Bitcoin was created in 2009 on the heels of the economic recession. Bitcoin was created to be an electronic peer-to-peer cash system but has also attracted crypto-curious investors as a store-of-value currency, comparable to gold.
History of Bitcoin
In 2008, an unidentified entity using the moniker Satoshi Nakamoto published a white paper describing the Bitcoin concept. Nobody knows the author’s genuine identity, or even if it’s a single individual or a group of people. According to Ollie Leech, learn editor at CoinDesk, a popular cryptocurrency news outlet, the paper explained how Bitcoin would work, and the currency formally launched on Jan. 3, 2009.
How Bitcoin Works
The maximum supply of bitcoin is 21 million, and that’s all there will ever be.
When a cryptocurrency is first issued, its creator(s) can specify its parameters (how much there is, buying and selling rules, how new Bitcoins are introduced to the marketplace, and so on), which cannot be changed later. These regulations, which have been in place since the beginning, effectively turn Bitcoin into a truly scarce resource, with a limit on the total quantity that will ever be available.
“No one can reverse it now that it’s been released,” Leech argues, “not a government, not Satoshi himself.” “Bitcoins can’t be duplicated, and they can’t be recreated.”
That’s where the comparison to gold falls a little flat, because gold is constantly entering the market as new ores and pockets are discovered, making it only a relatively scarce resource.
Bitcoin is also much more transferable and more easily stored compared to a resource like gold. If you want to move gold, it’ll cost a lot of money (armored transport, security, cost of storage in a secure facility, etc.). Bitcoin can essentially be stored on a USB stick — in something known as a cold or hard wallet
Why Is Bitcoin So Volatile?
According to Leech, cryptocurrency volatility is primarily due to the “immature market.” “Traders are extremely vulnerable to emotion, fear, and greed, which leads to these wildly erratic market movements.”
New regulations and policies are also continually changing the market and producing significant swings. There’s also social media to consider.
“It’s this strange new phenomena where viral social trends, such as Wall Street Bets or Elon Musk, have a significant influence over crypto,” Leech explains. “If Elon Musk uses the hashtag Bitcoin in his Twitter bio, Bitcoin will rise 10%.”
While social media has a unique ability to captivate and excite, its influence on the Bitcoin market is cause for caution among casual investors. “Please don’t buy in cryptocurrencies based on Twitter trends,” advises Kiana Danial, author of “Cryptocurrency Investing for Dummies” and owner of the @Investdiva Instagram account.
Bitcoin and other cryptocurrencies should still be regarded riskier assets, Danial believes, because they have so little historical background compared to more traditional investments. Because the potential gain comes with a higher risk, make sure any Bitcoin investment is part of your riskier, more aggressive portfolio allocation.