This has been expected to happen, but it was still not enough to discourage people from patronizing bitcoins or lend coin that they already mined – after going up rapidly to great heights, the value of this unbelievable digital currency experienced its first real crash a week ago.
Just a couple of weeks ago, we all witnessed how fast the price and value of bitcoins went up. Believe it or not, it once traded for as much as $266, and this happened just last Wednesday. But three days later, its value is now back on the ground. Just last Friday, it would only cost you a mere $54 to get a bitcoin. This was reported by the Mt Gox platform, which is the one that handles over 80 percent of the transactions of bitcoins. As a matter of fact, they even had to shut down the trading for this digital currency on Thursday.
What Could Have Caused the Crash of Bitcoins?
According to Gavin Andersen, the chief of Bitcoin Foundation, there was so much short-term speculation that took place. Bitcoin merchants just wanted to buy the currency to earn a profit, and this caused the prices to soar. And when the value was about to fall, many also cashed out. He further explained that bitcoin will never benefit from considerable changes in prices. Nevertheless, experts are confident enough to say that this recent crash will not be the reason for this currency to end. Besides, bitcoin was discovered just after the financial crisis that affected the majority of the economies in the world.
According to some financial analysts, the instability of bitcoin could be attributed to the fact that so many Russians and Cypriots had to look for other places to invest their euros during the time of the banking crisis in Cyprus. Meanwhile, there are others who also say that the crash of the bitcoin was due to the pressure from the investors themselves. They also point out that since bitcoins are not supported by any commodity, they can be considered a very speculative and uncertain investment.
The discussion on the risk of investing in bitcoins is not new at all, actually. Back in 2011, analysts were very cynical about the stability of this digital currency. They further stated that with regular currencies, there isn’t much risk involved in terms of how much their value will fall. This is because such currencies will always be a necessity in any community. On the other hand, bitcoins are not considered a necessity, and they pointed out that anyone can live without having to spend or use them.
How Are Bitcoins Earned?
Bitcoin is composed of complex codes created through mining. Mining can be done by virtually any individual using a computer. There is also software that increases the bitcoin difficulty, especially considering that there is a huge number of them in circulation. When one eventually mined these coins, they will be stored on the hard drive of the computer inside a virtual wallet.
Is the Anonymity Involved Beneficial for Bitcoins?
According to the European Central Bank, the high level of anonymity of the bitcoin could serve as a huge advantage for money laundering and drug dealing. As a bitcoin user, you can only cash out your money if there is someone else who is interested in purchasing your bitcoins.
Experts also expect this currency to be highly vulnerable to hacking or other forms of cyberattacks. In fact, in 2011, there was an instance where hackers were able to wipe clean a lot of virtual wallets of bitcoin merchants.