There are few more controversial topics in this day and age than the infamous Bitcoin. The vast majority of mainstream news coverage places the cryptocurrency in a negative light, while not knowing much about it themselves. I’m here to correct any misinformation you might have and shed some light on whether this is a viable investment opportunity for you as a high school student.
What is Bitcoin?
Bitcoin is the first and most prominent cryptocurrency, which is an online form of money with no intrinsic value. Cryptocurrency is a variant of fiat money, which means the price is completely based off of supply and demand rather than being backed by a commodity like gold or silver. It was originally conceptualized in 2008 when someone under the pseudonym Satoshi Nakamoto posted a research paper detailing the basis for the blockchain. If you are interested, you can read the original white paper here.
If it has no real value, where does the price come from?
As previously stated, the supply and demand set by consumers is what sets Bitcoin’s price. Basically, the only thing that regulates the price is how much people are willing to pay for it, which boils down to expectations for the future. If people think that there will be a market downturn, there will be a market downturn. This is also why Bitcoin is so volatile. Hundreds of transactions are made per minute, so it is only natural for the price to increase or decrease hundreds or even thousands of dollars within the hour and then bounce back to the initial price like nothing happened.
I’m a high school student who is in a burrito in debt to each of my friends. Can I make money from this?
First of all, it is important to know that cryptocurrency is (like the stock market) just as much gambling as it is investing. No one truly knows where the market is going, no matter how correct they have been in the past or what the current trend is. Having said this, it is still important to know exactly what kind of environment you are investing in. Don’t dive into crypto unless you research the technology itself and the news surrounding it in order to make informed decisions. To answer the question: yes, you can make money off of it.
It sounds cool and all, but all I’ve heard are bad things. Is this really a safe investment?
Recently, there has been a lot of buzz about cryptocurrency in the news with Bitcoin as its mascot. Opinions about the subject can be mixed, with economists claiming something so volatile cannot possibly be a safe investment, and enthusiasts giving it the moniker ‘the currency of the future.’ Both of these viewpoints are flawed, as investing in any cryptocurrency is somewhere in-between the two. I like to call it a “short-long-term” investment. It is, by definition, a bubble due to its reliance on supply and demand. However, this bubble has proved to be very resilient thus far, and doesn’t seem to be going anywhere in the near future. That being said, there are numerous circumstances that are arising as governments and businesses take advantage of cryptocurrency for their own personal gain. Any one of these has the possibility of sending crypto into a “death spiral,” no matter if it is China banning initial coin offerings or Bitfinex and their shady relationship with Tether.
So what you’re saying is that it is a time bomb.
Essentially, yes. Like gold or silver, there are a limited amount of cryptocurrency, with Bitcoin only having 21 million that can be mined. Once this happens, which is predicted to happen around the year 2140, miners who process transactions will not be rewarded for their work and thus will not have an incentive to do it. This will effectively strand any cryptocurrency people own as no one will be able to buy or sell. Not to mention that all of this is assuming that Bitcoin will survive until then.
Wait, Chase, don’t you like cryptocurrency? Why are you making it sound like you are against it?
I am just trying to get across the level of uncertainty that the market is truly in. I still believe that, while it is not the smartest investment, it is an effective one. Lucky ones can make millions, while more unfortunate souls can lose just as much. I personally put a percentage of my paycheck into crypto, but only because it is my disposable income. Do not liquidate everything you own and dump it into a coin market for a day. If you do this and manage to make money, you are still economically irresponsible and will probably lose any reckless financial bets you will make in the future. In short, just be safe and be informed. There is nothing worse than putting money in the hands of lady naivete.
So after all this…
Since winter break, cryptocurrency has undergone an intramarket-wide crash. The only coin which has survived (and thrived) in the current environment is technically not a coin at all: it is a platform called Ethereum. Although the developers do not consider it a cryptocurrency per se, consumers still trade it as such and is the third most valuable coin across all major exchanges. Ethereum is supposed to be a platform for developers to create decentralized apps, or ‘d-apps’ as they are known in the community. The difference between Ethereum and other coins is the inclusion of a second price shifter: widespread adoption of the technology. Basically, if developers start using Ethereum, the price of the coin will increase. Therefore, Ethereum is a much more future-oriented product and allows its traders to expect it to last longer in the final product.
The main point of this article is not to confuse you as to where the future of cryptocurrency is, but more to show you that no one person or group can predict it. Bitcoin is not the future of cryptocurrency, but rather the technology that it is built on. It is the future of internet-connected apps.
Robert Berarducci ◊ Jan 24, 2018 at 10:38 am
You don’t brush over the possibility of government regulation, and the effect that it would have, or the major factor that drives the currency side of bitcoin, anonymity.