Let’s Get Down to the Basics…of Bitcoin
Many investors have been baffled by Bitcoin’s spectacular ascent this year, with returns topping +500% so far. But it’s not only the huge returns that have investors baffled. People are also grappling to figure out what the heck what Bitcoin is, where it came from, and whether it has a future as a real currency and/or investment. For now, I’ll focus on the first two parts—the basics of Bitcoin.
To understand Bitcoin, you first must understand the term ‘cryptocurrency.’ Look no further than the Oxford Dictionary for a concise definition, where cryptocurrency is defined as "a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank."
Bitcoin is the most popular type of cryptocurrency. It may be helpful to think of it as a digital currency used to complete a transaction between two parties without involving a middleman. Not having a middleman is the key, so to speak, since it allows for direct, private transactions between users with virtually no transaction costs.
At the end of the day, Bitcoin is a real currency used by (mostly) normal people, but the transactions are generally not for everyday purchases like groceries or clothes. People are using bitcoin online to gamble, to pay for digital services or assets, and for other illicit activities like drugs or fake IDs. In the absence of being a legal, regulated currency, bitcoin is confined to users on the web who want to transact with each other.
It is difficult or near impossible to know what the future of bitcoin is, or how it may be regulated in the future. But in the meantime, it is very possible to buy and own bitcoin and to invest in it. Investors should understand that unlike a fundamentally based approach one may take to investing in the stock market, it is nearly impossible to gauge the intrinsic value of bitcoin or other cryptocurrencies. Speculation is just about the only tool in the toolbox, unless of course you have Artificial Intelligence (AI) helping you identify trends and trading patterns in the cryptocurrency markets.
Tickeron is working on creating this AI now, and it should be ready for release soon. The cryptocurrency markets are notoriously volatile, so the hope at Tickeron is that AI can make more sense of it. Time will tell.
Contributor
Financial analyst and market blogger with expertise in equity research, fundamental analysis, and macroeconomic trends. I regularly publish coverage on individual stocks, ETFs, and sector developments — combining rigorous financial analysis with clear, engaging writing for a broad investment audience.
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