Have you ever invested in bitcoin before? My guess is no. It’s never been mainstream enough for the average person to get into and with the closing of Mt. Gox, people’s confidence in the monetary unit has taken a precipitous plunge along with its value. Let’s take a look at the value of the bitcoin as of November, 2014. The apex was 1200 right before the Mt. Gox collapse of February, 2014.
To give a clear picture of what happened, we need to understand the function of Mt. Gox in the grand scheme of things. It was the largest exchange center in the world for people who wanted to purchase bitcoins. During an unprotected part of the exchange process, a hacker or group of hackers managed to steel the digital money without being detected. This meant that Mt. Gox was unable to make good on their exchanges and a lot of money was never recouped.
What exactly is bitcoin?
Most people have caught on to the fact that bitcoin is a digital currency which can be traded for goods and services. To best describe the inner workings of each monetary unit, let’s liken it to an audio mp3 file. When you listen to an mp3 file, you see information scrolling along the top of a dark square which shows the song title and the artist name. This works by embedding an XML file inside. A bitcoin is very similar, but unlike an mp3 file, you can’t make copies. It is stored in a digital “wallet” connected to an exchange center or on your hard drive (as a safety measure, you can store it on an offline drive). In order to buy things or trade into another currency, you need to inject into the transaction your private key and provide the receiver with your public key. The keys are long alphanumeric strings that can be stored on your computer or on a piece of paper, whichever you choose. When you sign the transaction, you authorize the movement of your bitcoins from your wallet into another wallet. For the life of a digital bitcoin, it is stored inside a wallet and never out.
If you are into buying bitcoins for speculative purposes perhaps the better option would be to buy the digital version. You would have a better chance of exchanging digital coins down the line I believe. So why would you buy bitcoin if it has no backing from a government and is extremely volatile? Well, I guess the first answer would be what was just stated, because it’s extremely volatile. The second reason is because it’s now at a historical low. And the third reason? Most people aren’t buying them and that means it’s something to look into. Whenever a group of people stand on one side of the boat, what happens? That side gets lower and the other side seesaws up. It’s unbelievable that during the big rush into gold in 2011, the investors that made out the best were the ones that bought US dollars.
If we look at a recent granular chart we can see that the value of a bitcoin has gone down 20% in a month’s time. There are other factors which could contribute to that, the major one being the widening acceptance of bitcoin as a form of payment. Also, the emergence of other cryptocurrencies like Litecoin and MPeso contributes to a diluted playing field. So you can see how bitcoin investment is such a risky business and with the fact that we’re about to enter into a great depression it’s best to stick with vanilla and chocolate investments (physical gold and silver). But those who are extremely rich and like to invest for the sport of it might like to diversify their portfolio with just a few bitcoins to say to their grandchildren that they once did it.