For anyone who doesn't know much about the latest financial innovation known as bitcoin, there are some basics to be familiar with. Simply put, bitcoin is a type of digital currency that is completely backed by mathematics. Because bitcoins are completely computer code, it possesses no inherent value. What determines the value is simply what another buyer is willing to pay you for it. The bottom line is that for all of the volatility that surrounds this particular currency, it's still fairly short-lived, and for all that it's still largely unknown to the mainstream.
As is the won't of good investors, people have been trading in and out of bitcoins for quite some time. It was just recently that traders were able to get their hands on the virtual currency at a rate that was significantly higher than they could have ever dreamed of. Since then, more institutional investors have gotten involved in trading this way. Now, they are pumping a lot of money into this exciting new investment vehicle, and the results have been fascinating to watch. What do we think is in store for this fascinating new trading vehicle in the next few years?
I've already mentioned one reason why people are investing in this digital currency - because of its potential as a global money transfer medium. In addition to being a nice hedge against fluctuations in the dollar, there are other compelling reasons to consider this technology as a sound investment. When you think about how easy it would be to use your laptop to conduct international currency exchanges and then convert that into your national currency, the benefits are obvious. Imagine being able to use your home computer to make payments in the hundreds or thousands wherever you are. A transaction as simple as that could provide you with the capital you need to get started.
Another reason why I think it's smart to invest in the future of this exciting technology is because of its ability to reduce costs. One of the things that most people don't realize about using the bitcoin protocol is how much cheaper it is over the traditional model of making and sending payments on the Internet. The problem with traditional payment systems is that they tend to be very expensive. They are also vulnerable to hacking, which makes transactions a nightmare and causes a ton of downtime.
Even though this can seem like a big problem, many investors in the past few years have bought bitcoin and used it to conduct their own private exchanges. There are now a number of companies out there that allow you to buy and sell bitcoins using a variety of payment methods including credit cards, wire transfers, and others. By eliminating the need to use traditional exchanges, the costs associated with these types of transactions are greatly reduced. This is why I think it's smart for institutional investors to buy bitcoin instead of the more expensive conventional exchanges like the NYSE and NASDAQ.
One of the biggest advantages that you will get from using a digital wallet like eToro or Shape is the fact that it acts just like a bank account. When you send a transaction to your account you will be able to see the transaction happen to live right away on your screen. You can also view your balance and transactions at any time by logging in to your eToro or Shape account. If you want to send money to someone else's Shape account you just click send. The nice thing about these Shape transactions is that they are insured and guaranteed for two years.
One advantage that makes bitcoin a great investment compared to other forms of cryptocurrencies is the fact that it doesn't have any government backing. In contrast with the government backings of other Cryptocurrencies like ether, gold, or platinum, a major risk with backing the bitcoin protocol is the possibility of government seizure. When the government seizes a large portion of the bitcoin trade, the supply of bitcoins will be cut in half. Since there won't be enough bitcoins around to handle all the transactions, people will start trying to trade elsewhere, resulting in a price spike. When this happens investors who hold onto their bitcoins will be left holding nothing.
Although most of the conversation around bitcoins revolves around the benefits of being able to make an instant transfer to someone's friend across the internet, one of the biggest benefits of bitcoins is that they can be used anywhere in the world. Because it is a distributed ledger when you buy something from a shop using your credit card you aren't really buying the product but instead transferring the funds from your wallet to the merchant's wallet. This is what makes the bitcoin chain of value so powerful. Anytime you buy something or sell something, you're just transferring the money from your wallet to the public ledger, which is how the value of your bitcoins increases over time. Although not all the countries in the world will adopt a central crypto ledger like how bitcoin works in China, the adoption of the chain of value will continue to grow. The chain of values is not only benefiting investors and traders but everyday people who everyday use the chain of values.