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    Bitcoin – how does it work and where to from here?

    Bitcoin, created by a person – or persons – known only as Satoshi Nakamoto, was designed as a “purely electronic version of electronic cash, that would allow online payments to be sent directly from one party to another without going through a financial institution”[1].

    Emerging as the first mainstream cryptocurrency and largely embraced as such around the world, Bitcoin transactions are considered far more secure and safer than current systems available across many transaction-based eCommerce businesses and networks.

    [1] https://bitcoin.org/bitcoin.pdf

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    Before we discuss too much further, here are some fast facts about Bitcoin: 

    • It is not issued by a central authority
    • There is a limit of 21 million
    • Currently, just over 17 million Bitcoins are in circulation
    • The first transaction using Bitcoin is widely believed to be carried out by a programmer named Laszlo Hanyecz, who spent 10,000 bitcoins on two pizzas in 2010
    • The identity of Bitcoin creator Satoshi Nakamoto remains a mystery
    • Bitcoin has often been used to buy illicit products such as drugs[1]

    What makes Bitcoin so safe?  

    Bitcoin technology is underpinned and encrypted by block chain technology.

    Blockchain uses volunteers — a whole lot of them — to work together to encrypt the transactions that happen on the Bitcoin system. In doing so, the encryptions ensure all personal information is kept hidden away from any spying eyes. Amazingly, even if hackers do manage to get into the system, there’s nothing of value to steal[2].

    Essentially, block chain technology works by spreading different parts of data amongst different nodes, so that a cluster of computers, not a single entity, manages the information. 

    Although the technology originated in Bitcoin, it has been used across many industries such as the world of art, finance and highly technical database applications. “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”[3]

    If it was so good, then why did it fail?

    There is no question that Bitcoin went through a bubble. In 2017 as mainstream investors jumped onto Bitcoin, the price moved from around $1347 in December 2016 all the way up to $26,802.18 in the space of 12 months.

    However, as traditional investors at the end of 2017 we able to take short positions on the derivatives of Bitcoin’s value, not to mention several key markets all but banning the crypto currency – such as South Korea - the market crashed.

    By January 2019, the price of Bitcoin bottomed out at $4440.44 and since then has made barely any ground back to $5,593 as of March 19, 2019. 

    Is Bitcoin dead and buried?

    There are many who speculate both for and against Bitcoin and other cryptocurrencies yet the Blockchain technology that underpinned Bitcoin is being used heavily around the world. 

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    For those who thought Bitcoin was done for it could be time to reconsider. In March 2019, a $3.88 million house in the northern New South Wales beachside town of Kingscliff came up for sale and is accepting Bitcoin as payment, this is a world first and shows that Bitcoin is alive in well! 

    There are many exchanges and derivative markets to buy and sell Bitcoin, as well as a wide range of ways to spend your Bitcoins online and instore. 

    Although in its current form Bitcoin failed as a currency – due to the price volatility and speculative nature of it – the purpose and mission of cryptocurrency is certainly alive and well. Only time will see where the Bitcoin journey will take society and eCommerce as a whole.

    [1] https://www.cnbc.com/2018/06/18/blockchain-what-is-it-and-how-does-it-work.html

    [2] https://www.avg.com/en/signal/is-bitcoin-safe

    [3] Don & Alex Tapscott, authors Blockchain Revolution (2016).

    For the full breakdown on Cryptocurrency check out our article: Cryptocurrency – The rise, fall and future

     

    We welcome you to give our team a call to discuss your investment goals and objectives.

    You can call Walker Capital Australia on +61 2 8076 2210, and we’ll see how we can help you achieve your investment goals.