Investing or speculating with Virtual Currencies

There are many Virtual Currencies, over 700 that are on the Public Exchanges….there are many more internal company coins. They all lay claim to having solved some sort of business or personal problem with a digital solution.

Let’s look at Bitcoin and why I think it is unwise to view Digital Currencies as an “investment”….but rather “speculation”. That being said I expect that over time the value of Bitcoin to continue to rise. Other Virtual Currencies that have intrinsic value like DasCoin will also shine as it demonstrates value in liquidity & utility!

Bitcoins have been in the news a lot recently as they (once again) exceeded the magical price of $1,000 for a single bitcoin. 

Bitcoins were the best-performing currency of 2016, increasing a whopping 120% in value, far exceeding the 20% gain made by the Russian Rouble and the Brazilian Real.

Bitcoins were created in 2009 by “Satoshi Nakamoto” and despite serious efforts, the real name of the creator is still shrouded in mystery.

Bitcoins are “mined” by computers which perform blocks of calculations.

The reward you receive in bitcoins for a block of calculations, drops by 50% every time 210,000 blocks have been “mined”.

This means that, over time, in order to earn a bitcoin, more and more blocks of calculations will need to be performed.

Due to this exponential rule, the last bitcoins won’t be mined for another 100 years or so (the currency has a limited supply of 21 million bitcoins), but 75% of all bitcoins are already in circulation!

Bitcoins work through the blockchain technology, which contains a public ledger of all bitcoin transactions ever conducted. The public ledger grows as new bitcoins are mined and transactions are conducted.

Many banks have experimented with the blockchain technology in order to make their own transactions safer.

The Winklevoss twins – the ones that sued Mark Zuckerberg over who really founded Facebook.com – are betting heavily on Bitcoins. They say it is better than gold and have their own exchange platform.

Recent spikes have also been attributed to India’s demonetisation policy as well as China’s crackdown on corruption as it is a way to hide your money. 

Falls in value have been attributed to the theft of bitcoins, fraud committed by bitcoin exchanges (MtGox) and the closure of a number of Bitcoin exchanges (Cointrader, CoinDesk, MonetaGo, Harborly, Crypto-Trader, etc).

Regardless of the above mentioned unpredictable factors which are driving the value of a Bitcoin up or down without notice, the lack of transparency makes it very hard to determine what is going on with the virtual currency and whether it is a bubble or not.  DasCoin’s KYC (Know Your Customer) solves this problem as every licence holder will need to verify their identity.

If you look at the graph in the image, it is easy to imagine winning big and losing big.

So before you buy into any virtual currency look carefully at all the attributes and then make a decision….some virtual currencies are too much of a lottery and I wouldn’t recommend investing (or rather gambling) with them…there are only going to be a small number that will survive in the mainstream over the next 5 years.