Bitcoin, the online currency, seems to be the buzzword that everyone and their grandmother has had a conversation about at least once. Bitcoin, unlike other financial trends and concepts, has even the least financially savvy layperson trying to invest. Stories on social media show just the average Joe making thousands by investing in Bitcoin. Is this outcome realistic? Or is Bitcoin going to fade into oblivion like other trends? In order to know if Bitcoin is here to stay, it’s important to know how it works. While Bitcoin’s structure as an online currency is quite complex, the basic structure isn’t too hard to understand.
Catching up to today, here is what the cryptocurrencies look like now.
Shared Public Ledger
Cryptocurrency, or online currency, was a response to big banks and the financial crash. Cryptocurrency, which includes Bitcoin, Litecoin, Ripple, and other online currencies, is a shared public ledger, rather than a ledger controlled by one big bank. Every single person who owns cryptocurrency has access to records of every single coin ever transacted between users. And instead of one entity updating these records, everyone in the network works together to continuously update this group ledger with the transfer of value between people’s coin wallets.
Protecting against fraud
Isn’t it unsafe to trust strangers with updating this worldwide ledger? Bitcoin safeguards against stealing in a few different ways. When someone sends a payment into the universe, they have to include “inputs” with their request. These inputs show past transactions that prove they actually the money to pay with. Other users can dig back into past transactions using the shared ledger to make sure this person hasn’t already used that money and that they have enough. Each Bitcoin transaction contains a private key, only known by the user, and other users in the network can check the validity of the transaction by comparing this private key to the users public username using a mathematical proof.
Blockchains and Mining
The transactions are solved mathematically by people or groups of people and then put into groups called blocks. Each block contains transactions that were made at the same time, and each block is connected to the block before it. The groups of people that solve these equations are called miners. Mining is a system that makes sure transactions are chronological and keeps neutrality in place. Each time a block gets solved, the miner receives a portion of Bitcoin as payment, which is incentive to keep the system running.
But at some point, Bitcoin will run out. There are a limited number of Bitcoin, exactly 21 million. Experts expect that all Bitcoins will be in circulation by 2140. At that point, each transaction will cost a small amount to create incentive for miners to solve the blockchain that keeps Bitcoin running.
The elusive founder
The innovative blockchain technology that Bitcoin technology uses was created in 2008, by someone with the pseudonym Satoshi Nakimoto. No one has been able to figure out who this creator actually is. It could even be a group of people. However, he/she was the first to solve the “double-spending” problem of digital currency, and to this day Bitcoin hasn’t run into any major issues at the fault of the system.
However, there are major risks involved with investing in Bitcoin and other cryptocurrencies.
- Bitcoin is really volatile: In 2017 alone, the value of one Bitcoin went from $1,000 to $20,000. Right
now, it’s hovering around $8,000. It’s difficult for the average joe to predict what’s going to happen next, and investing is a huge risk.
- Market Manipulation: A vast majority of Bitcoin is held by a small number of people, therefore, when they
buy and sell, the market is affected drastically.
- Bitcoin is still new: The instability of Bitcoin also comes from the fact that it’s a very new currency
that is still taking hold. As time goes on, it’s more likely to even out.
- Bitcoin is not government regulated: Unlike a bank, if hackers somehow get ahold of bitcoins or if you
have an issue with your wallet, there’s no customer service number to call. While somewhat unlikely, your virtual currency could disappear in an instant./
Other types of Cryptocurrency
Right now, Bitcoin is down, and many believe that Bitcoin’s bubble has burst. However, other currencies even younger than Bitcoin are catching on. There are over 1384 cryptocurrencies in existence, some gaining more attention than others. All cryptocurrencies use the blockchain technology, with a few differences. For example, the currency Ethereum has a faster transaction confirmation time and unlimited coins that will continue being released forever. Whereas Ripple, a smaller cryptocurrency, is more exclusive. Ripple is owned by a private company, and uses a consensus based ledger- where over 80% of developers have to agree on changes to the network. While networks like Ripple and Ethereum are still much smaller than Bitcoin, they are gaining traction for their own merit, and some experts predict they could outpace Bitcoin in 2018.
Experts and investors are unsure about the future of cryptocurrency. Investors continue to shy away from internet currency, while the government has finally put out tax regulations for investors. New cryptocurrencies are created regularly, and the blockchain technology has yet to encounter major problems, which means it could be a valuable alternative to traditional banking. Looking at the last year for Bitcoin, Ethereum and Ripple, we’re reaching the end of a peak. It may level, it may continue its downward trend, or peak again. While all cryptocurrency tends to follow the same trends, as time goes on, they may split apart and act differently.
Using Scraawl, we can also see the rise and fall of cryptocurrency chatter on social media. We ran a brand report looking at Bitcoin, Cryptocurrency, and Ethereum Facebook groups. Chatter on cryptocurrency Facebook groups has picked up with the more publicity that Bitcoin receives. Another interesting trend to observe is chatter vs. the rises and falls of the value of Bitcoin. Using the timeline feature, we can see when chatter starts to drop, Bitcoin is either reaching a high or a low. On December 17th, Bitcoin reached $20,000. Around February 1st, Bitcoin falls below $9,000.
Will Bitcoin continue to fall in 2018? This depends on a variety of factors, like public interest, institutional investment, and government regulations. There’s also talk of stablecoin this year, which would keep the stablecoin value at the exact same price of another paper currency, eliminated some fear of volatility in investing in cryptocurrency. However, whether Bitcoin continues to drop or levels out, the innovative blockchain technology provides lots of directions for online currency in the future, so it’s not time to count it out, yet.