As it receives more and more news coverage, there is an increasing public curiosity about ‘Bitcoin’ and what it represents. While many pundits and popular news services like to make grand claims about ‘digital currency’ being the future of money and commerce, some are less eager to realize that dream. So what is there to understand about Bitcoin and its future potential? To unpack that, we must first compare Bitcoin to the other existing, dominant currencies.
Who is responsible for the value of Bitcoin?
While major currencies like the U.S. Dollar, the British Pound and the Euro rely on the banks of their respective countries-- Bitcoin is protected by the community that ‘mines’ and distributes the currency. All Bitcoin users contribute their processing power to ensure a fail-safe, built-in security system that supports the entire Bitcoin economy. This is called “blockchain technology” and it is the core innovation that has granted Bitcoin its current success.
What makes Bitcoin valuable?
Instead of distant investors, GDP and other factors that control traditional currency-- digital currency relies on the finite amount of the resource, as well as the predetermined “halving” of Bitcoins’ value until it runs out. Bitcoin can also be spent anonymously and securely or even exchanged for a wide range of other currencies.
What are the risks of using Bitcoin?
Thanks to its incredible security and relative stability, Bitcoin holds few inherent risks. Still: few early adopters, hardware failure/computer viruses, lack of buyer protection, no physical form and the absence of guaranteed valuation-- these factors can all make Bitcoin a risky investment. More recently, Bitcoin is experiencing a "civil war" of sorts between large miners and those trying to optimize the underlying technology.
Is Bitcoin the future of currency?
Unfortunately the jury is still out on this decision-- it is too early in Bitcoin’s life to declare it the next step in currency and commerce. While blockchain technology will assuredly be a part of future technology, Bitcoin may just be an early experiment in its long lifetime. And yet we could see a financial revolution, if Bitcoin continues to be as impactful and its influence grows large enough.
This is only a brief summary of Bitcoin’s current status and its future. If you have any further questions or concerns about Bitcoin, contact Catalyst today!
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