Well, if you ask what Bitcoin is, the answer is extremely complicated and there is no particular definition that fully encapsulates it. In simple terms, Bitcoin is the new payment system and a virtual (digital) currency. It is said to be the first decentralized peer-to-peer payment network which means the transactions are happened directly between the end users without involving any third party authorities or middleman (like central banks) to validate. Bitcoin uses blockchain technology to validate the transactions involving mathematical proofs and superficial miners.
While the price of Gold, Silver and crude oil declining down, interestingly Bitcoin price is elevating to its peak. For last 3 years the stock price is constantly increasing, however there is remarkable jump from June 2017 ($ 2412 from $ 214 in June 2015) and it is exponentially uplifting its price to sky.
As of today, there are only 21 million Bitcoins available and the price of one Bitcoin crossed 15,000 USD. Bitcoin is too volatile to be a practical economical tool. The market cap of Bitcoin claims 257 billion USD with 300+K daily transactions on stocks. Venture capital investments in Bitcoin and blockchain companies estimated to be $1.11 billion including Google ventures, SBI investment co, National Australian Bank ventures, Qualcomm ventures, Broadridge Financial solutions, Silicon valley bank ventures, J.P. Morgan, Deutsche Borse group and many of individuals and companies around the world.
How it is different from traditional banking
There are significant differences can be noticed when using Bitcoin for trading.
1. Bitcoin has no physical form like traditional currency. Bitcoin is virtual payment system.
2. Bitcoin has no single administrator or authorization like banks or government and third parties. It has no accountability for any failures in its services.
3. Bitcoin is not issued by any government or authorities or anyone else. It is independent from any regulatory bodies unlike embossed currencies all over world. It is created and maintained by an unknown individual under pseudonym Satoshi Nakamoto.
4. The transactions of Bitcoin are validated by Bitcoin miners unlike traditional banks and it takes very few hours to complete the transaction digitally from end to end user.
5. Bitcoin provides its own designed store called Bitcoin wallet to store the purchased Bitcoins of users.
Is Bitcoin a bubble?
After the stock price of Bitcoin climbed 1000% this year, itâ€™s likely to question is Bitcoin another massive bubble that eventually end up with severe impact on world economy?
Historically lot of bubbles tend to be shaped up either by new technologies or by new financial innovations where people canâ€™t predict its pace of development. Amusingly Bitcoin is a new technology and financial innovation.
Bitcoin does not pay interest, dividends or any fancy benefits to its owners from holding Bitcoins. Apparently, the buyers of Bitcoin either sell them often to sellers or hold them to bet on its value. This makes Bitcoin more uncertain to find out how much it is worth to be. Often uncertainty of valuation is a major issue in bubble.
Bitcoin is the technology stock. When some optimistic investor buys a technology stock, they expect the company to make profits and pay interests and dividends. But Bitcoin is different from this traditional stock since Bitcoin owners donâ€™t get additional payments. The stock price of Bitcoin should likely be pre-revenue forever. This might cause investors to not question about valuation and assets of Bitcoin.
The value of Bitcoin can be compared to a fine art. The fine art will have its value as long as people believe it has value. If the users show interest in Bitcoin network, eventually the demand of Bitcoin grows up and its value can be pushed upwards. The supply of Bitcoins is permanently fixed to 21 million. So based on the need of payments, the value of Bitcoin go up or down to accommodate the demand. Already some of the Bitcoins have held by its owner as they believe in its future value or for pride like gold. Though many of the individuals raising concerns over Bitcoin trade yet the stock price is showing its power.
Many of the Bitcoin investors attracted to its blockchain technology and thus invested huge amounts to be in market race. If the investors lose confidence and trust in Bitcoin then the whole market cap of Bitcoin comes down and buyers wonâ€™t show any interest to own anymore Bitcoins. There is no guarantee or assurance from any regulatory bodies around the world to rescue from this unwanted mishap. The CTFC (U.S. Commodity Futures trading Commission) already warned investors about the dangers of Bitcoin by pointing out the unregulated cryptocurrency exchanges and transactions.
It might be too early to term Bitcoin as another massive bubble. If more people believe Bitcoins are needed then it is good to invest in it as a good long term store of wealth. It is tricky to explain the impact of Bitcoin bubble if it ends up. There is no one accountable or administrator of Bitcoin network to question if it fails. It is important to be clear that Bitcoin software is open source and is still in development phase. Bitcoin can only work correctly with a complete consensus among all users and developers.