Bitcoin and other digital currencies are still garnering attention from media reports and elsewhere. Government hearings have been held, and press reports have focused not just on virtual currency's promise, but also on very real abuses and criminal activity related to it.
Investors should know that buying and using digital currency carry dangers. Speculative trading in bitcoins carries significant risk. There is also the chance of fraud related to companies claiming to provide Bitcoin payment platforms and other Bitcoin-related services and products.
How Bitcoin Works
Bitcoin was released in 2009 as an open-source software. Think of it as a sophisticated computer program that encrypts, verifies and records bitcoin transactions. Even though Bitcoin users are anonymous, there is a public ledger of the transactions that is shared between all the Bitcoin users. Mathematical proofs are utilized to verify the validity of every trade.
Bitcoins are made by a process referred to as mining. Like mining for gold, the procedure is labor-intensive. Mining serves two purposes. To begin with, miners use software algorithms to include transaction records to Bitcoin's public ledger of past transactions and confirm legitimate bitcoin trades. For their efforts, Bitcoin miners get trade fees. Additionally, should the miner finds out a new block, that the miner is awarded bitcoin. A finite number of bitcoins can be mined.
Bitcoins can also be purchased and sold on the internet or at physical locations. A rising amount of exchanges and bitcoin ATMs make it possible for clients to buy and sell bitcoins using cash, credit cards, money orders, and others. Bitcoins reside in a digital wallet, where they can be used to purchase things from institutions that take bitcoins.
Bitcoins can be traded for conventional money at exchange rates that fluctuate. Bitcoin costs have been extremely volatile and subject to wide price swings.
Bitcoin Speculation
Speculators are attracted to bitcoin trading for a way to make a fast gain. But just like any speculative investment, from real estate to gold, you can lose money. With cryptocurrency, profits or losses are almost impossible to predict. Bitcoin costs have fluctuated widely, and exceptionally, nearly from the currency's beginning for a host of factors. For instance, bitcoin prices plummeted following the Mt. Gox episode.
Bitcoin-Related Scams
As with many other hot commodities, fraudsters may see the recent digital currency trend as a chance to steal your money through fraud. Warning indications of fraud include company claims that are not backed by financial reality. For example, newsletters or press releases might claim a firm has a viable service or product, but the organization's own filings with the SEC reveal low earnings and explain the firm as being in the development stage.