What is Bitcoin?
Since the price of Bitcoin reached the $1,000 level in December 2013, the trading world started taking notice of the unique opportunities offered in the cryptocurrency markets. But what exactly is Bitcoin and how can traders benefit from the price swings?
Bitcoin is a digital currency created in 2009 by a mysterious person (or group of people) under the alias Satoshi Nakamoto. Numerous attempts to verify the identity behind it have been unsuccessful. Bitcoin was designed with the use of an innovative technology called block chain. Although understanding the technology behind cryptocurrencies is challenging, what is important for traders to understand is who controls Bitcoin.
As opposed to traditional currencies issued by central banks, (i.e. US Dollar, Euro, Sterling etc), Bitcoin is not controlled or regulated by any authority. Bitcoin can be exchanged between users without the need for banks. The records of Bitcoin transactions are publicly available to all users of the network. The maximum number of Bitcoins that can be created was limited to 21 million by its creator.
What affects the price of Bitcoin?
Back in January 2010 the price of Bitcoin was below 10 cents. It wasn’t until 2013 that people started acknowledging Bitcoin as a mean of exchanging value and that’s when the price of a single Bitcoin broke above $100.
In 2017, Bitcoin saw its price soaring all the way to $7,000, with numerous jumps up and down in between. In May, for example, Bitcoin booked losses as high as $400 on a single day. And that’s exactly where trading comes into play.
This type of volatility is unheard of in the financial markets. But before you start trading Bitcoin and other cryptocurrencies, let’s take a look at some key factors that move the prices:
Supply and demand
Like with any other asset, the more people and businesses adopt it, the higher the demand. For cryptocurrencies with limited supply like Bitcoin, this dynamic pushes their price higher.
The crypto market has captured the interest of both mainstream and social media. When influential figures voice their opinions, crypto prices can be impacted significantly
Like with any software, any upgrade or change to the technological protocols used can cause substantial price fluctuations.
The arrival of cryptos has been met with varying government responses, from the heavy hand of South Korea that drove up value to the embrace by Japan on the other end of the spectrum.
Meet 3 popular cryptocurrencies
Bitcoin might be the most popular cryptocurrency. However, it is far from the only one. Here is an overview of the three most popular cryptocurrencies, after Bitcoin
1. Ethereum (ETH/USD)
Ethereum was proposed by a Russian programmer and went line in July 2015. The main difference between Bitcoin and ethereum is that BTC was designed to be a currency from the start.
Ethereum, on the other hand, was developed as a platform on which two entities could enter into a contract without a third party, via so-called smart contracts. Ethereum can be used as a currency and it can also represent virtual assets.
2. Litecoin (LTC/USD)
Founded by Google engineer Charlie Lee with the intention to create the “silver” to Bitcoin’s “gold", Litecoin entered the crypto scene as the twin of Bitcoin. Since launch in October 2011, Litecoin benefited fast from the broader interest in cryptocurrencies.
3. Bitcoin Cash (BCH/USD)
Bitcoin Cash was born in August 2017 as a result of Bitcoin’s hard fork. Although it is hard to explain a hard fork in simple terms, think of it as an attempt to solve Bitcoin’s scalability issue, i.e. the fact that as the number of users increases, the technology used by the Bitcoin network needs to get upgraded.