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When word leaked out that a man had purchased two pizzas for 10,000 Bitcoin in 2010, the internet went crazy. Bitcoin was only worth $41 at the time, but today the same transaction would be worth 8,000 Crore. For many years, Bitcoin was dismissed as either a scam or a fantasy. Orthodox investors have always viewed Bitcoin as a risky bet. After all, how could something intangible and decentralized, like Bitcoin, hold significant value?
But Today, Bitcoin has surged to a record high price of $107,000 USD. Its price has gone up by 150% in the whole year. The future volume of Bitcoin, which indicates possible future trade for the cryptocurrency, has also surged to USD 82 billion. Bitcoin has grown from being worth $0.09 to becoming the hottest investment in 2024.
Bitcoin is a form of virtual money. It was created by Satoshi Nakamoto in 2008. Bitcoin is decentralized money that is neither controlled by banks nor the governments. The currency is controlled by the global network of millions of everyday Bitcoin users. Like fiat currencies are printed, Bitcoin is mined from digital software through mining.
The mining process creates new Bitcoin and verifies existing Bitcoin transaction.
Similar to how a bank verifies transactions by checking if an account has sufficient funds to make transactions, if the recipient’s account is valid and if transaction complies with bank rules, Bitcoin transactions also undergo similar checks.
However, the verification is carried out by common people like us, who can be located anywhere in the world. They are known as miners. Miners mine fresh Bitcoin and validate current transactions using specialized software. After a Bitcoin transaction is initiated, it is queued for verification. Miners choose a number of these transactions from the queue based on the reward attached to each transaction. The reward is the transaction fees charged by the user for the transaction. The higher the transaction fees, the greater are the chances of miner picking the transaction for verification. If the fee is too small, the transaction might also be dropped from the queue.
To confirm a user transaction, the miner must solve a complicated mathematical problem called hashing. Once the puzzle is solved, the transaction is entered to the digital ledger known as blockchain. The transaction is now verified and completed for the user.
Solving the mathematical puzzle is the key part of the process. In the puzzle, the miner has to find a random number, which can have approximately 4.29 billion values. There’s no shortcut—miners must try billions or trillions of nonces before finding the right fit for the puzzle.
Solving the difficult puzzle acts as proof of work. It tells the software that transaction details are checked and verified. After completing the puzzle, the transaction is recorded on the blockchain. Miners receive transaction fees and fresh Bitcoin for each problem they solve. Currently, each miner receives 6.25 Bitcoin for completing a single mathematical puzzle.
Interestingly, Bitcoin is decentralized, open to everybody, and unchangeable. The blockchain is accessible to anyone. Anyone with a special computer and software can view this transaction. This transparency eliminates the need for financial institutions or other intermediaries. Once a transaction is recorded in the blockchain, it cannot be changed. Changing the blockchain would mean re-solving the mathematical puzzle for the block and every subsequent block, which becomes increasingly difficult as the chain grows longer.This characteristic adds security and makes Bitcoin immutable.
Bitcoin, previously underestimated, now accounts for a $3.43 trillion market value. Russia is using Bitcoin for foreign trade amid policy restrictions in the West. The US is considering converting 5% of its national reserves into Bitcoin. Organizations are using Bitcoin to soar their investments and stock prices.
But on the ground level as well, 106 million people now invest in Bitcoin globally, which is 1.3% of the global population. Although the number of Bitcoin investors is still relatively small, its rise is especially notable among younger generations, with Bitcoin's appeal growing rapidly. In America, the Bitcoin investors rose from 30% to 40% over past year. As more people understood how Bitcoin works and saw its potential for high returns, more than 21,000 new users became millionaires using Bitcoin in 2024.
The price of Bitcoin has risen since its inception in 2009. Bitcoin began trading at $0.09 and experienced exponential growth ever since. While the price of Bitcoin fluctuated due to market crash, it has experienced price corrections before stabilizing (refer image).
The Price history of Bitcoin
Source: Investopedia, 2024
The bullish trend is attributed to three reasons. Donald Trump won the US presidential election, the debate about the crypto reserve for the nation, and MicroStrategy, the largest corporate Bitcoin investor, has been significantly increasing its Bitcoin holdings.
Image: Bitcoin Price 2024- YTD
Source: Google Finance (Accessed on 26.12.2024)
A mix of regulatory factors, favourable market conditions, and increasing investor confidence are also factoring in the price of Bitcoin.
Trump’s victory has ignited optimism among Bitcoin investors. With Trump’s crypto-friendly stance, his presidency will likely bring favorable policies for cryptocurrencies. During his presidential campaign, Trump established a pro-crypto reputation among the masses by announcing plans to make a national Bitcoin reserve for America.After Trump's historic win, the price of Bitcoin surged past USD 100,000. The crypto-friendly stance of the Trump administration has built market confidence and lured even organizations and institutions to invest in Bitcoin.
Each nation stores assets as a national reserve. While most nations store gold and money, others store crude oil, minerals, or foreign currencies. These reserves are stashed to maintain economic stability in times of crisis. In recent years, countries like the US, Japan, Poland, the United Arab Emirates (UAE), and the Gulf Cooperation Council (GCC), and Russia have considered adding digital assets like Bitcoin to their national reserves.
It is because Bitcoin’s national reserve would not only prevent countries against fiat currency inflation, but would also help nations gain geo-political influence among their fraternities. In 2021, El Salvador became the first country to make Bitcoin reserves. Now the US, along with other major economies, is following the suit. The idea of the US building a national Bitcoin reserve sparked after Trump's election. Initial speculations suggest that the US National Bitcoin Reserve could comprise over 1 million Bitcoin in the next five years.
Many other nations, including the United States, plan to build national crypto reserves. Brazil, a tropical country, is also contemplating establishing the "Sovereign Strategic Reserve of Bitcoin" (RESBit). The Bitcoin reserve will contain 5% of Brazil’s international reserves. Russia has also recently shown interest in building a national Bitcoin reserve. A proposal made by Anton Tkachev, a parliament deputy, advocates for Bitcoin to be recognized as a reserve asset.
MicroStrategy provides analytical software solutions to individuals worldwide. But, it is not part of this article for this reason. MicroStrategy is the leading corporate entity collecting Bitcoin globally. The BI platform rose to fame during the pandemic when it invested heavily in Bitcoin.
The company raised its investment in Bitcoin through debt financing, stock, and cash flow. Since then, from a stock price of $14, the company's stock price closely related to the success of Bitcoin rose to about $408.50, which signifies a jaw-dropping 496% growth rate. The company is now part of the NASDAQ 100, and its Bitcoin holdings are valued at 2.5 times the worth of its stock. Additionally, MicroStrategy's stock is considered 2.5 times more volatile than Bitcoin,. It means investors can generate higher returns through covered calls.
Today, MicroStrategy owns a total of 440,000 Bitcoin, out of which 15,350 Bitcoin have been bought recently at $1.5 billion. Being the most significant corporate investor in Bitcoin, rising stock prices of MicroStrategy depict market's optimism towards Bitcoin's future.
The total supply of Bitcoin is limited to 21 million coins. Bitcoin software is designed to generate only 21 million coins. Satoshi Nakamoto introduced a restricted quantity to mirror the scarcity of rare minerals like gold. This is also why Bitcoin is also referred to as ‘Digital Gold;.
The restricted supply is designed to give Bitcoin inherent value and protect it from inflation. Unlike fiat currencies, which central banks can issue as per convenience, Bitcoin's fixed supply causes deflation. Another aspect of the supply of Bitcoin, other than limited supply, is halving. To help distribute the supply over time, the reward for mining new coins is cut in half every four years. In 2009, mining rewards started at 50 BTC per block. The prize has now been lowered to 6.25 BTC. The halving trend is expected to continue up to 2140. By then, all 21 million Bitcoin will have been mined and circulated.
Bitcoin is on track to become the first digital currency stored in national reserves worldwide. It is now being considered by countries like the United States and Russia for their portfolios, which has pushed the price of Bitcoin to new highs. Corporations are also increasing their Bitcoin holdings, which increases their stock prices.
Bitcoin investments went up by 150% in 2024 alone. However, this growth is risky. Bitcoin is a highly uncertain investment since, despite its great rewards, its price is subject to volatility. Investors should be cautious and make wise decisions when building their digital portfolios
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