Cryptocurrencies have erupted over the past year.
These currencies are nothing new.
For years, people used these coins to trade goods and services (mostly illegal drugs) on the Dark Web in places like the late Silk Road.
Those days are gone, dozens of new cryptocurrencies emerge every day.
While many people rushed to purchase crypto when the Bitcoin price skyrocketed in November, most don’t understand the risk and many other factors.
As the price crashes, many people find themselves asking “wait, what is Bitcoin (BC) and how does it work?” It’s too late for some of them. Advocates will tell you now is the time to buy – but is it?
Here’s what you should know about the Bitcoin value, Ethereum price, and cryptocurrencies in general.
What Is Bitcoin Exactly?
BC is what’s known as a cryptocurrency. Unlike traditional monies, BC and other cryptocurrencies are decentralized (well, kind of) through the use of technology called blockchain.
Blockchain is an interesting system created by a notorious – and elusive – figure named Satoshi Nakamoto. No one knows much about Satoshi or if he (?) really exists. It’s generally understood that Satoshi is, rather, a concept for the group of people who created blockchain.
Confused yet? It gets worse.
Blockchain is a series of blocks or digital records which are all linked in some way. Cryptography ensures these blocks stay secure through a special form of encryption.
Crypto-currency: get it? What is Bitcoin? A specific type of cryptocurrency secured using blockchain technology.
Where Does Bitcoin Value Come From?
That’s a great question. Unfortunately, there isn’t one correct answer.
Crypto advocates will tell you that since BC is independent from the global dollar system, it’s value is determined by this decentralized network: users determine the value.
This is somewhat true, but what defines value?
In one sense, the only value that BC holds is as a method of exchange.
But what is being exchanged? Traditional fiat currencies which you’ve acquired through labor and other methods – all of which rely on the global dollar system for their value.
There are two ways to acquire BC and cryptocurrencies: purchase them with “real” money, or mine it. In order to mine BC, you need a heavy-duty computer system that solves complex puzzles (this is an over simplification).
Most people purchase BC with their country’s traditional currency. Although advocates tout crypto as a competitor to the global dollar system, these currencies are measured against fiat like the U.S. dollar. Plus, in order to purchase crypto, you need a standard bank account to transfer funds.
In fact, cryptocurrencies are very reliant on governments and economies for determining their number values. When governments impose regulations or large corporations announce they will accept BC, this makes the value fluctuate – and drastically.
Beyond Just Bitcoin Price: Transaction Fees are Completely Unaffordable for Both Users and Businesses
If you’ve never purchased Ethereum, BC, Litecoin, or any other cryptocurrency, you may not realize how much it actually costs.
An average transaction fee costs $28 – average.
Want to upload fiat funds to your digital wallet? Pay a fee. Want to purchase BC with funds from your digital wallet? Pay another fee. Is it time to sell because the price skyrocketed? Yep, another fee.
Cryptocurrency exchanges like Coinbase charge a lot of money for moving even small amounts of monies. In many respects, this is holding back potential progress in the industry.
It’s almost impossible for businesses to offer cryptocurrencies as a payment method for this reason.
Think Income Inequality is Bad? The Cryptocurrency World Isn’t Better
In the “real world,” 1% of the population control more wealth than the entire 99% combined. In the cryptocurrency world, 1,000 people control 40% of all BC. Keep in mind that it’s difficult to calculate exact figures for inequality so this is more of an estimate.
This inequality doesn’t help the argument that BC is “decentralized.”
Combined with other factors, those 1,000 people can drastically influence the value of cryptocurrencies. If all 1,000 decided to sell everything tomorrow, the price would plummet. This would leave folks who invested their last $500 (or sold their home to purchase BC) out in the cold.
The Ethereum Price is Low, Could This Make You Money?
Perhaps. Ethereum is one of the up-and-comers of the cryptocurrency world along with BC Cash and Litecoin.
If the Ethereum price is low, you could buy a little, but don’t invest your life’s savings. At the time of writing this, Ethereum costs $530 – down about 40% for the month.
If you’re looking to make money in crypto, you’re better off buying something like Ethereum and riding it out. However, there are dozens of cryptocurrencies: nearly every state government and major company is developing their own.
Deciding which one to purchase is just as much – if not more – risky than the traditional stock market.
Invest wisely, just don’t lose your home.