Some advisors own it, invest in it and spend it while others may even be paid in it but when WP canvassed financial advisors across Canada, more than 50% hadn’t even heard of it. If you’re clueless about crypto currency, read on for a beginner’s guide to bitcoin.
What is it?
- Bitcoin is a global digital currency which operates without the need for a central bank system – it’s purely peer to peer, like cash for the internet. You can buy almost anything you want with bitcoin, from houses and computers to pizza and sandwiches. Lamborghini even accepts it.
Where did it come from?
– Bitcoin was invented in 2008 by Satoshi Nakamoto, although it’s widely assumed that this is just a pseudonym for the person, or group of people, who actually created the crypto currency.
Bitcoins are generated via a process called ‘mining’, in which banks of powerful computers solve complex mathematical equations in order to add records to Bitcoin's public ledger of past transactions. Basically, ‘miners’ are rewarded for managing other people’s bitcoin transactions and verifying them as genuine.
No more than 21 million bitcoins will ever be generated – there are currently 13 million in circulation and with approximately 3,600 more being mined every day, experts predict the final bitcoin will be mined in 2140.
What is it worth? –
This is largely disputed as bitcoin’s value has been known to fluctuate wildly. When it was initially introduced, bitcoin was practically worthless and the very first bitcoin transaction saw one user swap 10,000 bitcoins for two pizzas. Fast-forward to November 2013 and the value of one bitcoin skyrocketed to over $1,000. At present, one Bitcoin is worth approximately $443.
Due to bitcoin’s notorious instability and rapid value growth, many early enthusiasts have seen their investments balloon but not always to their benefit.
In 2013, Welshman James Howells
threw away a hard drive with 7,500 bitcoins stored on it. Howells had accumulated the stash practically for free, after mining coins for just a week in 2009. His story hit the headlines when he realized his hoard would be worth more than £4 million – if it wasn’t four feet deep in a landfill site.
Bitcoin expert and Coinality
founder Dan Roseman said he’d never work with a financial advisor who hadn’t at least heard of bitcoin. Roseman identifies the crypto currency as a new digital asset class that shouldn’t be ignored by financial advisors. However, Roseman wouldn’t recommend over eagerness to invest: “It’s still an experiment in technology and should be approached with caution from an investment standpoint,” he advises.