Without question, Bitcoin has been a lead financial story of 2017. Boasting performance metrics that draw few comparisons, Bitcoin is the benchmark product of the fledgling cryptocurrency asset class.
What Is Bitcoin?
The rise of Bitcoin has financial traditionalists taking notice, even though its technology remains a mystery to most. In simplest terms, Bitcoin is an exclusively digital form of money. Created in 2009 by an anonymous programmer under the alias “Satoshi Nakamoto,” Bitcoin is a decentralized peer-to-peer online payment system.
Employing a technological construct known simply as the “blockchain,” Bitcoin is lauded for being extremely secure, accurate, and untraceable. An intricate code makes every Bitcoin unique within the blockchain and unable to be counterfeited. In comparison to conventional forms of currency, Bitcoin has several unique advantages:
- User anonymity
- Low fees and costs
- Rapid transaction speeds
The applications of blockchain technology have been a topic of speculation for years. Identity protection, decentralized financial exchanges, and even online voting systems are said to be in development. However, the current primary function of the blockchain is to facilitate the transfer of Bitcoin and other cryptocurrencies.
How Do I Use Bitcoin?
While the technology behind Bitcoin is cutting-edge, it is relatively easy to use. Simply acquire Bitcoin, store it, and then transfer at your discretion.
To acquire, you either receive Bitcoin from another party or purchase them directly from an exchange. All that is needed to receive Bitcoin from a sender is a valid address (more about “wallets” later on). Purchasing Bitcoin from an established exchange, such as Coinbase or Bitstamp, is straightforward:
- Open an account with the exchange
- Link a bank account, credit or debit card
The ability to store Bitcoin is a crucial aspect of its function. In order to accomplish this, you must create a Bitcoin “wallet.” The wallet serves as both storage and mode of transfer. Much like a bank account and cash, you can store Bitcoin in the wallet then transfer it in and out at your leisure.
Wallets come in three basic types:
- Web: Bitcoin web wallets are managed online by third parties. They are the easiest to use and least secure.
- Software: Software wallets are downloaded to a PC or mobile device. Bitcoin may be stored securely without the need of a web provider.
- Hardware: The most secure of the Bitcoin wallets, hardware devices are not connected to the internet. Hardware wallets are very similar to flash drives.
To transfer, all that is needed is a wallet and a destination address. Bitcoin can be sent to any other online wallet or address that is compatible. To redeem Bitcoin for cash, it must be sold at the exchange and then transferred to a linked bank account.
What Is Bitcoin Worth?
Bitcoin’s value has been an ongoing debate since inception. Like fiat currency, its value hinges upon consumer confidence. However, unlike traditional money, Bitcoin cannot be created out of the thin air and has a finite supply.
The only way that new Bitcoin can be created is through a process called “mining.” Bitcoin mining occurs when users process transactional data into “blocks” and then add them to the blockchain. As payment for this service, miners are awarded specific amounts of new Bitcoin. Upon its launch, the maximum supply of Bitcoin was predetermined to be 21 million.
For years, the value of Bitcoin was held in check by skepticism among consumers. Sentiment has certainly changed due to the performance of Bitcoin for 2017:
- From January 1, 2017, to December 1, 2017, Bitcoin experienced a 1000% appreciation, rising to $10,006.30 from $997.69.
- Bitcoin’s market capitalization is valued north of $168 billion
- One Bitcoin is worth over 7 times more than one ounce of gold
With the recent appreciation of Bitcoin, there may be no financial instrument hotter. With more than 16 million of the 21 million Bitcoin already in circulation, traders and investors seemingly have a growing appetite.
The Future of Bitcoin
Bitcoin is going mainstream, and bitcoin futures contracts are expected to be available by Dec. 10 through Cboe and Dec. 18 through CME. For the first time, U.S. traders will be able to have a stake in bitcoin without having to own it outright.
For more information on this exciting new market and the potential of bitcoin futures, check out Daniels Trading’s Bitcoin futures information page. With more than 20 years in the futures industry, the team at Daniels Trading has the experience and knowledge to successfully navigate the brand-new Bitcoin futures market.