What is Happening to Bitcoin?
Bitcoin - An Introduction
Firstly before understanding what Bitcoin is, we must exactly understand what a cryptocurrency is. A cryptocurrency is an online token that can be exchanged for goods and services. It's just like money in real life, but each cryptocurrency has a different value in terms of paper currency.
Bitcoin is a cryptocurrency. It is considered by many to be the first cryptocurrency. Bitcoin was created by the anonymous individual(s) Satoshi Nakamoto with an aim to create a peer-to-peer financial transaction system. A peer-to-peer transaction system is a system where the money is transferred without passing through any financial institution. Bitcoin transactions, therefore, cannot be easily traced.
Because it is so hard to trace and its transactions are irreversible, Bitcoin has been widely criticized as a tool that promotes illegal transactions and terrorism. Secondly, Bitcoin has a very volatile market. With prices bouncing up and down, a mere second's delay in transactions can cause massive losses to an unsuspecting investor.
But how does Bitcoin work? How can one invest in it? What protects the investor's data? Let's find out.
The Inner Workings Of Bitcoin
Bitcoin is ultimately software, and just like any software, it runs on protocols. The protocol for Bitcoin is known as Blockchain. Blockchain is a protocol system that is widely used for cryptography and internet security, however, its first use was with Bitcoin. A Blockchain consists of a chain of 'blocks' which are discrete pieces of information that are arranged chronologically. Each Blockchain is unique and the information in each chain can be anything - 0's and 1's, birthdays, names of family members, secret nuclear launch codes, etc.
Using Blockchain, a network is created where all the transactions made via Bitcoin are stored in local devices. Blockchain is also the technology that allows new Bitcoins to be made. Each Bitcoin has a unique value, and to create new Bitcoin miners solve mathematical problems to find that value or that block. When that value is found, a Bitcoin is created.
When new Bitcoins are mined, the supply of coins in the market increases. This opens them to investment from users, leading to an exchange market. This exchange market allows the trading of Bitcoin for traditional currency. Bitcoins can be traded using online wallets that store Bitcoin data securely.
Bitcoin had had a quiet few years since its bubble burst in 2018. Any individual who got on board with purchasing or investing in Bitcoin toward the beginning of 2020 is probably rubbing their hands with glee. As the price of Bitcoin has hit a new all-time high, reaching $48,000.
But why did this phenomenon happen?
When COVID-19 hit in early March, Bitcoin was below $4,000. As investors were selling assets of all kinds in the response to the coronavirus. Yet by late December, the price of Bitcoin was around $30,000, over 500% rise from trough to its new peak. So why did this happen?
There seem to be various factors that make Bitcoin develop. Bitcoin has encountered a hard resistance at its last peak in June of 2017 as it neglected to push through it when the price was almost $14,000. If Bitcoin were to breakthrough, it would have triggered a bull market(the condition of a financial market in which prices are rising or are expected to rise). So when in October Bitcoin was retested again, the resistance was pushed which allowed the price to grow so high.
Another reason for the growth is due to the growing inflation in the USA. The United States economy was rounded to $2.4 trillion, which created a worry about the inevitable decrease in the dollar’s purchasing power and the rise in inflation. As a result, many have decided to hold their assets and turn them into dollars to avoid inflation. A popular retreat was using cryptocurrency and turning their assets to Bitcoin. Recently, publicly traded companies were starting to convert money into Bitcoin as a more solid store-of-value. For example, MicroStrategy, a business analytics company, converted $425 million to Bitcoin. As several companies have followed suit, showing their confidence in Bitcoin has given increased merit to the concept of Bitcoin as a store-of-value and safe asset.
PayPal reported that it would soon permit its clients and merchants to purchase, sell, hold, and acknowledge Bitcoin and other cryptocurrencies as a form of payment. This news pushed Bitcoin's price higher right away. As PayPal has nearly $350 million users who are willing to buy, sell, store and use Bitcoin. Moreover, PayPal owns Venmo which has more than 40 million active accounts. This makes Bitcoin and other cryptocurrencies more accessible which makes it simpler to utilize cryptocurrency.
Some say bitcoin will reach a price of $300,000 at the end of 2021 However, the price may go in the opposite direction as well. This is because the value of bitcoin is not directly tied to any real-world phenomenon such as fiscal or monetary policy, making it hard to predict or even explain. Thus, the one thing that seems to be certain is that we will have an interesting year.
Written by Aidana Assylbek and Rayandev Sen; edited by Alidar Kuatbekov.
