Bitcoins are just one of the over 900 new format currencies known as cryptocurrencies to have emerged over the past few years. As they have become more mainstream in their appeal the price of bitcoins and their crypto-cousins has skyrocketed, causing investors to wonder if they have been missing out. What then is a cryptocurrency, and should we consider these to be potential investments?
What is a cryptocurrency?
Simply put, a cryptocurrency is a digital global currency created outside of the well regulated confines of the global monetary system. It exists only in the online world, and not in the physical world. This puts it out of reach of central banks, regulators and other watchdogs, making it the first independent, global currency.
It has no physical form, existing only though unique online software code which gives it the attribute of limited supply, something alien to the online world until now. Think of any piece of digital information you may have – you can simply copy it and send it on, with the recipient in turn sending it on again. Digital information in this form has no value as its supply is unlimited (it can be replicated for free).
The key part to the rise of the cryptocurrency has come as a result of what is known as “blockchain” technology – essentially the ability to isolate unique pieces of digital information/code/bitcoins/cryptocurrencies, thereby limiting their supply and enabling them to become a store of value – as is the case with any traditional currency. Bitcoin can therefore serve as a global transactional currency, with huge potential benefits in terms of the efficiency of global financial markets, payment for goods and services, protection against fraud, and broadening the scope of who can access ‘foreign currency’ by lowering the cost of access to anyone with an internet connection.
For a more detailed article, click below to download the Fundhouse/Lifeforce Bitcoin article.