Hi Tash, all I keep seeing in the news and on my Facebook feed is Bitcoin, Bitcoin, Bitcoin. Can you tell me what all the fuss is about? And more importantly, whether I should actually considering investing in it?
All I seem to see in my feed is Bitcoin too! And it’s no surprise – this year alone the value of Bitcoin has gone up from around $1,000 AUD at the start of the year, to reaching a record high of $23,000 just this week.
As you can imagine, it has many people wanting a piece of the action and diving in, with the FOMO (fear of missing out) phenomenon largely attributed to what’s driving the unprecedented price gain.
But, is it a good idea and should you be giving it a go too?
Let me answer that question by starting at the very beginning with a very basic crash course.
What is bitcoin?
Bitcoin is one of many cryptocurrencies, that is, a currency that only exists digitally not physically. It came about because developers were trying to solve an issue known as “double-spending”. Digital currencies, like Bitcoin, are effectively just another form of digital file.
Say you save a word document from a website to your computer, then you copy it to a USB and email it to a few friends – multiple copies of that file would exist in different places, right? Now imagine that file was currency. If you can copy it multiple times then it could easily be spent multiple times. This is the double-spend problem. And bitcoin, along with the blockchain system, were developed to solve it.
What is blockchain?
Bitcoin requires all transactions to be included in a shared log known as a “block chain.” This process involves a lot of number crunching using complicated algorithms, and the transactions are recorded in lots of different places making it very difficult to duplicate, falsify or “double-spend”.