The Rise Of Bitcoin: Why People Invested

Bitcoin was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto. It was the first-ever and largest cryptocurrency, and its popularity has inspired the development of many other cryptocurrencies. Bitcoin was created as a way to conduct transactions without the intervention of a trusted third party, such as a central bank or financial institution. Its emergence amid the global financial crisis, which shook trust in banks and governments, was perfectly timed. Bitcoin enabled transactions using only digital identities, granting users some degree of anonymity. This made it the preferred currency for illicit activities, including ransomware attacks.

Bitcoin has become a speculative investment. It has no intrinsic value and is not backed by anything. Bitcoin investors seem to be relying on the greater fool theory—that is, all you need to profit from an investment is to find someone willing to buy the asset at an even higher price.

Bitcoin's value and volatility

Value

Bitcoin's value is derived from its limited supply, complex cryptography, and decentralised nature. With a maximum cap of 21 million coins, Bitcoin's value is expected to increase over time, especially as more large institutional investors treat it as digital gold. This is in part due to the fact that Bitcoin is not issued or controlled by any central authority, but is instead maintained through a distributed ledger system called a blockchain. This makes Bitcoin a truly decentralised currency, free from the influence of governments or financial institutions.

Volatility

Bitcoin's value has fluctuated wildly since its creation, rising to over $60,000 in 2021 before falling to half that value in just a few weeks. This volatility is partly due to the speculative nature of the cryptocurrency market, with investors often treating Bitcoin as a high-risk, high-reward investment. Social media and celebrity endorsements have also played a role in driving Bitcoin's price swings. Additionally, Bitcoin's value can be influenced by news events, regulatory actions, and the actions of large investors or governments. For example, China's ban on Bitcoin trading in 2018 led to a significant drop in its price.

Despite its volatile nature, Bitcoin has demonstrated an ability to recover from crashes and reach new all-time highs. This has made it an attractive investment for those seeking high potential returns, even as its extreme price swings continue to fuel debates about its viability as a mainstream currency.

The future of money

Bitcoin was created as a way to conduct transactions without the intervention of a trusted third party, such as a central bank or financial institution. It was first introduced in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto. Since then, it has become the most well-known and largest cryptocurrency in the world, inspiring the development of many other cryptocurrencies.

Bitcoin's popularity can be attributed to several factors, including its decentralised nature, the use of blockchain technology, and its ability to provide users with a degree of anonymity. It has also been fuelled by rising interest from the next generation of investors, media attention, and social media platforms.

As Bitcoin grew in popularity, it became cumbersome, slow, and expensive to use. Its unstable value has also made it an unreliable medium of exchange. Despite these challenges, Bitcoin has sparked a revolution in money and finance that will impact all of us.

Bitcoin and other cryptocurrencies are transforming the way we think about money and financial transactions. They provide an opportunity for people to store value without relying on government-backed currencies, especially in countries with less stable economies.

However, it's important to note that Bitcoin and other cryptocurrencies are highly volatile and carry significant risks. Their values can fluctuate wildly, and they are not backed by any intrinsic value or issuing institution.

While the future of money may be digital, it's essential to approach these new technologies with caution and a thorough understanding of the risks involved.

Bitcoin's blockchain technology

Each block on a blockchain contains a block header, transaction counter, and the transactions recorded in the block. The transaction counter lists how many transactions are in the block, while the block header is made up of several elements: the software version, previous block hash, Merkle root, timestamp, difficulty target, and nonce.

The Bitcoin blockchain uses the SHA-256 hashing algorithm to encrypt the data stored in the blocks. Transaction data stored in a block is encrypted into a 256-bit (64-digit) hexadecimal number that contains all the transaction data and information linked to the previous blocks.

The blockchain is decentralised, meaning it is not controlled by any one organisation. Anyone can edit the blockchain, but for a transaction block to be added, it must be verified by the majority of all Bitcoin holders. The unique codes used to recognise users' wallets and transactions must also conform to the right encryption pattern. These codes are long, random numbers, making them incredibly difficult to produce fraudulently.

Bitcoin as an investment

Bitcoin was created in 2008 and launched in 2009 by a computer programmer or group of programmers using the pseudonym Satoshi Nakamoto. Its stated objective was to enable transactions without the intervention of a trusted third party, such as a central bank or financial institution.

Bitcoin is a decentralized digital currency that you can buy, sell and exchange directly, without an intermediary like a bank. Its creator, Satoshi Nakamoto, originally described the need for "an electronic payment system based on cryptographic proof instead of trust."

Every Bitcoin transaction that's ever been made exists on a public ledger accessible to everyone, making transactions hard to reverse and difficult to fake. That's by design: Core to their decentralized nature, Bitcoins aren't backed by the government or any issuing institution, and there's nothing to guarantee their value besides the proof baked into the heart of the system.

Since its public launch in 2009, Bitcoin has risen dramatically in value. Although it once sold for under $150 per coin, as of June 2023, 1 BTC equalled around $30,200. Its supply is limited to 21 million coins, and as of March 2024, there were 19.65 million Bitcoins in existence, leaving just 1.34 million left to be mined.

Bitcoin's value is highly volatile. In 2020 alone, its price went as low as $5,165 and as high as $28,990. In November 2021, its price reached an all-time high of about $69,000 before crashing in 2022 to $15,731. In 2023, it broke through resistance barriers to reach the $30,000 to $35,000 range. In January 2024, it jumped to the mid $40,000s and then climbed to more than $50,000. Its all-time high price is $73,794, reached on March 14, 2024.

Bitcoin is mostly seen as an investment and has been described as an economic bubble. Its price movements are greatly exaggerated and sometimes prone to movements of thousands of dollars. Many investors tend to "trade the news", as demonstrated by the fluctuations that occur whenever there is a significant news event.

Bitcoin has a short investment history that is filled with very volatile prices. Whether it is a good investment depends on your financial profile, investing portfolio, risk tolerance, and investing goals. As with any investment, particularly one as new and volatile as Bitcoin, investors should carefully consider if Bitcoin is the right investment for them.

Bitcoin's legality

The legality of Bitcoin varies from country to country. In many developed countries, such as the US, Canada, Japan, and the UK, Bitcoin is legal. However, in some countries, such as China and Saudi Arabia, it is illegal to use Bitcoin.

In the US, the Internal Revenue Service (IRS) considers Bitcoin and other cryptocurrencies to be property and has issued guidelines for taxpayers. The US Treasury has also defined Bitcoin as a convertible currency with an equivalent value in real currency or one that can act as a substitute.

In the UK, cryptocurrency use has been allowed since its inception, and the government has developed a framework for cryptoasset regulation.

Canada maintains a generally bitcoin-friendly stance, with the Canadian Revenue Agency defining Bitcoin as a crypto-asset that is taxed based on its use.

Australia considers Bitcoin a financial asset that can be taxed when specific events occur, such as trading, exchanging, selling, or using it for purchases.

On the other hand, China has heavily restricted Bitcoin, and Saudi Arabia has made it illegal to use.

The legal status of Bitcoin and other cryptocurrencies is still evolving and varies across the world. It is important to check the laws and regulations of a specific country before using Bitcoin.

Frequently asked questions