Is it worth a loan for Bitcoin?
You might have seen the hype in the last two weeks about Bitcoin. Bitcoin is a new type of currency that is entirely computer based so it’s not really a coin. Bitcoin has dramatically increased in value this year and in particular in the last month. Some investors that bought Bitcoins in the early days for pounds have coins worth over $1 Billion which is over £700 million.
You might be asking yourself how a something as non-existent as bitcoin has a value and why so much. The reason it has a value is it provides a way for real money to change hands electronically but without the banks. It’s called a de-centralised currency as the volunteers validate transactions rather than banks. There are loads of ways this is kept secure and safe from corruption but there’s more to do.
What is Bitcoin?
Bitcoin is a form of virtual/digital currency, created and held electronically. No one controls it and Bitcoins aren’t printed. They’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems. It’s the first example of a growing category of money known as cryptocurrency. Bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralised. No single institution controls the Bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.
When you buy a fraction of a bitcoin, that transaction request needs to be validated and written into something called the blockchain. The blockchain is a complete history of all transactions in bitcoin. That would be a huge volume of data so it’s split into blocks in a chain and only the current block is worked on. The contents of the blockchain are details of the transaction but encoded in a special way that makes it impossible to fake.
It’s nearly impossible to steal bitcoin unless you get to the owner’s wallet. What’s a bitcoin wallet you ask? It’s another computer thing as it’s an electronic store for the numbers that make up your fractions of bitcoin. Each coin or piece of coin can be traced through the blockchain. In an ideal world this sounds like it’s a perfect replacement for our currencies at the moment. Unfortunately, it’s still working out the “kinks” as traditional money has been around for thousands of years. Virtual currency has a way to go until it’s ready to replace the bank note!
What’s happened to Bitcoin recently?
Because the currency started growing and the world took notice, traders started taking an interest. Traders operate by betting on the increase or decrease in value of things, even if those things aren’t real like Bitcoin. For that reason, the whole world decided the virtual currency was worth investing in. With worldwide interest, the price went up, more people got interested and the price went up more!
Various new types of trading have appeared, not just the buying and selling of coins. Some of the more inventive ways of trading on bitcoins have been introduced like futures and spread betting. Bitcoin Futures are a way of locking in a future price for both buyers and sellers of bitcoins. This means the buyer agrees a price in the future, often higher than the current price. This guarantees the seller a set income, the buyer hopes that the price of coins is actually much higher so they can sell immediately making a profit.
Spread betting is where a trader tries to estimate if the price will go up or down and by how much in a fixed time. It’s pretty much a gamble and the “buyer” never owns the coin, just a share of the increase or decrease. This means the coin owner can make money without ever selling!
Loans for Bitcoin
With such large profits to be made, some people have decided to try and buy as many Bitcoins as they can before it rises again. To do this, there are stories of people raiding savings and credit and even re-mortgaging their houses. With massive profits to be made, it can be really tempting to gamble. Some people have doubled their money in weeks and people who bought bitcoins when they were $1 each are millionaires now. But there is a downside, with traders involved, it’s difficult to predict what will happen in the short term. Many people believe that in the long term the price will continue to rise.
Long term investment?
Rather than a short term benefit, it’s slightly more likely that bitcoins will make good long term investments. Why is that? There is a sort of cap on the number of bitcoin that can be made. As it’s all maths, there is an endless process of generating the new numbers that make up bitcoins. Those numbers are harder and harder to create so as time goes on, the number of bitcoin available will dry up. To be worth creating new ones, faster computers will be needed and that will cost more money. That means the price of bitcoins will have to rise. There may never be a complete stop in production but it will be really slow compared to today.
So should you invest?
Is it worth taking out a short term loan for Bitcoin? Here at LoanPig we really don’t think so. Most people believe that at some point, the market will crash. A few very careful investors will end up extremely rich. Thousands of people will lose the majority of their money. It’s a shame but it’s likely the opportunity for short term profit has already passed and to buy now is not worth the risk. Don’t get into debt for something as uncertain as trading of a brand new virtual currency. It isn’t even real! If you can spare the income to make a longer term investment, maybe consider it!
This article is the author’s opinion and should not be treated as financial advice. All information in this article is for entertainment purposes only.