If you bought $1,000 worth
of bitcoin back in August 2010
that money would now be worth
an estimated $50 million.
For many investors and Wall Street sharks
those returns are too tempting to ignore.
But bitcoin is not the only cryptocurrency
attracting excited investors.
Ethereum, ripple, litecoin and dash
are some of the other thousand
or so digital currencies
that have been created so far.
But are they a safe bet for
your hard-earned money?
And can the growth continue?
The financial crisis back in 2008
exposed the imperfect system
the banks are run on.
Every time we make an online payment
or transfer our dollars from
one account to another,
we're placing our trust in
big corporations and banks
that are vulnerable to
digital fraud and bankruptcy.
Virtual currencies however
are exchanged on a decentralized
peer to peer network.
Analysts believe this new payment network,
not run by profit-driven companies,
is more revolutionary than
the currencies themselves.
All transactions occur on
a shared public register,
called a blockchain,
which are then verified by
several users and their computers.
All while your identity remains hidden.
But while blockchain is being celebrated
amongst industry experts,
cryptocurrencies themselves
continue to divide opinion.
Normally, governments and central banks
keep an eye on a country's currency.
They have the ability to
take a number of measures
that could either increase
or decrease its value.
And although that might not always work,
there is at least
someone held accountable.
With cryptocurrencies there is
no institution or person
protecting their value.
That means prices are based
solely on what people think
they're worth and if something
undermines that belief,
they can go into free fall.
And earlier this year,
the second biggest cryptocurrency
ethereum, did just that.
Its value collapsed from
$317 a coin,
to ten cents a coin,
in just one day.
Although Bitcoin had a more than
100% return on investment in 2016
it's also five times more volatile
than the S&P 500.
Many investors are spooked
by that kind of instability
knowing that if something
were to go wrong.
You'd have no support.
Digital currencies are also
known as a 'fool's asset'
like art or wine,
meaning they don't provide regular
returns on your investments
the way rental income through
a property or dividends
from shares in a company would.
The only way to make money
through virtual currency trading
is to find someone who will pay you
an even higher price
than you did originally.
But based on current trends
chances are you will,
especially if you pick a winner
like bitcoin,
its price having more than
doubled in 2017.
But many analysts believe the
bitcoin gravy train has left the station
and that the real profits
are to be made in
the smaller coins.
The price of NEM coins,
dash coins,
lite coins,
and more,
have all soared this year.
Digital currency transactions though
are still reliant on human intervention.
That's because each transaction
has to be checked and
registered by multiple people
which can result in trades
being slow to process.
Additionally, the people doing
the checking aren't necessarily
interested in your transaction.
And may want to keep prices high
if they're holding onto
bitcoins or ethereum themselves.
So as bitcoin users
demanded quicker transactions,
this was at odds with the
people mining bitcoins.
Fears were growing that this was
going to become a huge problem.
That led to a split in the
bitcoin currency in August 2017.
The original bitcoin is now
referred to as core.
While a second currency,
bitcoin cash,
was created alongside it.
It provides quicker transactions
and is the fourth biggest cryptocurrency,
now worth over $5 billion.
Like most virtual currencies,
it is extremely volatile
and 24 hours after
bitcoin cash was created,
its price fell by more than half.
This revealed a weakness in the system
whereby the people using the currencies
are still reliant on an entirely
different group of people
to make that exchange official.
Yet for many countries
and their citizens,
digital currencies provide a lifeline.
Take for example, Venezuela
which is plagued with
a shortage of cash and
the highest inflation rate in the world.
Or China whose government has
restricted movement of capital
outside of the country.
Digital currencies present
an attractive alternative
to traditional currency and investments.
Its rising popularity in these countries
is part of the reason
behind bitcoin's recent surge.
So should you invest in a cryptocurrency?
Well that's up to you.
One thing is for sure though,
regardless of its ups and downs,
the technology behind it,
particularly blockchain,
is the real game changer.
And not just for cryptocurrencies.
Hi everyone, thanks for watching.
If you want to know more about
the blockchain technology
we discuss in this video,
click here.
Or if you want to learn about
what's happening in Venezuela,
try this video.
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