Trying to understand what Bitcoin is. What causes its value to go up or down.
Hoping someone can explain in layman terms.
Thanks
Not trying to pass the buck, but there are some great youtube videos. At least there used to be when I looked a few years back. But then again, I’m a visual learner.
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Make my kids tell me things in two sentences only. Here goes perhaps someone wants to get into more detail but I am keeping to two sentences:
Bitcoin is a private digital currency with an encrypted base that allows people to buy and sell things without it being tracked. Digital currency has an algorithm that enables it to be a fixed amount of Bitcoin which cannot be increased at will ( like printing money).
There are may options and aspects which I don’t understand but we’ve held it for years and bought many types of digital currency. Why does it go up and down? Supply and demand. Risks make the price go up, a strong economy and little political risk reduces the demand. It is becoming more mainstream. About 5 years ago, no one bought it or even talked about it ( except my techy family one of whom was mining it). Today people know what it is and you can even buy things with it. My kids got an Xmas gift from their uncle paid for in Bitcoin. It was stupidly expensive but bitcoin is doing pretty well these days. He was an early adopter and has given my kids bitcoins for a long time. One cousin threw away a bitcoin code some years ago and now wished he had it to pay down his student loans.
We have one family member who has his entire retirement in Bitcoin. Most of us, have modest investments.
I have a Masters in Econ and find it very difficult to understand the underlying technology. My spouse gets the technology, I get the econ part. We dollar cost average it and we don’t use Bitcoin to buy anything. I do think that people will start to move to anonymous currency options now that technology can track them a bit too well. If things got really bad for example in an economic or political crisis, you would want bitcoin and gold. Personally, I’d rather have bitcoin than gold.
Not an explanation, but just a quick note - our 20 year-old invested a few hundred dollars in bitcoin in January 2020 and is selling it now for almost triple the value as long as there is a buyer on the exchange website. He’s doing a lot of research on the subject as a side interest to his commerce degree (overseas university).
BTW - I’m not endorsing it personally one way or the other - just noting his experience. He wanted to take a smallish amount of savings and see what would happen over the year.
@Happytimes2001 OK so it’s not just me, lol You have a masters in Econ and have difficulty with it.
@lvgnzl my son has been playing (dare I say investing) with Bitcoin for several years and with the current $25K price he has made a ton of money on it.
conversely, some people I work with bought in at 10k and panicked when it free fell to below 5K and took a bath.
I’m just trying to figure out what causes the price to go up and down
Please, if you want to invest in a bit of Bitcoin, do so, but don’t get caught up in mining. You can profit from digital currencies more easily with a simple investment that you can wasting hardware and electricity to mine.
@Happytimes2001: We’re the opposite–Son and I understand the tech, DH (econ/finance/banking) understands the volatility.
Cringe to post this: Our son dedicated his desktop to mining in 2013 while he was in boarding school. Just before he graduated, his wallet company was bought out and sent a notice to all wallet holders that they needed to claim their accounts. Knucklehead didn’t see the e-mail for weeks and lost his wallet – with at least two Bitcoins. Oh well. Live and learn.
ETA: The anonymity of Bitcoin makes it very, very, very attractive to the criminal element. So, there’s that.
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A currency has value because of its two features: 1) limited supply (typically controlled by a governement), and 2) exchangability for goods and/or services. The supply of Bitcoin is limited by the mechanism to produce it (“mining”), and not by any government, so there’s less risk of overproduction. The risk is that it has much more limited exchangability than some of the most popular currencies at this time. The degrees of risks are perceived differently by different people at different times relative to another currency (such as USD), and those risk “perceptions” (or speculations) are driving our actions to buy or sell Bitcoin. Like any currency (or anything else for that matter), its value is determined by supply and demand.
I don’t understand how this can be legal. Seems like it’s an easy way to launder money and would be something governments would want to shut down. What aren’t I understanding?
Yes, it can be used to launder money. And yes, it’s banned in some countries. But there’s a fundamental reason for its existence: the distrust of fiat currencies by some. If there’s a demand for it, a ban won’t be effective, especially when it can be traded and exchanged for things of value on the internet in places where US (or any other country) has no jurisdiction.
There’s also an unstoppable trend (except in the US) toward digitization of national currencies. There’re many reasons for currency digitization (efficiency, tracibility, competitions from crytocurrencies, avoidance of US sanctions, etc.)
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Yep and my masters is international econ with focus on foreign exchange . (So I understand how money works).
Our nephew the Bitcoin guy has been mining it for years. And was a very early adopter. My spouse got how it was protected ( algorithms) but my issue was how does one prevent the issuer from taking it all via hacking? Never did get that answered. My nephew is smart as anyone I know but doesn’t get how money works and thinks along gold standard lines so he didn’t understand some of the economic pitfalls.
I’d say invest for fun( and profit) but go slow. Bitcoin is now the standard ( there are other digital currencies as you probably know). With technology things can shift so one can supersede another.
I think bitcoin is so high because the world is in an economic crisis with covid( and fear of big governments everywhere). It’s likely to stay steady or go up until confidence returns. Privacy and taxation is also a huge issue for bitcoin holders. They don’t want govt or companies to track what they buy.
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They can’t shut it down. It’s technology allows it to exist without the permission of any entity ( that’s it’s inherent value). And Bitcoiners are anti-big government. It was invented specifically to avoid being tracked ( except by the owner).
It’s a pan world digital currency.
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My spouse got an older “mining unit” from his nephew about 5-7 years back. He wanted to show the kids. We put it in the back laundry room. The thing got so hot and was humming. It lasted about a week. I vetoed it. No bitcoin ( tiny portion that was worthless at that point).
We’ve also done lots of other weird STEM things over the years ( but that was one of the weirdest). The kids weren’t interested either.
Your son must be cutting edge as Mining bitcoin was very unusual until it became valuable. Too bad he didn’t get the email.
I think the inherent value is that each ‘coin’ is infinitely divisible. So you can buy one bitcoin today for ~$23,000 and strip off infinitesimal fractions to purchase goods - someday.
There will only ever be 21 million bitcoins available. But theoretically, each coin can be separated into a trillion pieces…theoretically.
The real explosion in bitcoin’s value will come when it becomes mainstream to use your phone to pay for an item at the register with your bitcoin wallet.
Yep, he and two of his buddies formed a private club to do the mining when they first learned about digital currencies.
He DID get the e-mail, just not in a mailbox he used much and, by the time he saw it, the response window had long expired, and he could no longer access the account. Basically, the new wallet company “stole” his funds. He had a real problem with that.
In any case, he’s a Cyber officer today and, hopefully, a bit more careful with his digital property.
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My “bitcoin” nephew once gave another nephew a bitcoin. #2 lost his wallet (and the code). Sad, because nephew #2 has large student loans. That bitcoin would have paid off a large chunk. Nephew #1 now gives partial bitcoins and other digital currency as gifts but keeps the code. He has a printed file in case it’s lost. Some of the digital ones are pretty cool. My kids had one for Xmas a few years back with a hologram and cool design. Forget the name of the company. It was worth about $250 bucks. Wasn’t bitcoin. This year the kids got an extravagant gift purchased by bitcoin.
It’s not surprising your son is now in cyber security. That sounds very cool.
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All cryptocurrencies are intangible. Bitcoin is software that uses blockchain technology to keep track of who owns what. The innovation of blockchain technology is that it is an open ledger that anyone can see, and is also encrypted, so no one can tamper with the ledger. Bitcoin is the first major cryptocurrency to use blockchain technology, but there have been many more cryptocurrencies developed around the same basic idea and technology. Ethereum is probably the next most “mainstream” crypto after Bitcoin. Ethereum has interesting applications because you can embed contracts within the blockchain. One major reason why Bitcoin is so volatile is because there is no central bank backing it.
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Bitcoin trading at close to $26,900 right now. Unbelievable!
I know nothing about bitcoin and was still at sea after reading the above posts - found this explanation and now I have at least an inkling.
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I read Bitcoin Billionaires by Ben Mezrich last year hoping I’d get a better understanding. The book was very readable, but I still couldn’t explain it.
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It’s okay if you want to speculate on the value of Bitcoin or another crytocurrency, and it may be a good hedge against the devaluation of fiat currencies, but don’t count on it being safe from theft in a not-too-distant future. The underlying encryption technology is likely to be broken by quantum computers. On the other hand, the other hedge, gold, isn’t safe from theft either.
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