Published 15 November 2017 Category: Business Insights, Entrepreneurs, SMEs, Startups

Is It Too Late To Invest In Bitcoin?

For those wondering if they've missed the money-making boat.

For non-financey types, the concept of Bitcoin can be daunting. Just when we were wrapping our heads around variable interest rates and term deposits, they go and create a whole new digital currency. Whatever happened to shoving all your money under your mattress and calling it a day? But with or without our approval, Bitcoin has become a thing, and for those who jumped on it early, a very profitable one. But do investors need to rethink investing in Bitcoin?

To give you an idea of how far it's come, in 2010 the bitcoin price was about 1.5 US cents. Let's all spare a moment for the guy who bought $25 worth, threw away his hard drive and then realised as of this month he essentially threw out $7.6 million. Ouch. But what about the (relative) latecomers to the Bitcoin train? Have we missed out?

What is Bitcoin?
First, let's start with the basics. As defined by CoinDesk, "Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren't printed, like dollars or euros -- they're produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems."

Bitcoin is traded digitally, but that's not what's new or exciting about it. Where it stands apart is due to the fact it's decentralised, meaning it isn't controlled by any one institution. Instead, it relies on a peer-to-peer structure, by a community of people that anyone can join. These peoples are called 'miners' and they use computing power to verify bitcoin transactions. As an incentive, every time they verify a block of transactions, they get bitcoin as well.

Who invented it?
Bitcoin was invented by Satoshi Nakamoto in 2008, but it didn't go online until 2009. Also, because it's the internet and anything can happen, Nakamoto's actual identity has never been confirmed.

Can Bitcoin make me money?
If you bought some bitcoin when it first started and was trading at a measly couple of cents, you probably would be sitting on a yacht right now being fanned with a palm frond and not reading this article. But millionaire status doesn't only happen for those who invested at the very beginning. One Idaho teenager invested $1000 in Bitcoin just three years ago and now has over a million dollars.

But what about investing now?
There are a couple of important things to consider.

Controlled supply - It's important to note there is a limit for how many bitcoins can be created, with a maximum amount of 21 million. However even with this cap, there won't ever be the full amount in circulation, as some unlucky people have lost their keys (and thus their access) along the way.

According to Quora, "As of June 1st, 2017 there were 16,366,275 BTC out of a total 21,000,000 BTC in theoretical supply, which has yet to be mined".

So, just as there is only so much gold to be mined in the world, there is only so much bitcoin, too. And the important thing to note is there's still some left. If you're thinking, 'But can't they just make more bitcoin?' that's the beauty of the currency not being controlled by a single institution. In order to change the protocol surrounding Bitcoin, every miner needs to vote on the decision. Now, don't forget miners are paid in bitcoin for their services, so why would they vote to decrease the value of their own assets?

No one can change the protocol. There's no one party that can change it. If someone wants to change something in the Bitcoin protocol, they have to vote. It's a democratic process. However, that's not to say the miners always agree. In fact only recently (August 1) Bitcoin split into two derivative currencies, Bitcoin Classic (BTC) and Bitcoin Cash (BCH) as a result of two competing factions within the Bitcoin industry being unable to come to an agreement about the currency's future.

Other digital currency
With all the hype surrounding Bitcoin, it's easy to forget it's not even the only digital currency out there. The reason it's the most famous is because it's the first of its kind, but it's not alone. So now we have Bitcoin, and the biggest rival of Bitcoin is ethereum.

Risks
As with any investment, Bitcoin comes with risks. One of the biggest risks is if a major government decides to step in and enforce regulations on how miners operate. Or, even worse, issue its own cryptocurrency. The very fact a lot of the mining power currently resides in China is kind of worrying, especially if the Chinese government decides to put in some regulations as to how the miners can operate. That could cause a huge ripple in the price of bitcoin.
 
So if you are thinking about buying or investing in Bitcoin right now, go in with caution. The appetite for speculation is still pretty strong, so the price is still likely to rise at this point in time.

In conclusion
Digital currency may not be mainstream just yet, but there's plenty of arguments to say it's not going anywhere soon. Should you invest in Bitcoin before it maxes out at 21 million? Maybe. But we think there is potentially money still to be made.