There is no denying that gigantic and rapid price increases are a unique feature of digital money. Since the creation of the first cryptocurrency, in 2009, we have witnessed such a situation at least several times. We saw the first, most spectacular increase in 2017. The price rises at the time were declared a bubble and compared to the great tulip mania. However, after prices fell at the beginning of 2018, many experts heralded the end of “Bitcoin and company.” In 2020, cryptocurrencies came back to life. They awoke very calmly, but in the fourth quarter of the year, the price broke its previous records.
What Is Bitcoin?
Unfortunately, the popularity of cryptocurrencies cannot yet be compared with that of Britney Spears or President Putin, so I will explain what one of the more modern inventions at the intersection of finance and technology is. Bitcoin is a digital currency. Digital gold. By now, we have heard this many times—somewhere between warnings about the “threat” it poses, at least according to Polish authorities. The history of cryptocurrencies began in 2009. A new page in history opened when Bitcoin was created. The father of this currency is not precisely known. It may be one person or an entire team—the only thing we know is the name: Satoshi Nakamoto. We also know what philosophy guided the authors in creating this groundbreaking work: a currency free from government oversight, free transfers, fast transactions and decentralization. Unfortunately, Bitcoin is not yet being used as its creators intended. It has become something resembling gold—a “store of value”—the golden fleece of investors.
How Does Bitcoin Work?
Bitcoin is based on Blockchain technology—the chain of blocks. One might say that it is a huge accounting system. Each block contains information about transactions conducted using the cryptocurrency. Interestingly, despite the vast amount of information contained in them, the blocks do not contain any personal data—Bitcoin is anonymous in a certain sense. Why “chain” in the name? Each block can contain only a specific number of transactions; once it is full, a new block is created, and together they form a kind of chain. The process of creating each block in the chain is mining. In very simple terms, Bitcoin transactions must be confirmed (recorded in a block); miners handle the recording (or mining), for which they receive a reward in the form of Bitcoin. Anyone can become a miner—all that is needed is a computer with sufficient processing power.
Is Mining the Only Way to Obtain Cryptocurrency?
You do not have to become a miner to have cryptocurrencies in your wallet. You can buy them at an exchange office or on a cryptocurrency exchange. However, before making any purchase, it is worth learning about the subject thoroughly.
There are many platforms where cryptocurrencies can be purchased, and governments warn about fraudsters—watch out for them. The best indicator of whether you can trust a particular exchange or bureau de change is a government license. In Poland, there are platforms that have obtained a Small Payment Institution license from the Polish Financial Supervision Authority. Remember this if you are looking for a place to buy cryptocurrencies.
Where Are These Increases Coming From?
The coronavirus turned our lives upside down. Chaos and black swan events caused inflation to rise and interest rates to fall. Fixed-term deposits and savings accounts lost their appeal—people began losing money. Some people decided to invest. Shares in many companies soared, real estate prices rose, and even car prices increased. Others decided to find a safe haven for their money—precious metals such as silver, gold or platinum. These basic stores of value proved insufficient, and some people turned toward cryptocurrency exchanges. The price of Bitcoin began to rise slowly.
In the fourth quarter, the price came back to life. We then witnessed huge institutions entering the cryptocurrency market. It began with PayPal. News of the giant’s entry was met with enormous enthusiasm from ordinary people and investors—everyone wanted to buy Bitcoin, and the price climbed to ever higher peaks. In the first quarter of this year, more huge organizations joined the ranks of holders—Tesla and MicroStrategy. Tweets by Tesla’s creator, Elon Musk, heated up the atmosphere considerably, causing increases in the prices of subsequent cryptocurrencies. Enthusiasm soared when Tesla announced the possibility of buying its cars with Bitcoin. The situation continues to develop rapidly, and some Bitcoin holders are moving into alternative currencies—altcoins. This situation is worth watching with interest.
Want to Learn More About Cryptocurrencies?
I invite you to Bitclude, the first cryptocurrency exchange in Poland to obtain a Small Payment Institution license. There you will find answers to many questions about cryptocurrencies.