Journalists and investors have compared the current cryptocurrency investment craze to the mid-1800s American Gold Rush. Others liken the obsession with digital currency to the tulip fever that gripped the Netherlands in the 1700s. Whether Bitcoin and its digital relatives will thrive and establish a new gold standard or drive the market into a crash a la the Dutch tulip bubble is still up in the air.

The value of digital currency’s electronic tokens is based on the exchange of traditional money and goods for the tokens through specialised internet exchanges like BitPay. Although they are not connected to PayPal, these exchanges operate relatively similarly. Standard national and international banking practises are used to value conventional currencies and commodities, just like gold.

Establishing Digital Currency

A dispersed network of computers in a closed, internet-based society uses a number of sophisticated cryptographic methods to create cryptocurrency, which is then represented by digital tokens. Individuals and businesses can open accounts, sometimes known as wallets, in the niche communities. The tokens are only usable for trading within digital communities.

The creators of the communities set a restriction on the amount of tokens that the computers powering community transactions can produce. Initial Coin Offerings are used to fund communities through crowdsourcing (ICO).

Bitcoin was one of the first cryptocurrencies created with a predetermined cap on production, and it is also without a doubt the most well-known. In 2008, a person using the alias Satoshi Nakamoto created Bitcoin and the system that creates and controls cryptocurrencies. Nakamoto restricted the total amount of Bitcoins produced by the decentralised computer network in his exchange to 21 million. The tokens are in high demand as a result of the supply being limited, which raises their value.

Bitcoin’s Market Value

The allocated trade value of one Bitcoin was close to $5,000 at the end of August 2017. This was significantly more than the price of gold at the time, which was around $1,300. However, two weeks after the high point of the digital currency, Bitcoin’s value fell to roughly $3,000. Anyone who put real money into Bitcoin in the middle of August and didn’t get out before the price fell lost around 40% of their investment.

The Bitcoin community has established itself as a benchmark in its own right as the most well-known digital currency in the world, much like the renowned stock exchanges of Wall Street, London, and Japan. So, when other markets for digital currencies experience problems, the value of Bitcoin also decreases. Because other cryptocurrencies proliferated in China at an alarming rate throughout 2017, the Chinese government no longer supported them, which led to the precipitous decline in the value of Bitcoin at the end of August 2017.

The Chinese authorities was worried about the emergence of massive, complex pyramid schemes centred on cryptocurrency exchanges using proprietary digital tokens similar to Bitcoin. The government consequently mandated that exchanges including BTCC, OKcoin, and Huobi close by the end of September 2017. This order sent chills through the world’s cryptocurrency exchanges, and panic caused Bitcoin’s quick decline in value.

It’s unlikely that Bitcoin will replace the gold standard or traditional currencies any time soon, given it has been demonstrated that it exhibits a level of volatility that neither of these do.

Bitcoin Security

Nearly a dozen bitcoin exchanges have been hacked since 2010. the hundreds of millions in losses (dollars). However, in comparison, traditional banks and financial organisations have suffered billion-dollar losses at the hands of cybercriminals over the same time period. Blockchain network vulnerabilities are being found and fixed by programmers and cryptocurrency communities. Government central banks may actually see their role eclipsed by clever computer algorithms if bitcoin starts to be accepted as payment by real-world merchants.

Any individual who purchases Bitcoin should have the appropriate internet security set up before accessing bank data and doing transactions.

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