Rise of the Bitcoin

By Kendrick Chua 15 June, 2017

In May 22, 2010, a guy by the name of Laszlo Hanyecz made history when he bought two pizzas for 10,000 Bitcoins. It was the first real-world transaction of a cryptocurrency. That moved made him one for the books as well. As of this writing, Bitcoin is trading at upwards of USD3,000. His 10,000 BTC—had he held on to it—is now valued at a staggering USD30 million.

That could have bought him a whole pizza chain.

What is Bitcoin?

For those who are into investing, the word Bitcoin connotes a sense of mystery and potential. What exactly is bitcoin? Bitcoin is a form of digital currency or popularly known as cryptocurrency. Unlike the conventional currencies such as Dollars and Euros, bitcoin is neither printed nor backed by any central bank. It is created and held electronically. It is decentralized which means, no institution has any claim over it.

It came into existence when Japanese software developer Satoshi Nakamoto, a pseudonym, published his invention on October 31, 2008 via the Cryptography Mailing List. Three months later, Bitcoin was officially introduced into circulation. The idea behind Bitcoin is a currency devoid of any regulation and interference from any Central Bank.

Despite no official institution regulates it, Bitcoin could pass as a conventional currency since it possesses the three qualities of a regular one: hard to earn, limited in supply and easy to verify. And most importantly, it is being used as a medium of exchange.

Transactions could only go bigger from hereon. Last April 1, Japan formally announced that Bitcoin would be officially a method of payment. Analyst expect 260,000 stores to accept this form of payment by summer. Two years ago, the consensus number of stores accepting Bitcoin stands at only 100,000 globally. It has gone a long way since then. Even big brands such as Paypal, Microsoft and Expedia has started to accept this form of payment.

Bitcoin as an investment

Patrick Ty, a software developer, is banking on its continuing rise in popularity to bring Bitcoin to the mainstream. Ty decided to delve into it some years ago when he heard that some merchants were already taking it as a form of currency.   Add to that fact that there are now two bitcoin exchanges in the country: buybitcoin.ph and coins.ph.

When Ty initially started, he had little expectation with it.  “I didn't really put that much thought when I first bought it. I knew that the prices fluctuated wildly, so I couldn't risk losing capital in the process.”

That was before. With Bitcoin gaining grounds, investors like Ty, are looking at Bitcoin as an alternative form of investment. To put things in perspective, no other investment vehicle out in the market has provided investors with a 30,000% rise in the past six years. That means, a dollar in 2011 is now equivalent to USD30,000. Even the best year of the local stock market managed to gain only 54%. A paltry number compared to what Bitcoin did. Some of the best stocks only gave 1,000% return.

But don’t be deceived by the rewards. Bitcoin has had its share of crashes. From July to November of 2011, Bitcoin lost 94% of its value—from USD32 to bottoming out at USD2. Between November and December 2013, Bitcoin’s value would lose 50% of its value—from USD1,200 to just USD600.         

Therefore, Ty is against newbie investors in trying out Bitcoin. “I don't really recommend it as an investment for beginners. If you are planning to use invest in it, then I suggest you educate yourself. Forewarned is forearmed as they say,” warns Ty.

There are risks to be considered as well. Security risk is one of them. Ty should know. He is a software developer after all. Being a virtual currency, as with anything that is virtual, it is at risk from being hacked. The most notorious was when the Bitcoin exchange Mt. Gox was hacked that resulted in USD 460 millions of stolen Bitcoins. Market risk poses another issue. The value of Bitcoin fluctuates daily. It’s largest one-day decline was at 80%. One should obviously have the heart and appetite for this kind of volatility.

Locally, the country has yet to fully appreciate the potential of Bitcoin. Merchants have yet to accept them as an official mode of payment. But with gaining popularity and demand, it is not a far-fetched idea to see if being used alongside credit cards and checks as a means of payment.

There won’t be any stopping the rise in its price then.


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Last modified on Tuesday, 20 June 2017 15:11

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