Bitcoin
There’s no denying that Bitcoin is the most famous cryptocurrency, and it dates back to 2008. A paper was released by Satoshi Nakamoto describing the concept for Bitcoin, and how it could all work. Nobody knows who “Satoshi Nakamoto” is, it could be a person, or a group of people. Rumours abound about who the mysterious Nakamoto is, but nobody knows for sure. Many people think that he is in fact the Nick Szabo who came up with the original idea for cryptocurrency, revised the idea in conjunction with other experts, and issued the paper under a pseudonym. Australian computer scientist Craig Wright has also claimed to be Satoshi, but many believe this to be a hoax. Whoever Satoshi Nakamoto might be, he or they are wealthy. It is estimated that the Bitcoin held by Nakamoto is worth upwards of a staggering $30 billion.
The paper written by Nakamoto describes in detail how Bitcoin can be created, bought and sold, and how it could be used to pay for everyday commodities. Many other companies and individuals liked the concept of a cryptocurrency and other companies such as Ethereum and Tether started their own currencies.
By the 2010s, new cryptocurrencies were popping up all the time. Some, like Ethereum, would stick around and do well and can still be bought and traded today. Others disappeared as quickly as they emerged. By 2017, there was a growing school of thought that cryptocurrency was the ethical option, a different system completely apart from the corrupt traditional banking system which critics saw as the root to the world’s problems. Bitcoin started being traded widely, and prices started rising quickly. Bitcoin started the year valued at $900, and by the end of 2017 this had rocketed to $20,000. Experts estimated that the overall size of the market was something around $600 billion.
The main advantages of a cryptocurrency such as Bitcoin are:
- Portable – you don’t need physical notes and coins, or a separate secure method for moving your currency around. All you need is a way of keeping track of the password to your online wallet.
- Divisible – cryptocurrency can be endlessly split into smaller and smaller fractions as the currency increases in value.
- Control – unlike a standard currency which is owned and controlled by governments, there is no one person or group of people in charge of a cryptocurrency. This is particularly attractive for people who do not trust the government or financial institutions.
- Security – arguably, safer and less risky to use than standard currency or assets such as gold.
- Monetary policy – we’ve all heard about governments printing extra money in response to political conditions. This is just not possible with crypto, and in periods of high inflation it may seem a better choice than traditional investments. Extra cryptocurrency can’t be created, and there is no body controlling the supply.
What Makes Cryptocurrency Valuable?
One of the hardest things to get your head around when thinking of cryptocurrency is why it is value, and where this value comes from. This is because we’re used to thinking of currency as notes and coins issued by the government and controlled by a central bank. In reality, a currency is anything which buyers and sellers agree to use. In the past, we’ve used cocoa beans, cowrie shells or whale teeth as currency. There are enough people around the world interested in buying and holding cryptocurrency to give it value.
Just like any other sort of investment, cryptocurrency like Bitcoin or Ethereum can rise and fall in value. The difference is that the rises and falls can be much more dramatic than with other forms of investment. Some people have made their fortune by buying cryptocurrency when it was trading cheaply, and selling at the height of the market. And conversely, people who invest when cryptocurrency is trading at high levels face losing a fortune if the value plummets. This is the other main difference with a standard currency. Invest in a British bank, and you’re covered for up to £85,000 per bank. There are no such guarantees with cryptocurrencies.
When you buy your cryptocurrency, you store it in a secure wallet. In order to transfer your cryptocurrency or use it to buy something, you need passwords known as keys. Your wallet can keep your passwords safe. This is another aspect of cryptocurrency which users must be aware of. If you forget your password on Facebook or for your banking app, you can ask for a reset through customer services. In cryptocurrency there is no owner and no customer services, and you cannot have your password reset. The story of Stefan Thomas in the US hit the headlines in 2021. He has over 7000 Bitcoin, worth £18.5k each, held in a secure wallet. He has lost the password, and has 10 guesses in total to get into the account before the system encrypts it forever, and he loses everything.
