During these unprecedented times you may be asking yourself, "Is Bitcoin a safe investment?" - Newcomers to Cryptoland may be questioning the relationship between cryptocurrency and the stock market - is there much difference between the two?
What is Bitcoin?
Bitcoin is the revolutionary cryptocurrency created by Satoshi Nakamoto in 2009, an unknown person or group of developers. Bitcoin was conceived using a new form of technology – Blockchain.
With the introduction of blockchain technology, DeFi (or decentralised finance) was born. Since Bitcoin, thousands of other cryptocurrencies have appeared on the market – some in response to the perceived shortcomings of Bitcoin, some based on almost identical principles.
What is Blockchain Technology?
In short, blockchains are pockets of code which carry information about transactions. These “blocks” contain a cryptographic hash of the block which came before it, thus creating the blockchain.
This form of cryptography means that any attacker cannot identify the true information within the block without first having the key to decode it. In order to attack any one individual transaction, a hacker would need to decode every block of information for each transaction that came before it.
So why is cryptocurrency and Bitcoin a safe investment?
To hack the blockchain network can cost an astounding amount of money. Several new experimental alt coins have fallen victim to hackers due to floors and loopholes found within their design.
In the early days of cryptocurrency this was commonplace. In the decade proceeding however, there have been many alterations to the protocols used by blockchains and cryptocurrencies, with some currencies such as Ethereum splitting in to two separate currencies due to a disagreement on improvements to protocol.
This spawned thousands of new cryptocurrencies, all serving different purposes and offering potential new use cases. The point here is that if companies like Google and Facebook are adapting crypto (or perhaps even creating their own?) then there must be a bar for security that forms some sort of consensus. This is just one of the factors to consider when asking “is it it true that Bitcoin is a safe investment?”
The encoding process, known as “hashing” is getting bigger every day, with each new transaction comes a new chain of data blocks. The longer the hash, the more time, energy and money it requires to attack the system and decrypt the data on blockchain.
This, coupled with periodic halving of mining fees makes hacking less appealing every day. These codes have been formulated in a way that there is no central organization or individual in control, cryptocurrency is decentralised. A network of computers known as Nodes verify these transactions from around the world anonymously. These records are immutable, meaning they cannot be changed.
They are stored infinitely and publicly. Should you have a private key to unhash a code in order to receive payment, it is transparent. The technology behind the private key on the blockchain has been designed so that any person trying to hack your digital asset, even with a supercomputer, would require longer than a human lifetime to do so.
The immense calculations and sheer number of probabilities involved means that even if cracking the puzzle was remotely plausible, it wouldn’t be worth the effort.
This is why Bitcoin is a safe and secure investment.
Oil, Farming, Real estate
The oil market has seen a massive dip in recent months, one of many knock-on effects of the Covid-19 pandemic. To illustrate the reason how this may have happened and the possible implications, we’ve paraphrased a story by Ivan on Tech’s “Good Morning Crypto” show, used by Ivan as a fantastic metaphor. (which, if you’re not watching already, sign up now ’cause you’re missing out!) Watch Ivan here!
…So let’s say that you sell beer instead of oil. You have a regular steady flow of business and therefor you make large contracts with the brewery to keep a consistent delivery of beer each month for 12 months. This is a legal binding contract that you must receive the delivery of the beer and pay for said delivery every 30 days.
But then a pandemic hits, everyone must stay at home and you don’t have any customers anymore. There is nobody buying your beer!
The contract you have with the brewery is still in place, and you are still legally obliged to take receipt of gallons and gallons of beer. You’ve filled up every keg, barrel, and behind-the-bar space you can with all the beer you can’t sell.
You try calling the brewery to explain and they may be sympathetic, but there is nothing they can do about it. It’s too expensive to shut down the brewery – the pubs as a result may be struggling to pay invoices for barrels of unsold beer, yet this is nowhere near the substantial loss if the brewery were to shut down.
So, you do what you can to sell the beer to make room for more beer. No one buying? Give some for free! You have no more room and another truck load of barrels arriving in the morning and your back yard is full.
This is what is happening to the oil industry. We saw a huge drop in oil prices towards the end of last month, with prices briefly entering the minus region. This was due to the end of the 3-4 month long contracts between oil providers and their suppliers. After the end of their contract, which oil investor in their right mind is going to renew their contract when they have a living room full of oil barrels they can’t sell!?
Logically we might expect to see a significant drop in oil prices towards the end of each month as fewer buyers renew contracts with suppliers. This could likely stay in fashion as the world is under lockdown and fuel consumption has dropped so dramatically. Is this the catalyst for a greener future some of us have hoped for? Perhaps.
So why is Bitcoin a secure investment?
How long this will go on for is anyone’s guess. What happens to oil prices and the multi-billion dollar oil production companies with nobody to buy their product? The entire industry could be in jeopardy. This helps us to identify what it is that makes bitcoin a safe investment.
We are all interconnected.
A similar situation has occurred within the farming and agricultural industry. With the hyperinflation of fiat currency this could be echoed in the real estate industry and other sectors.
It’s a scary thought. Everything in this economic climate is interconnected and controlled by the central banks. The economy is failing and the banking sector is in grave danger. Fiat currency is being printed by the trillions across the world as currencies are debased. Everybody’s wealth is at stake.
Is Bitcoin a safe investment compared to gold?
In times like these, many people may turn to other assets to invest in, in the hope of retaining the value of the wealth they worked so hard for. Gold perhaps? Gold has had a perceived value and acted as a form of currency since around 700bc. That says a lot. Gold is scarce and therefor can hold it’s value as the stock is limited and the demand can be high.
The problem however, is that gold is difficult to obtain and store and can be a risky business. You can buy gold online that you never see or touch in the same way you can buy shares or even Bitcoin. But the crypto market has one distinct advantage; it is only just beginning and its’ value is more than just monetary.
The ecosystem of crypto is expanding every day. Transactions are fast, simple and safe. You can invest in projects you believe in by buying their tokens or initial coin offerings or you can trade them for other assets or currencies.
How is Bitcoin a safe investment?
Economies are empires and empires are cyclical. An empire is financed by debasing currency, and eventually the empire dies. Currently, the American empire is diminishing.
When a country lives beyond its’ means it can turn to austerity, debt and default, or they can print money. They call the process of printing money or quantitative easing, veiling the reality of the operation with fanciful terminology as governments and central banks often do, so that people ask fewer questions. This has happened time and time again throughout history.
People don’t ask where money comes from or who it goes to.
Fiat currency keeps you in your place.
Capitalism is not working as it should – in order for 1 person to increase wealth, someone else must lose theirs. All fiat goes to zero.
You can measure currency against debt or gold and commodities:
Debt tends to occur towards the end of the long term debt cycle, when people can no longer afford to pay back their debts, a chain reaction occurs, resulting in recession every 10 years or so. The next debt cycle starts further behind the cycle before it, and the struggle for recovery worsens with each cycle.
Debt becomes meaningless, people lose faith in debt and the long term cycle restarts. Every currency has declined throughout history because currency can become worthless overnight.
The speed of recovery, or in some cases replacement currency historically has depended on the strength of the country and its army.
How has Bitcoin recovered since Black Thursday?
Although the cryptocurrency market has shown correlation with traditional markets, it has also shown remarkable resilience in the face of economic turmoil and decreasing investor confidence.
In comparison to NASDAQ and The S&P 500, Bitcoin at the time of writing is now worth more than before ‘Black Thursday 2020’ (March 12th). NASDAQ hasn’t quite made it that far…
Over the past 10 years, what have most people really gained through investing in property?
In July 2010 Bitcoin saw it’s first bull run when 1 Bitcoin (BTC) worth just $0.0008, increased to $0.08 – that’s a 100% increase. At the time of writing Bitcoin has just broken through the $8000 mark, less than half of it’s all time highest price.
That totals a 10,000,000% increase in 10 years. Wish you’d invested in Bitcoin sooner?
Still wondering if Bitcoin is a safe investment?
Reports from crypto experts have projected a $288,000 Bitcoin from a recent stock-to-flow forecast.
Since the birth of Bitcoin, hundreds of other successful cryptocurrencies have adopted the blockchain, however none have had quite the same success.
So, is Bitcoin a safe investment? Is Bitcoin a secure store of wealth?
Is Bitcoin a secure investment? Is Bitcoin a secure store of wealth? You could argue, “what is a safe investment these days?” However, Bitcoin appears to have proven itself in the face of adversity during unprecedented times on several occasions.
Bitcoin was born immediately after the financial crash of 2008. The development of blockchain technology and decentralized finance, or “DeFi” offers endless opportunities, making The Internet of Money a much more transparent and secure currency than the current dated fiat currency model which is struggling to compete.
Closing thoughts - is Bitcoin a secure investment?
People who have previously casted doubt on Bitcoin are becoming increasingly silent, with many conceding that they may have been wrong with previous statements.
Email was not efficient until mass adoption.
Analysis should be based on the relationship between price and inflation rather than historical data points.
Years ago people thought defi was crazy and that earning interest from cryptocurrency would not be feasable..
Why is Bitcoin a secure investment?
Any active market is a moving market, meaning the price will go up and down. The aim of the game is trying to find a market to invest in where the peaks are greater than the falls.
Bitcoin has outperformed all other assets in 2020 and has recovered remarkably from the Black Thursday crash. Is Bitcoin a safe investment? The numbers speak for themselves really…
DISCLAIMER: This is NOT financial advice. Beginners Crypto Guide does NOT OFFER formal nor informal financial advice and accepts no liability for such service. You should always do your own research before making any financial decisions.