Cryptocurrencies – in particular, Bitcoin – have captured the attention of investors lately. Strong performance in late 2020 and early 2021 has fueled the frenzy. Yet, amidst the excitement, many people struggle to understand the complexity and nuance of this investment. To add some clarity, this article explores:
What is cryptocurrency/Bitcoin?
What is blockchain technology and how does it support Bitcoin and other cryptocurrencies?
How has Bitcoin performed?
What do investors need to consider before they enter the space?
What is cryptocurrency?
There are few similarities between cryptocurrencies and traditional currencies (such as dollars or euros). You can use both to purchase goods and services. However, that’s pretty much where the resemblance ends. For example:
Unlike dollars, you can’t hold cryptocurrencies in your hand. They are completely electronic.
Cryptocurrencies are global, they are not backed by a specific country or government.
Transactions are largely anonymous, although everything is tracked and records are kept in vast databases.
It can be confusing trying to figure out how the world of cryptocurrencies work. To explain, let’s take a deeper dive into Bitcoin. It was the first and is now the largest cryptocurrency in the world.
What is Bitcoin?
A 2008 white paper by Satoshi Nakamoto laid out the plans for Bitcoin. The currency was designed to support a platform where individuals could securely hold, send, and receive items of value digitally – without the need for a trusted intermediary like a bank. The solution lay in the creation of a distributed, decentralized database to help manage and authenticate transactions. This is called a blockchain.
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