Cryptocurrency Profile: What Is Bitcoin, How It Works & Why BTC Now?

Let’s face it: the only way you haven’t heard of Bitcoin (BTC) so far is if you’ve lived under a rock for the past few years. From tech-obsessed gimmick to global powerhouse and #1 investment in 2017, Bitcoin has indeed gone a long way. Although lots of people have now heard of it, or even invested in it, some mystery still revolves around the digital currency. Will it have the same incredible results in 2018, or is it just a bubble waiting to burst? Is this a good time to invest in Bitcoin? And at the end of the day, what IS Bitcoin?

What is Bitcoin?

Bitcoin a cryptocurrency – a digital coin and payment system. It is one of the over 1300 in use today, but it is the first one that appeared. It was created as a decentralized payment solution since the entire network works without an administrator or single point of contact.

The technology based on which the peer-to-peer decentralized network works is called a blockchain, and many other coins (or altcoins, as the industry calls any other coin except Bitcoin and Ethereum) use this technology. And although the Bitcoin is the leader in the cryptocurrency industry, both in terms of price and overall market cap, the future might not look so good. If 2017 was the year in which cryptocurrencies hit the mainstream, 2018 would be all about practical solutions.

What problems does it solve/What benefits does it bring?

At its origins, Bitcoin was designed as a decentralized, private network which users could use cheaply, quickly and anonymously. At first glance, the solution seemed near-perfect. No more banking fees, long wait times or being forced into sending money during work days. You now had a comfortable, convenient and secure way to send money to anyone around the globe, if you knew their Bitcoin address. The initial people who believed in Bitcoin used it to send vast amounts between them all over the world, back when the currency valued almost nothing and mining it was a breeze.

Nowadays, in a more mature market, Bitcoin looks like a jack-of-all-trades, master-of-none kind of asset. There are coins specifically designed to be anonymous. Other are designed to have incredibly cheap and quick transactions and cater towards the banking industry. Some are created around a specific sector, like TRX (Entertainment) or CarVertical (Transport). Although sending Bitcoins from one person to another is still possible, it’s neither quick nor cheap these days. With the value of a single Bitcoin exceeding $14,000 at the time this article was written, it has become somewhat clunky to operate. But it’s still #1 in the business. The correct question is : can it stay there?

Pros of Bitcoin compared to other cryptocurrencies

Although its technology might seem outdated already, the Bitcoin still have some competitive advantages over its competitors:

– Almost all the other coins express their value as a fraction of a Bitcoin. When you’re the leading settler of value in the industry, you will inherently always have value.

– Most transactions still go through Bitcoin. There are few cryptocurrencies which can be bought directly using a credit card. Most of them are purchased on online exchanges using either Bitcoin or Ethereum – which means that the need for Bitcoins will always be here.

– Its market cap is still almost twice as big as the next direct rival, Ethereum. Simply put, it might be too big to fail.

– It is the vector of the entire market. At least, it has been in 2017. If the whole cryptocurrency market has gone up, Bitcoin went along with it, and vice-versa.

Cons of Bitcoin compared to other cryptocurrencies

In spite of the pros mentioned above, some argue that these are mostly historical and market-cap related reasons. There are quite a few critics that believe that the entire cryptocurrency industry is in a gigantic bubble which is just waiting to pop – and Bitcoin will be the first one to do so, for the following reasons:

– Its practical usefulness is very limited. Currently, apart from bringing excellent returns to investors, it has close to no utility. It doesn’t solve any of the world’s problems.

– Mining Bitcoins has become a very costly affair. The electricity required to mine Bitcoins (especially in China) is enormous and is projected to surpass the energy consumption of the United States by 2020, at the current rate of growth.

– It’s no longer 100% decentralized. Yes, there is no “Central Bank,” but there are groups of mining companies which currently solve close to 20% of the transactions on the blockchain. When a company has this big of a market share, its voice gets heard by the creators. It can’t decide by itself, but the network can hardly be called “decentralized”.

– From an investment perspective, it’s an immature asset. With its value sitting at over $ 14,000, one cannot realistically expect 10x returns in the future. It has just started institutional trading, and there still is a lot of room to learn exactly how it will fare. Until then, it might bring profits, but these profits bring significant legal issues with them.

Final Thoughts On Bitcoin

At the start of 2018, investing in Bitcoin can be seen in two ways. If you’re a skeptic, it is a train which is probably too late to be boarded, and will only bring disappointment – case in which you should look towards other currencies, like Ethereum, Ripple, Dash or Neo, all coins which will have their own profiles written shortly.

However, if you’re an enthusiast, investing in Bitcoin is like buying blue-chip stocks: sure, it probably won’t give you the same return it had last year, but it’s the biggest thing in the crypto business. And being so large means that’s it’s probably fail-proof. Regardless of what side you’re on, you should follow its price quite carefully if you want to invest in cryptocurrencies in 2018. It’s still big enough to take the entire market with it, regardless of the path it chooses.