer users. The software is hard to manage and is slow, which is due to Bitcoin’s reliance on something called a blockchain. Blockchains are databases managed by a group of anonymous users called miners. The job of a miner is to track each and every Bitcoin transaction in existence. Every-time an owner of Bitcoin wishes to trade they use the downloaded software to announce the trade to miners who then track the transaction on the blockchain. While this sounds complex, the underlying reasons are to ensure no Bitcoin can be used twice. An analogy for this mechanic is to consider a U.S. dollar. If someone who owns a particular dollar hands the dollar to another person, they no longer own that dollar. However, with a cryptocurrency which can be easily hacked and therefore duplicated, miners must track every purchase made to ensure no duplicates are found in the market.
This idea is great in theory, however, Bitcoin has been proven to be unstable at best. It is estimated that 14 percent of Bitcoin has been stolen or hacked from its users.
I would caution any potential investor to seriously reconsider purchasing Bitcoin. The complex technology of Bitcoin still suffers from multiple “glitches.” Something as simple as a lost USB drive could also cause an investor to lose their entire stock of Bitcoin. There are so many factors that have to be accounted for when examining whether or not Bitcoin will be profitable, and with such complex technology, I think that much of Bitcoin is still hard to conceptualize. The risks involved in Bitcoin are too high when compared with potential profit, and for a new investor (as most college students are), playing such a market might be better left to experienced risk takers.
