Are cryptocurrency futures worth investing in?

Bitcoin is a digital currency that many call the best cryptocurrency to buy, dubbing it “the new gold.” Of course, gold is one of the oldest currencies on earth, and currencies and methods of payment are always evolving.

What does this mean? Arthur Salzer of Northland Wealth Management offers: “Monetary value usually arises from objects that are scarce, durable and relatively easy to divide. Since the dawn of civilization, societies have used rare seashells, wampum, glass beads, and stones as money or a form of record keeping. Gold is an ideal example since it can be made into jewelry, coins and bars, but bitcoin is unique in today’s digital world since it is scarce, durable, has strong privacy characteristics.”

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How to invest in cryptocurency

Bitcoin isn’t your typical investment. In fact, as a digital currency, bitcoin is not a physical coin. Rather, a bitcoin is created and then accessed by way of a digital code. This happens over the internet.

The ledger (blockchain) where the transactions are executed and monitored is public and for all to see. That’s referred to as “open source.”

The creator of bitcoin, who goes by the pseudonym Satoshi Nakamoto, describes bitcoin as “a purely peer-to-peer version of electronic cash that allows online payments to be sent directly from one party to another without going through a financial institution.”

In essence, bitcoin is a public ledger shared by a network of computers. To pay with or to exchange bitcoins, you send a signed message transferring ownership to a receiver’s public key. Each bitcoin is locked by a second private key. Think of a private key as a more complicated series of passwords called a “seed.” No one can access any amount of bitcoin without a private key. Obviously, it is crucial that you keep track of both the public and private keys, and do not share those keys except with a person you trust as your backup. If you lose your keys, you lose your bitcoin.

Blockchain is the revolutionary record-keeping technology that is the backbone of bitcoin. No single person or group has control of the currency; all users are in control collectively. The larger the bitcoin network gets, the more secure it gets. The computer hubs (called nodes) all over the world are all continually fact-checking each other’s ledgers. Each translation is scrutinized. When bitcoin is exchanged, it’s as if millions of tellers are simultaneously confirming the validity of the translation.

How much is bitcoin worth?

How much is one bitcoin worth? Well, it depends on the day. Bitcoin has value because enough people believe bitcoin has value. That may be no different than gold. Gold is really just a shiny rock; but because it was “decided” centuries ago that gold was desirable (and scarce), it is considered a store of value. It became a currency and also a store of wealth, and a portfolio asset in modern times.

While no one knows with any certainty how much gold might be discovered, the algorithm for bitcoin release is capped at 21 million coins. To date, just over 18.5 million bitcoins have been created, and there are almost 2.4 million coins left to be released. Currently, 900 coins are released each day, and the last bitcoins will be released around 2040. Bitcoin “miners” (a.k.a. programmers) are rewarded with the new bitcoins, in payment for their verifications of the transaction on the blockchain.

It is the scarcity of bitcoin, and its finite quantity, that offer the greatest appeal to those who reject or question the value of fiat currencies such as the US dollar, the euro or the Canadian dollar. Certainly, bitcoin, as well as fiat currencies, are created “out of thin air.” But while central banks can create as much new currency as they see fit, there is a hard limit to the amount of bitcoin. That’s why those who favour bitcoin often call it “the hardest currency on earth.”

On the other side of the ledger, critics will offer that bitcoin is worthless because it is created out of thin air, and only backed by those who accept and exchange bitcoin, and assign value. In contrast, fiat currencies are backed by the wealth creation and taxing powers of each nation.

How is bitcoin mined, exactly?

Programmers (bitcoin miners) have to locate the new coins and then perform a series of complex mathematical equations in order to unlock the new coins. These miners collectively are also required to confirm ongoing bitcoin transitions verifying the details. As noted above, millions of digital eyeballs are on each transaction. But in the end, only one miner or miner group (called a “node”) will be rewarded with the new issue of bitcoins.

The successful miner “walks away” with the new coins, and the group of confirmed and verified bitcoin transactions (the “block”) is added to the existing record (“chain”) of transitions. That is how we get to the name and technology known as the “blockchain.”