Digital Currency Demystified
The world of digital currency is indeed exciting but can often be intimidating as well. New rules to old concepts and a sea of information make getting into digital currency some what of a labor intensive process. Digital Trust Fund is committed to helping the masses understand, trust in, and ultimately adopt digital currency for everyday life.
“The more digital currency finds ubiquity in finance the better off the world becomes” – Jason Frumkin
This because digital currencies can offer liquidity not controlled by the same old money club along with border-less freedom for world wide exchange.
What is Bitcoin?
Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet.
A form of digital currency, bitcoins are created and held electronically, no one controls it!
Simply put, bitcoin is cryptocurrency! – Cryptocurrency is digital currency that is created and managed through the use of advanced encryption techniques known as cryptography. Cryptocurrency made the leap from being an academic concept to (virtual) reality with the creation of Bitcoin in 2009. While Bitcoin attracted a growing following in subsequent years, it captured significant investor and media attention in April 2013 when it peaked at a record $266 per bitcoin after surging 10-fold in the preceding two months. Many believed at the time that the bubble was about to burst and sold at around $260 per bitcoin.. Not a bad return if you got them for pennies! Or so you would think….
The bubble did not burst… Bitcoin kept increasing in value to its peak of $1,242 per coin in November of the same year, bringing Bitcoins market cap to over 2 billion dollars!
What are the Advantages of Bitcoin?
Payment freedom – It is possible to send and receive bitcoins anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Bitcoin allows its users to be in full control of their money.
User Anonymity – Bitcoin purchases are discrete. Unless a user voluntarily publishes his Bitcoin transactions, his purchases are never associated with his personal identity, much like cash-only purchases, and cannot be traced back to him. In fact, the anonymous Bitcoin address that is generated for user purchases changes with each transaction.
Fewer risks for merchants – Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This protects merchants from losses caused by fraud or fraudulent chargebacks, and there is no need for PCI compliance. Merchants can easily expand to new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower fees, larger markets, and fewer administrative costs.
Security and control – Bitcoin users are in full control of their transactions; it is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods. Bitcoin payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Bitcoin users can also protect their money with backup and encryption.
Transparent and neutral – All information concerning the Bitcoin money supply itself is readily available on the block chain for anybody to verify and use in real-time. No individual or organization can control or manipulate the Bitcoin protocol because it is cryptographically secure. This allows the core of Bitcoin to be trusted for being completely neutral, transparent and predictable.
Why Invest in Bitcoin?
Next-Generation Alternative Asset – Alternative investments and products have been on the rise in both issuance, allocation and trading. Alternative mutual funds managed more than $300 billion at the end of 2014, a 31% increase since 2009. Venture capital investments have grown 22% year over year on average since 2010.
According to Bain & Company’s Global Private Equity Report 2015, private equity capital raised reached $499 billion last year, up 130% from $216 billion in 2004. Moreover, private equity funds held a record amount of dry powder in 2014, totaling more than $1.2 trillion.
The takeaway: More and more investors are looking for unique opportunities outside the traditional arena. And as asset allocations become wider and risk tolerance strengthens, demand for high-risk, high-reward assets has risen steadily.
Bitcoin is one such alternative that can meet such a growing demand.
The beta profiles of alternative assets can be inherently risky — similar to bitcoin. But unlike bitcoin, many alternative assets also have smaller targeted markets, defined liquidity provisions and lengthy maturity dates.
With bitcoin, that isn’t the case.
Bitcoin’s 24/7 liquid marketplace and lack of long-term maturities give it a substantial advantage. Bitcoin has been showing signs of correlation to different asset classes. However, more data is necessary to firmly establish these correlations as well as their sustainability over time. Modern portfolio theory proponents may look at bitcoin’s historically noncorrelated behavior as a benefit to an overall investment portfolio.
Global Reach – Bitcoin is age- and location-agnostic at its core as both a currency and as an investment. Thanks to blockchain technology, it has no borders. Transactions are processed within minutes, and fees are incredibly low. You can attribute its cost-cutting ability in large part to its impact on cross-border payments. Whereas many investments require formal accreditation, have minimum trade sizes or are limited to qualified institutional buyers, no such qualifications exist in the bitcoin realm. In turn, bitcoin has a much larger addressable market than most traditional financial products, securities and investments. Both large institutions and retail investors are jumping on-board.
Game-Changing Technology – Investing in bitcoins offers exposure to a global technology used by thousands of companies across dozens of sectors worldwide, and the ecosystem is only growing.
At the heart of bitcoin is the blockchain, a technology that renders bitcoin a truly innovative product. The blockchain is a trustless, decentralized, public ledger of all transactions in the network whereby any transaction is verified within 10 minutes. Compare this to the lengthy verification times of credit card transactions or domestic and international wires. Further, the blockchain stands as immediate, incontestable proof of all transactions and creates a permanent, immutable database.
Blockchain’s applications have the potential to stretch far beyond bitcoin, and companies and individuals are already leveraging the technology to modernize key products and services across a variety of industries. Remittances, payment processing, personal banking, auditing, secure data transmission, information hashing, securities settlement/clearing and traditional financial trading are just a handful of examples of its possible applications.
Some of the largest financial institutions in the world have already taken note.
UBS AG – Swiss global financial services company announced plans to launch a technology lab in London to explore the potential uses of blockchain technology in financial services.
Citigroup – The financial giant is testing three blockchains and a cryptocurrency called “Citicoin.”
Santander Bank, N. A. – Spain’s Santander coauthored a report this year that estimated the technology could reduce banks’ infrastructure costs by $15 billion to $20 billion per year by 2022.
Barclays & Nasdaq – Both globally known companies are reportedly experimenting with it as well.