Cryptocurrency is the hottest thing on the web for investors and tech enthusiasts alike. But those of you who are getting into it now should be wary – here’s why.
At the time of writing, bitcoin has a market value of over $200 billion. Coupled with the potential cybersecurity applications of blockchain, this has driven cryptocurrency into the public eye – and the minds of virtually every online investor worth their salt. Stories of people who’ve made millions from bitcoin and its cousins are now commonplace, and everyone now wants a piece of the pie.
If this situation doesn’t already sound familiar to you, it should. It’s a pattern we’ve seen multiple times over the course of history. Most recently, we saw it in the dotcom bubble.
“If you look at the Internet in 1995, that’s where you are in digital currencies,” explains Brian Kelly, Portfolio Manager at BK Capital Management. “I have no idea if bitcoin is going to be the one to prevail. Just like the Internet…As much as I love bitcoin, an asset that goes straight up, investors have to be careful.”
The main problem with bitcoin – and indeed, with all cryptocurrency – is that it is not a physical product. Its value is purely speculative.
The current bitcoin craze is driven by multiple investors who are buying purely in the hopes that they can sell at a higher price. Eventually, a flurry of sales will cause a domino effect. Eventually, prices will collapse, and anyone who hasn’t already sold out of the market by then will be left with a huge loss.
Consider the fact that in the time it took you to read this article, the value of bitcoin has likely changed by several thousand dollars. Not only is the value of the currency clearly being manipulated by several top investors, it’s also a sign that bitcoin is itself unstable – enough so that many merchant sites will no longer accept it.
Said innovation is tied largely to blockchain, the underlying technology that secures bitcoin transactions. How it works is fairly simple – it’s essentially a distributed database in which information is spread across an entire network of computers.Whenever a transaction is to be executed and added to that database, a certain percentage of computers in that network must first validate that transaction.
This ensures that…
- Every single ledger in the blockchain is kept up to date – there’s no risk of inaccurate information being in the hands of any of the participants.
- There is no middleman in a transaction that could potentially leak or compromise data.
- Through digital certificates, every blockchain participant is kept anonymous, and strong encryption keeps everything secure.
The applications of this technology are nearly endless – and can be seen in some of bitcoin’s competitors. Ethereum, for example, is designed to execute contracts once certain conditions are met by all parties, allowing for better, more secure digital contracts. And this is only the tip of the iceberg.
Bitcoin’s market value has never been higher, but it’s also never been more unstable. Those of you looking to invest in cryptocurrency should go right ahead and do so. After all, even if the bubble does burst, bitcoin and its ilk aren’t going away anytime soon.
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