The mystery surrounding Bitcoin’s meteoric rise has enticed as many as it has bewildered. Very little is known about the cryptocurrency except for the scepticism and complexity it is attached to. Bitcoin is an electronic currency, which has no physical asset backing it. The mechanics of Bitcoin have led some investors to label the currency a fad. This stigma arises from its intangibility, decentralisation and no additional asset value (e.g. interest).
On the surface Bitcoin’s concept is very comprehendible, however its operation has confused the technically illiterate. The Bitcoin network is based around a blockchain, which is a shared public ledger. This ledger records every transaction ever processed with incorruptible security. Its technology uses computers and digital signatures to verify every transaction. As a result, investors benefit from no fraud, chargebacks or identity theft.
Despite being released in 2009, Bitcoin has only come to prominence over the last 12 months. This is due to a number of factors, the most apparent being its volatility. At the start of 2017, Bitcoin was trading at $1,000 per coin as of today it is $13,500. Financial institutions have also contributed by accepting Bitcoin; in 2018 it will be traded on the Nasdaq.
Bitcoin’s popularity cannot be solely attributed to its monetary value. Investors favour the decentralisation of the currency, as it removes the political motives that plague central banks. The more secretive investor can also benefit from the anonymity that Bitcoin provides. Buyers and sellers are identified by wallet IDs, their names are never revealed. In addition, encryption keys prevent transactions being traced back to individuals.
The biggest questions for Bitcoin are regarding its future. In the short term its volatility is a great opportunity as the currency goes through a period of “price discovery”. However in the long term, will speculators pose a threat to the interpretation Bitcoin’s value is open to? Whilst anonymity and decentralisation are useful for legitimate investors, people indulging in illicit activities can take advantage.
Many governments and financial institutions have already displayed their concerns; an example is South Korea which will ban Bitcoin trading. As Bitcoin continues to grow governments will take action to control and tax it. The only thing we know for sure is that Bitcoin is here to stay.
If you are following the Bitcoin story and want to take advantage of its price volatility you can trade it as you would other commodities. One such broker through which it is possible to trade Bitcoin is Vantage FX. They are a true ECN broker regulated by the ASIC. They have won numerous awards, both national and international for their offering.