Bitcoin is by far the world's most well-known cryptocurrency. Via Peaks, you've been able to invest in a Bitcoin ETP since November 2022, a regulated investment product that you can easily add to your portfolio. But how much do you really know about Bitcoin? In this article, you'll discover what Bitcoin is, its advantages, and why investors find it intriguing.
This article was written by CoinShares in collaboration with Peaks.
A New Payment and Monetary System
The term 'Bitcoin' can refer to two things: a decentralized system of over 10,000 computers worldwide, and the digital currency (often abbreviated to 'BTC') that it powers. From the outset, Bitcoin was designed as a fully autonomous form of money – a currency that exists independently of central authorities. But what exactly sets Bitcoin apart from the euro or dollar?
1. Bitcoin is Completely Decentralized
There is no single authority overseeing Bitcoin. Instead of a central bank that 'prints' money or validates transactions, all Bitcoin transactions are recorded in a public and decentralized ledger (the 'blockchain'). All operators in the system have the same interests and access rights.
2. Safety First
Decentralization essentially ensures the safety of the system because no one can control or manipulate it. Additionally, Bitcoin is secured by cryptography. New 'blocks' (packages of data) on the blockchain cannot be altered or counterfeited.
3. No Inflation
Another difference from the 'normal' monetary system is that central banks can increase money supply and thus fuel inflation. In contrast, Bitcoin has built-in inflation limits. There will never be more than 21 million BTC in circulation, and the number of new coins released is halved every time 210,000 blocks are mined.
4. Accessible to Everyone
Finally, the decentralized nature of Bitcoin means there are no entry barriers. Users don't need to be screened by an institution or ask anyone for permission; everyone just needs an internet connection to participate. This is particularly interesting for countries with poor access to financial products and services.
How Bitcoin Works
Bitcoin operates via a Proof-of-Work mechanism (PoW). In this system, every transaction is validated by a network of 'nodes' (points). These are devices connected to the network that transmit, process, store information using Bitcoin software, and ensure that the system's rules are followed.
To add new blocks, some nodes (referred to as 'miners') must solve intensive mathematical problems. Miners compete against each other in a race to create the next block. Once a miner believes they have created a valid block, they broadcast the proposed block to other nodes on the Bitcoin network. They receive rewards for this work, which is crucial for the quality and growth of the network – hence the name Proof-of-Work.
The principles behind Bitcoin first appeared in a whitepaper published online in late 2008 by a person or group named 'Satoshi Nakamoto'. Satoshi Nakamoto created a system that allows secure peer-to-peer transactions via a Proof-of-Work mechanism. The mysterious author(s) disappeared from view in 2011, but left behind a solid community of developers who propelled Bitcoin forward, in line with the original rules.
Bitcoin's history may seem short (it only emerged 15 years ago), but many milestones have been reached. Here's a brief overview of Bitcoin's eventful history:
- 2010: The first real purchase with Bitcoin: someone bought a... pizza with BTC. For this reason, the crypto community celebrates Bitcoin Pizza Day every year on May 22.
- 2013: The market capitalization of the Bitcoin market reaches $1 billion on March 28. At that time, a single bitcoin was traded for only $92.
- 2014: 850,000 bitcoins were hacked and stolen from Mt Gox, the main Bitcoin exchange. This event left a lasting mark on the Bitcoin community and emphasized the need for robust security measures. Hacking remains a problem across the entire sector, and Bitcoin users are advised to protect their assets.
- 2018: The Lightning Network is a faster 'layer' for payments on the Bitcoin mainnet. This makes bitcoin transactions both faster and cheaper.
- 2021: The price of Bitcoin reaches a peak of nearly $70,000 after an intense price rally. The global market capitalization exceeds $1.28 trillion.
A Look at Bitcoin's Price Development
The above charts show the price development and volatility of BTC over the past three years. We can identify 5 key periods for the token:
- Consolidation (mid to late 2020). Bitcoin experienced relatively low volatility, with the price mostly fluctuating between $9,000 and $12,000.
- Bull market (late 2020 - April 2021). A strong upward trend led to high volatility, with price fluctuations often exceeding 10% on the same day. BTC reached a new peak in April 2021 (over $60,000).
- Correction and a new high (April 2021 - November 2021). The price of Bitcoin dropped by more than 50% in the weeks after April 2021 but reached its current peak (over $68,000) in November 2021.
- Bear market (November 2021 - November 2022). The valuation of BTC fell to $15,000, a downward trend that was only reinforced when FTX (once the world's second-largest crypto exchange) collapsed in November 2022.
- Another rise? (November 2022 - May 2023). Bitcoin has begun an upward trend, with the price reaching $31,000 in April 2023. A strong performance in a global financial market influenced by the US banking crisis and government policy.
When you look at the chart and its analysis, it's clear that Bitcoin remains a highly volatile investment with intense price fluctuations. BTC is still relatively new to the market, and it's understandable that its value is still being explored by investors, explaining the volatility and trends as this investment matures.
Bitcoin for Beginners
Bitcoin earns its title as the world's first and largest crypto: it almost single-handedly ushered in the crypto era and continues to lead the market to this day. The innovations introduced by Bitcoin (decentralization through Proof-of-Work, security by design, fixed supply, scarcity, and accessibility) are more relevant than ever and have the potential to attract more and more users and investors.
Via Peaks, you can easily add a Bitcoin ETP, a regulated Bitcoin investment product, to your portfolio. Want to know more about it? Check out the Peaks crypto page.
Please Note: This article is not intended as investment advice but provides additional information about investing in crypto and crypto ETPs. Investing in crypto ETPs can be considered 'complex' and involves financial risks such as high volatility and significant drawdowns in value. It's always important to carefully consider the financial risks by reading the essential information document and prospectus and to have a well-diversified portfolio for long-term investing before investing in crypto ETPs.
Investing always involves risks. Know that you could lose (a part of) your invested money.