Bitcoin? Blockchain? What does it all mean and is it here to stay?

You may have heard about Bitcoin in the news lately. Its comparison with gold has been the cover story during these trying times. Its history has been volatile. Its returns over the years have been legendary. But what is Bitcoin or even blockchain for that matter?

I remember first hearing about Bitcoin through the movies and television shows I watched years ago. Like a lot of people, Bitcoin momentarily piqued my interest but I ultimately did not take the time to look further into it. If I would have purchased just a single bitcoin when I heard about it in 2016 (June 2016 value = approx. $600) that $600 investment would be worth around $10,600 today! Talk about a return on investment.  

Now it is easy to look back and play the “if I would have just bought x amount of Bitcoin” game. It’s easy to think of all the scenarios that could have played out. It’s easy to tell yourself that even if you had the money you probably would have spent it elsewhere. But the truth of the matter is that we dismiss the things that we don’t understand. This story plays out all the time in the investing world leading us to miss out on opportunities. Amazon and Tesla are great stock market examples.

So, what exactly is Bitcoin? Let’s take a look.

Dictionary.com defines Bitcoin as the following:

1. a type of digital currency that uses state-of-the-art cryptography, can be issued in any fractional denomination, and has a decentralized distribution system
2. a single unit of this currency

On the surface Bitcoin is an online digital currency or a store of value. You can send bitcoin directly to anyone in the world that has a digital Bitcoin wallet without having to go to an exchange or go through a bank, western union, etc. Bitcoin transactions are stored using a new decentralized public ledger technology called blockchain.

Which brings us to what is the blockchain?

Google defines blockchain as “a system in which a record of transactions made in bitcoin or another cryptocurrency are maintained across several computers that are linked in a peer-to-peer network.”

Let’s break this down. Block = digital data. Chain = public ledger. The digital data for each transaction is stored on the public ledger and is sent out to the computers on the peer-to-peer network who are then able to check the authenticity of the transactions taking place. No one person controls the network, making it extremely difficult to manipulate. For an even deeper dive on blockchain, check out this article on Investopedia.

Bitcoin has been slowly gaining traction ever since the ledger started in 2009. There have been a lot of ups and downs in its value but the price has generally trended upward. Blockchain technology looks promising. It has the power to disrupt many sectors by providing more reliable record keeping systems and combating fraud. Adoption of a new technology is always slow to start but it looks like Bitcoin and blockchain technology are here to stay.

The next time you come across something new, technology or otherwise, I challenge you to take the time to understand it. Who knows, you might just stumble across the next great investment.