What Is Bitcoin and Is It a Good Investment

Bitcoin (BTC) is really a new kind of digital currency-with cryptographic keys-that is decentralized to a network of computers employed by users and miners all over the world and is not controlled by a single organization or government. It's the first digital cryptocurrency that's gained the public's attention and is accepted by a growing amount of merchants. Like other currencies, users can utilize the digital currency to purchase goods and services online in addition to in certain physical stores that accept it as a form of payment. Currency traders also can trade Bitcoins in Bitcoin exchanges.

There are numerous major differences between Bitcoin and traditional currencies (e.g. U.S. dollar):

1. Bitcoin does not have a centralized authority or clearing house (e.g. government, central bank, MasterCard or Visa network). The peer-to-peer payment network is managed by users and miners round the world. The currency is anonymously transferred directly between users through the web without dealing with a clearing house. This means that transaction fees are much lower.
2. Bitcoin is done through a procedure called "Bitcoin mining ".Miners all over the world use mining software and computers to resolve complex bitcoin algorithms and to approve Bitcoin transactions. They're awarded with transaction fees and new Bitcoins generated from solving Bitcoin algorithms.
3. There's a restricted level of Bitcoins in circulation. Based on Blockchain, there have been about 12.1 million in circulation as of Dec. 20, 2013. The issue to mine Bitcoins (solve algorithms) becomes harder as more Bitcoins are generated, and the utmost amount in circulation is capped at 21 million. The limit will not be reached until approximately the season 2140. This makes Bitcoins more valuable as more folks use them.
4. A public ledger called'Blockchain'records all Bitcoin transactions and shows each Bitcoin owner's respective holdings. Anyone can access the public ledger to verify transactions. This makes the digital currency more transparent and predictable. Moreover, the transparency prevents fraud and double spending of exactly the same Bitcoins.
5. The digital currency could be acquired through Bitcoin mining or Bitcoin exchanges.
6. The digital currency is accepted by a limited amount of merchants on line and in certain brick-and-mortar retailers.
7. Bitcoin wallets (similar to PayPal accounts) are useful for storing Bitcoins, private keys and public addresses in addition to for anonymously transferring Bitcoins between users.
8. Bitcoins are not insured and are not protected by government agencies. Hence, they can't be recovered if the trick keys are stolen by a hacker or lost to a failed hard disk drive, or because of the closure of a Bitcoin exchange. If the trick keys are lost, the associated Bitcoins can't be recovered and would be out of circulation. Visit this link for an FAQ on Bitcoins.

I think that Bitcoin will gain more acceptance from the public because users can remain anonymous while buying goods and services online, transactions fees are much below bank card payment networks; the public ledger is obtainable by anyone, which can be used to stop fraud; the currency supply is capped at 21 million, and the payment network is operated by users and miners rather than a central authority.

However, I don't think so it is a good investment vehicle since it is extremely volatile and is not so stable. For instance, the bitcoin price grew from around $14 to a peak of $1,200 USD in 2010 before dropping to $632 per BTC at the time of writing.

Bitcoin surged in 2010 because investors speculated that the currency would gain wider acceptance and so it would escalation in price. The currency plunged 50% in December because BTC China (China's largest Bitcoin operator) announced so it could no longer accept new deposits because of government regulations. And according to Bloomberg, the Chinese central bank barred financial institutions and payment companies from handling bitcoin transactions.

Bitcoin will likely gain more public acceptance over time, but its price is extremely volatile and very sensitive to news-such as government regulations and restrictions-that could negatively impact the currency.

Therefore, I don't suggest investors to convert bitcoin to usd unless they were purchased at a significantly less than $10 USD per BTC because this may allow for a much bigger margin of safety.

Otherwise, I believe that it's much better to buy stocks that have strong fundamentals, in addition to great business prospects and management teams as the underlying companies have intrinsic values and are far more predictable.