By now, you’ve probably heard of Bitcoin, the digital currency.
In its early days, many believed Bitcoin would only be used by Internet geeks. But it’s gradually become part of the mainstream financial ecosystem.
That being said, many folks still don’t understand Bitcoin—and they don’t realize that professional investors are still eagerly backing Bitcoin start-ups.
Today, we’ll demystify Bitcoin, and we’ll show you several ways you can cash in on this “digital gold rush.”
Bitcoin Simplified
There are two concepts about Bitcoin you need to understand:
- Bitcoins
- The Blockchain
Let’s begin with bitcoins.
Bitcoins are the individual units people exchange when they buy or sell something. Think of them as dollars.
What makes them unique is that:
- Even though you own them, you can hold them anonymously. Since they don’t need to be connected to your name or social security number, the Government can’t come in and take (or tax!) them.
- You can transfer them to others with zero fees. There’s no credit card company or bank sitting in the middle taking a cut.
- Because bitcoins are digital and anonymous, in theory, they could be easily replicated. In other words, what’s to stop you from creating copies of bitcoins (the same way you’d create a digital copy of a file on your computer) and then spending them on the Internet?
Well, that’s what the “Blockchain” is for...
The Blockchain Simplified
Think about what happens when you take a digital photo with your phone or camera.
There’s a copy of the photo on your phone. But you can also store a copy on your computer. And maybe you’ll send a copy to a friend.
Now there are copies of the same photo in three different places.
This is the beauty of digital objects: they’re easy to copy and share.
But when it comes to currency, you need to ensure that people can’t copy it. That would be counterfeiting. If it were easy to do, merchants would stop accepting it, and its value as a currency would crumble.
So the engineers who invented Bitcoin came up with a system called Blockchain.
Blockchain is like an accounting ledger. By keeping track of every bitcoin transaction in real-time, it ensures that bitcoins can’t be counterfeited.
For example, if I sent you a bitcoin right now, it would get recorded anonymously in the Blockchain ledger. And if I tried to use that same bitcoin tomorrow, the ledger would prevent me from doing so… it would recognize that I no longer owned it.
This secure “Blockchain” ledger is stored on multiple computers all around the Internet. And it’s kept in synch by a number of software applications and engineers.
That’s what keeps the entire system honest.
Why Investors Are Interested
As Bitcoin’s popularity continues to increase, so does its value.
For example, as more people use Bitcoin, more retailers will accept it. And as demand for it goes up, so does its price.
In fact, over the past 12 months alone, Bitcoin’s price has risen from $249 to $637—a 255% increase.
And over the past four years, its price has soared by 5,790%. That’s enough to turn every $1,000 you invested into $57,900.
But there’s another type of Bitcoin investment that’s done well, too...
Picks & Shovels
There are two ways to make money in a gold rush:
Mining for gold...
Or selling picks and shovels to the miners.
We tend to prefer the latter. It’s less risky, and it still provides tremendous upside potential.
Many professional investors agree with us. In fact, over the past four years, they’ve poured more than $1.1 billion into Bitcoin-related start-ups.
Most of these companies are “picks and shovels” start-ups. Either they help consumers store or use their bitcoin. Or they help merchants accept bitcoin at their stores and websites.
We’ve written about a number of these start-ups in the past.
Getting Ready
My goal today was to give you a high-level overview of Bitcoin.
If you’d like to learn more, TechCrunch—a leading website for tech-related news—just launched a six-episode video series on Bitcoin.
You can watch the first few episodes here »
And it will release a new episode each day this week.
If these videos get you excited, stay tuned…
We’ll be keeping you in the loop about new Bitcoin start-up investments.
Happy investing!
Best Regards,
Founder
Crowdability.com
