If you purchased any Bitcoin digital money in December of 2016, you are probably more than pleased with your investment. Whether you use bitcoins to purchase products, goods and services online or off, or you are simply trading this digital dollar on an exchange in the hopes that you will profit, you have to feel good about your position. This is because, in December of 2017, a single bitcoin was valued anywhere between $15,000 and $20,000 US.
That means in just one year; your investment rose between 2,000% and 2,700%. To put those staggering one-year returns in perspective, a modest $100 investment in December of 2016 would have grown to anywhere from $2,000 to $2,700 a year later. The dramatic growth of Bitcoin value over the last few years has drawn a lot of attention to this virtual coin. If you have an interest in cryptocurrencies and don’t know where to begin, let’s take a quick look at the bitcoin world.
Bitcoin operates on a peer-to-peer network. There is no third party which has to approve or guarantee a transaction. Bitcoins are sent from one party to another, with Bitcoin’s blockchain technology verifying balances and approving transactions. It was the first decentralized, peer-to-peer virtual payment network, which created the bitcoin as a form of value for exchange. Incidentally, Bitcoin (uppercase ‘B’) refers to the Bitcoin technology, and bitcoin (lowercase ‘b’) refers to the individual coins or tokens used in this cryptocurrency system.
Bitcoin was developed in 2008 and debuted in 2009 by Satoshi Nakamoto. Still to this day, it has not been proven whether Nakamoto was a single individual or a group. The Bitcoin network was created to make online transactions safer and less prone to fraud, and not with the idea that a virtual currency would be created. Bitcoin trading only works when the public ledger and each bitcoin wallet held by a user is in agreement with the proposed balances in a transaction.
Once this happens, a new “block” of code is added to the always growing “chain” which replaces a centralized authority or third-party for verification and authorization of transactions. This is what is referred to as a “blockchain.” Verifying the validity of a proposed transfer of bitcoins can be done by anyone with specialized hardware and computing power. That person is referred to as a “bitcoin miner,” who is rewarded with bitcoin currency for that service.
At first, bitcoins were only traded among other Bitcoin users. They were used entirely for online transactions, mostly for virtual products and services. Today there are physical businesses which will accept this virtual form of payment. You can buy physical products and have services delivered by humans that accept bitcoins as well as traditional currencies.
In April of 2017, the total value of all bitcoins passed over the $20 billion mark. On November 27, 2017, the market capitalization of all combined cryptocurrencies soared past $300 billion, a rise of a phenomenal $100 billion in just 24 days. Of that $300 billion market capitalization, Bitcoin claimed a little more than 50%, valued at $158 billion.
Bitcoin has paved the way for advances in blockchain technology. The primary example is the Ethereum virtual currency. While the Bitcoin blockchain algorithm system was groundbreaking in its ability to remove centralized authorities from transactions, Ethereum added what are called smart contracts to this ever-changing crypto-cash world. Smart contracts make the need for attorneys and arbitrators pointless, as they use the blockchain to automatically enact contractual obligations agreed on by both parties.