Buying Cryptocurrency: Fad, Fraud or Fortune-Maker?

Thinking of Buying Cryptocurrency? Make Sure You Fully Understand What It Is and How It Works

By now, you’ve heard the hype about cryptocurrency. Chances are high you’ve also heard about the original cryptocurrency, Bitcoin. Are you among the many who have pondered allocating investment dollars to this mysterious and seemingly revolutionary currency? If so, you’re not alone. Many are wondering the same thing.

Virtual currency, or cryptocurrency, has been a media sensation for the past few years. Its trademark roller-coaster volatility, along with its futuristic operating model, certainly makes it inherently sexy. Plus, cryptocurrency can be used to purchase just about anything these days. A survey revealed that 36% of small-medium businesses in the U.S. accept Bitcoin as payment.

But, before buying or trading cryptocurrency, it’s vital to make sure you fully understand it and the blockchain technology behind it. While there are several cryptocurrencies, ranging from Bitcoin Cash to Ether, Bitcoin is the original and owns the largest market share. Let’s begin by exploring what it is.

What Is Bitcoin?

Bitcoin is a peer-to-peer ‘virtual currency.’ This means that it exchanges from digital device to digital device rather than from hand to hand. Bitcoins are transferred between virtual accounts via a computer, mobile device, or wallet software.

This attribute makes Bitcoin especially desirable in countries where bank transfers may take some time and incur multiple fees, such as India or China. In countries where it’s difficult for people to get bank accounts or are locked out of the online economy because they can’t get a credit or debit card, Bitcoin offers a viable solution.

Yet, buying Bitcoin and other cryptocurrencies needs to be more understood by investors who have used more traditional investment vehicles.

Where Does Bitcoin Come From?

Unlike fiat money, which the government monopolizes and prints, Bitcoin gets ‘mined.’ In the simplest terms, Bitcoin mining involves using powerful computers to crack a specific encrypted code. This generates Bitcoins, which can then be sold or exchanged. There are under 20 million Bitcoins in existence, and mining is dependent on computer server speeds. Currently, there are around 19.7 million Bitcoins in circulation worldwide.

Bitcoin began when an unidentified software developer published a white paper on the topic in 2009, launching the cryptocurrency craze. Since then, several spin-off cryptocurrencies have emerged, including Bitcoin Cash and Ether. The value of Bitcoin, and cryptocurrency in general, has swung wildly since its inception.

How Much Is Bitcoin Worth?

The answer is complicated. Tracking the progress of the cryptocurrency’s value over the years demonstrates some profoundly wild swings.

Bitcoin’s value started small, ranging from $32 to $2 in 2011. In 2016, thanks to escalating media interest and a heavy buzz around trading cryptocurrency, its value quickly grew. In 2017, its value surpassed gold, skyrocketing to roughly $20,000 per coin.

In 2018, Bitcoin saw a steep drop in price to around $3,000 a coin, leading to volatile growth in 2019. In 2020 Bitcoin once again caught the eye of investors. Prices rose from $7,000 at the beginning of the year to $18,000 at the end of 2020, translating to an increase of roughly 155%. The market value of Bitcoin has since grown to just over $67,000 per coin, an increase of $23,000 from the start of 2024.The global market Bitcoin market is now valued at over $1.3 trillion U.S. dollars.

Interested in Buying Bitcoin?

At its inception, Bitcoin was only exchanged within off-market circles and between enthusiasts of the virtual universe. Now, apps like Coinbase and Robinhood make it easier than ever for the every-day consumer to buy and sell cryptocurrency. The Chicago Mercantile Exchange launched Bitcoin futures. Even PayPal offers the option to buy, hold and sell Bitcoin on its platform.

If you’re interested in buying Bitcoin, you’ll need to download a Bitcoin wallet. This is where you’ll store your Bitcoins for future spending or trading. You can then buy Bitcoin with a credit card or bank transfer, and the coins will be transferred to your virtual wallet.

Blockchain Technology – not Cryptocurrency – May Be Transformative

In the grand scheme of things, cryptocurrency is just another step in the monetary evolutionary process, especially regarding how transactions are monitored via blockchain. Blockchain technology, created on behalf of Bitcoin, enables the existence of all cryptocurrencies and is a relatively new way of building a secure database.

It helps to think of blockchain as the data structure that holds transactional records. While traditional databases store information in a central server, blockchain is a digital ledger that is decentralized, distributed, and often public. Its records are stored in blocks that are used to record transactions across computers, and it is not controlled by any single authority.

Blockchain technology is extremely beneficial for several reasons:

1. Blockchains maintain a record of historical activity, so you are able to see a permanent record of all previous information efficiently.
2. It is more secure because it is a decentralized way of storing and accessing data. There is no central attack point for hackers, making it useful for securely recording information.
3. Blockchain has no centralized control. This means there’s no need for a central administrator or additional costs and infrastructure.

Blockchain technology is already changing the way people do business. Companies now use blockchain to track items through complex supply chains, and the healthcare industry is adapting it to store sensitive patient data. Like most technology, broad acceptance will still take years—however, blockchain is poised to make an impact.

Indeed, while the global blockchain market was valued at $2 billion in 2019, in 2023 it was valued at $17.5 billion, and experts predict that it will reach $825.9 billion in 2032, exhibiting a CAGR of 52.8%. So, while the future of Bitcoin may or may not be golden, blockchain’s future is certainly looking bright.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can listen to at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Data Privacy Compliance
2. Digital Assets and Bankruptcy
3. Trade Finance Basics

This is an updated version of an article originally published in November 2017 and updated on December 18, 2020.] 

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