Cryptocurrencies are, well, enigmatic. However, this does not imply that they are incapable of generating profits.

Bitcoin, the most prominent digital currency in the global market, surpassed its previous all-time high value on March 4 and is currently priced just above $70,000 per bitcoin.

This recent development has sparked curiosity among many individuals – what exactly is a bitcoin or a cryptocurrency?

Cryptocurrencies are exclusively digital currencies without any physical representation.

Bitcoin, a form of cryptocurrency, operates within the blockchain. The blockchain serves as a system that authenticates, validates, and permanently records transactional data that remains immutable, as stated by Bina Ramamurthy, the director of University at Buffalo’s Blockchain ThinkLab.

Ramamurthy explains, “The blockchain acts as the foundation, establishing trust within an environment devoid of inherent trust.”

With some exceptions, individuals can own and trade cryptocurrencies through “wallets.” These wallets serve as tools that grant users independent access to their cryptocurrencies, unlike traditional checking accounts held by financial institutions.

Ramamurthy elaborates, “You have full control over the wallet. There is no intermediary institution creating trust between parties.”

How can novices venture into bitcoin investment?

Ramamurthy outlines three primary methods for investment: utilizing third-party cryptocurrency exchanges like Coinbase, acquiring shares of a bitcoin exchange-traded fund (ETF), or making purchases through one’s personal cryptocurrency wallet.

Investors are not required to purchase bitcoin as whole units. Instead, they can buy and possess fractional amounts of a bitcoin. For instance, at a price of \(71,104.10 per bitcoin, an individual could invest \)100 and own approximately 0.0014064 of a bitcoin. This demonstrates that investing in bitcoin does not necessitate a substantial initial capital.

Ramamurthy emphasizes, “This is a legitimate opportunity. Bitcoin is supported by robust underlying technology.”

What factors led to the surge in bitcoin’s value?

According to Ramamurthy, two primary factors contributed to bitcoin’s price surge, surpassing its previous peak of $64,400 per bitcoin: the increasing scarcity of bitcoin and the U.S. Securities and Exchange Commission’s announcement on January 10 regarding bitcoin exchange-traded funds, which garnered significant attention from mainstream investors.

“The approval by the SEC for financial institutions to establish exchange-traded funds linked to bitcoin fueled the price surge,” Ramamurthy explained.

An exchange-traded fund represents a collection of financial securities, typically stocks within a specific industry or sector, enabling traders to buy and sell shares on exchanges like the New York Stock Exchange. If the particular industry or sector performs well financially, the fund’s share price increases.

These funds are generally perceived as secure and popular investment options, thereby democratizing access to bitcoin through exchange-traded funds.

Ramamurthy anticipates that the price of bitcoin will continue to ascend before stabilizing at a certain point.

What essential aspects should you consider before investing in bitcoin?

“It represents a cutting-edge technology,” Ramamurthy noted. “Whenever you delve into uncharted territories, you can expect volatility.”

Due to the absence of a central governing body, bitcoin is highly influenced by supply and demand dynamics. Consequently, while the potential gains can be substantial, the losses can be equally significant. For instance, bitcoin’s price soared to nearly \(20,000 in December 2017, only to plummet to \)3,400 in December 2018.

“Bitcoin has paved a path filled with opportunities,” Ramamurthy concluded.

Rin Velasco, a journalist for Old Colony Memorial in Plymouth, can be contacted at [email protected].