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Big Money Finds Bitcoin in 2020 – Hedge Funds, Service Providers, Intelligence Firms, and High Profile Investors

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Since cryptocurrency markets began seeing a resurgence, months ago, there have been various instances of ‘big money’ getting in on the action.  Examples of this can be seen on various levels, including high profile investors, intelligence firms, hedge funds, and service providers.  Today we’ll take a look at each, and why an entrance is being made now.

MicroStrategy

Our first example is also the most recent occurrence.  Only days ago, software giant and intelligence firm, MicroStrategy, announced to the world that they purchased a significant sum of Bitcoin.  More specifically, MicroStrategy purchased 21,454 BTC, which equates to roughly $250M USD.

Why now?

Michael Saylor, CEO at MicroStrategy, states,

“Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders…This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.”

To reiterate, the world’s largest intelligence firm notes that Bitcoin…

  • is a dependable store of value
  • has long-term appreciation potential
  • appeals to, both, individuals and institutions
  • is a legitimate asset
  • can be superior to cash

As the aforementioned figures would indicate, MicroStrategy fully believes this, as it has put its money where its mouth is – to the tune of $250 million

Interestingly, Twitter sleuths have managed to find past commentary by Michael Saylor on his expectation for Bitcoin, back in 2013.

Michael Saylor cannot be faulted for this past tweet, though.  At the time, the cards were stacked against Bitcoin and other cryptocurrencies.  Adoption was woefully small, the technology wasn’t as developed, and it was traded on pure speculation.  In the time since, however, Bitcoin has made believers out of many through addressing/conquering each of these issues.  Never say never.

Paul Tudor Jones

When a hedge fund manager, worth nearly $6 billion USD, makes a move, people notice.  So when Paul Tudor Jones announced, in May, that he would be allocating ‘low single-digits’ percentage of the Tudor BVI fund into Bitcoin, crypto enthusiasts understandably got excited.  While ‘low single-digits’ may not sound like much, only a few percentage points allocated from a $5 billion fund represents a hearty sum.

“The best profit-maximizing strategy is to own the fastest horse…If I am forced to forecast, my bet is it will be Bitcoin.” – Paul Tudor Jones, CEO of Tudor Investment Corp.

Why now?

Inflation.  With the seemingly never ending printing of FIAT, many are looking towards safe-haven assets, as a hedge against expected inflation.  Bitcoin is not the only asset to benefit from this sentiment – gold and other precious metals are also booming as well.

Dave Portnoy

More than just a popular online-personality, Dave Portnoy is the founder and president of Barstool Sports.  In recent months, Portnoy has captivated the attention of many, as he livestreams his day-trading activity.  As a successful entrepreneur, worth roughly $100 million, with a strong online presence, his pending entrance into Bitcoin has excited many.

Portnoy most recently caught the attention of many with a public invitation to the Winklevoss twins.  This invitation surrounded a desired introduction to Bitcoin, and how he can partake.  This did not go unnoticed, as the Winklevoss twins saw this invitation, and accepted.

Why now?

With over 1.3M followers, Portnoy indicates in past videos that he was feeling the pressure to re-evaluate Bitcoin, and the potential behind it.  Although the Bitcoin community can at time be overzealous in its preaching, this trait appears to have done the trick in this particular instance.  This pressure from his followers simply underscores the current appetites of many investors, as they look for high potential assets to mitigate risks of inflation.

PayPal

While PayPal has yet to release official statements surrounding its intentions, it has become increasingly clear that the company is gearing up to launch cryptocurrency services in the near future.  Speculation of this first came when the company began hiring cryptocurrency specialists for product development.

In addition to herding talent, multiple sources have shared information with news outlets, indicating an established partnership between Paxos Crypto Brokerage and PayPal – not unlike the recently announced partnership between Paxos Crypto Brokerage and Revolut US.  Each of these partnerships would allow for the seamless integration of an API-based service, which allows for the buying and selling of a plethora of cryptocurrencies.

Why now?

In its early days, Bitcoin straddled the line between fizzling out and becoming a respected asset.  Fast forward to 2020 and if Bitcoin has made one thing clear, it is that it has staying power.  We have reached a point in time where there has been enough development and adoption surrounding the sector, that the chances of Bitcoin fizzling out are all but nil.

With this being the case, who better to capitalize on Bitcoin, than an established FinTech service provider?  Revolut has adopted it.  Square has adopted it.  WealthSimple has adopted it.  RobinHood has adopted it.  If anything, PayPal might be a little late to the party.

An Increasing Pace

Each of these instances on their own may not upend markets.  Cumulatively however, they point to a positive shift in sentiment towards cryptocurrencies.  While the ‘why now’ may vary between each new entrant, Bitcoin markets are no longer populated solely by speculative retail traders, but home to participants from a variety of sectors.  It is viewed as a legitimate asset, and whether looking at service providers, hedge funds, intelligence firms, etc. – adoption is occurring at an increasing pace.

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Joshua Stoner is a multi-faceted working professional. He has a great interest in the revolutionary 'blockchain' technology. In addition to this, he is a licenced Paramedic in Nova Scotia, Canada. As such, he can provide emergency care/medicine to any situation necessitating it.

Cryptocurrency

How to Short Bitcoin (BTC) – An Easy to Follow Guide

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Learning how to short Bitcoin (BTC) is an essential skill to learn if you intend to become a professional crypto trader. Notably, shorting is an advanced investment strategy that comes with a high level of risk. However, if you master the skill, you gain the ability to acquire massive returns during times of market value decline.

What is Short Selling?

Short selling is an investment method that allows you to benefit from drops in the price of a particular asset. When an investor speculates on the decline in a tradable asset such as Bitcoin, stocks, or other securities prices, they can gain profits using shorts. In a short sale scenario, you bet against the price of the asset in question.

Why Would You Want to Short Bitcoin?

While in the long term it’s easy to see that Bitcoin continues to see price appreciation, there are endless reasons to short this cryptocurrency. The market is volatile and rather than letting your holdings sit during times of market value decline, you can sure up your holdings using shorts.

Bitcoin Yearly Price Cycle

Bitcoin Yearly Price Cycle

How Bitcoin Shorting Works

To understand shorting, let’s first look at the industry that created this method, stocks. In the stock market, short selling is a popular investment strategy. To accomplish a short, an investor borrows a certain amount of the stock they believe will decline in value. As soon as the investor receives these stocks, they sell them at the current market value. Once the price of the assets drops, the investor then can buy the stocks back and return it to the lender.

Bitcoin Shorts

While the asset is different, shorting Bitcoin works in much the same manner. A crypto trader will borrow Bitcoin prior to a foreseen market drop. As soon as the investor receives their Bitcoin, the assets are sold. After the value of Bitcoin completes its dip, the investor repurchases Bitcoin with the original sales funds.

Because the price of Bitcoin is cheaper than when you borrowed it, you can repay your loan and keep the difference in the repayment and your total trading actions. Here is a specific example of shorting in action.

Shorting Example

Jeremy borrows 5 Bitcoin’s at $12,000 apiece. He immediately sells these coins for $60,000.00. A few days pass. On the third day, Jeremy’s hunch proved correct. The price of Bitcoin did a major correction to $10,000.00.

Jeremy then repurchases Bitcoins using the $60,000 he held from the initial sale of his holdings. Since the price of Bitcoin dropped $2,000 apiece, Jeremy receives six Bitcoins for his purchase. He then returns the five Bitcoins to the lender. The last Bitcoin is his profit.

Jeremy can sell this Bitcoin and keep the $10,000, or he can use his earnings to make other investments. Had he not shorted the market, he would only show losses in his portfolio. Even if he had traded his assets out to stable coins, he would only make the difference in price from his original holdings and the value drop. Instead, he 5x his ROI using this advanced trading method.

How to Short Bitcoin?

Shorting Bitcoin is easier than ever today. The first step is to locate a reliable platform that permits leveraged trading. These platforms specialize in high-risk shorting investment loans.

Importantly, you will need to pay back any loan you take, plus fees. If you borrow ten Bitcoin, you’ll need to have those coins back when it’s time to repay your loan. To ensure that you fulfill your promise, these platforms require users to put up a deposit, or margin.

Your margin requirements act as a form of collateral or security. These holdings back your position with the goal to ensure the shares will be repaid at the agreed-upon future date. If your short starts to go awry, your lender can, and most likely, will call your margin in. Most platforms only need to provide you with a quick notice to do this. For these reasons, it’s imperative you read all the fine details of your Bitcoin short agreement.

Ways to Short Bitcoin

Today, there is a variety of ways to short Bitcoin. Each of these techniques provides its own advantages and disadvantages. You must consider the entire situation before you decide on what strategy best suits your needs.

Short Sell – Contract for Difference (CFD)

One of the most popular ways to short Bitcoin is through the use of CFDs. CFDs allow you to short Bitcoin without purchasing any coins directly. Instead, you sign a CFD and agree to just pay the difference between the price of the asset at the time of your loan and your contract rate. CFDs are popular because they are more convenient and cost-efficient because there is no need to make additional purchases.

How to Short CFD

eToro is the premier exchange for cryptocurrency CFD trading services. You will need to create an account to get started. Luckily, the process is simple. Notably, you must verify your identity and account via an email before you can use the platform.

Once you are all set up, shorting is simple. All you need to do is open a trade on the BTC/USD instrument. Next, you need to select “Sell” from the options. You will be brought to a screen that will allow you to set up all of the details of your CFD. It doesn’t get easier than that. Best of all, eToro features an advanced interface that is easy to navigate. Form here, you can stay up-to-date on all the market’s developments.

Exchange Shorting

There are many exchanges in the market today that offer shorting services. Most of these platforms allow you to leverage your shorting strategy. Leveraged shorting is the act of borrowing more Bitcoin from the exchange than you hold prior to your sell-off.

Bitcoin Price Dump

Bitcoin Price Dump

Leveraged trading is one of the riskiest strategies in the market. It takes a firm understanding of the market conditions and your investment. Additionally, you really need impeccable timing to be successful with this strategy. If the exchange feels as if your investments are going to sour, they will close your trade early, keep your margin, and make you repay your loan.

Understanding When to Short

There are certain times when shorting Bitcoin is more complicated than others. For example, shorting Bitcoin against long-term uptrends can be tricky, to say the least. Bitcoin has a way to slowly rise in value. Reversely, this digital asset can shed thousands of dollars in market value in minutes. These scenarios put into perspective why shorting can be difficult for new investors to complete successfully.

Understanding the Mentality of the Market

It’s also important to consider the mentality of other traders in the market. If you short Bitcoin, and suddenly the price starts to shoot up quickly, you will need to rush to repurchase your assets. Unfortunately, every other investor who made the same decision will seek to accomplish the same task.

This sudden drive to repurchase Bitcoin drives the market value up sharply. When this scenario plays out, it’s what is known as a short squeeze. Short squeezes add to your losses in this position. To avoid this scenario, you must be vigilant in your market assessments.

Past Bitcoin Sell-offs 

The Bitcoin market has nine years of trading data to back it up now. A quick glimpse at the past of Bitcoin and you can easily see scenarios that initiated major sell-offs. The more you understand these scenarios, the easier it will be to identify the next major sell-off in the market. Here are some of the main reasons Bitcoin prices stuttered in the past.

Bitcoin Whale Dump - How to Short Bitcoin (BTC)

Bitcoin Whale Dump – How to Short Bitcoin (BTC)

Regulatory Concerns

Since the crypto market is still in its early stages, there is still a lot of regulatory uncertainty surrounding this industry. In the event that a major country bans or enacts some anti-Bitcoin stance, the market will adjust accordingly.

Major Exchange Hacks – Short Bitcoin

History has shown that major exchange hacks can tank Bitcoin prices in minutes. One famous example of this scenario playing out was during the Mt.Gox hack. At the time, Mt.Gox was the largest Bitcoin exchange in the world. Its hacking sent Bitcoin prices spiraling downwards for months.

Hard Forks

Hard forks occur when the community behind a crypto project is split on a certain upgrade. In a hard fork, some of the miners refuse to change over to the new protocol. This creates two separate blockchains from the moment of the fork moving forward. Consequently, hard forks also create a rift in a coins support community.

Bitcoin prices saw a decline when the community split over transaction block sizes. The row eventually led to the creation of Bitcoin Cash. Today, both coins have a strong following in the market.

Delayed Updates

There is another update related scenario that can drop the price of a digital asset. When important upgrades see considerable delays, it can cause a loss of faith by investors. This loss of faith demonstrates itself in negative price movements.

Bitcoin saw some significant price drawbacks when developers postponed the SegWit update. SegWit reduced the size of transactions in an attempt to combat market congestion on Bitcoin’s blockchain. At the time, the network’s congestion was unbearable. Consequently, every delay was met with negative price movements.

Developers Exiting the Project

Another major development that can hurt a coin’s price is the exiting of a key member from the platform. Blockchain developers are in high demand. The top programmers are respected throughout the entire industry. When one leaves a project, it can symbolize the beginning of the end for a coin. It can also represent a shift in the coin’s primary functionality moving forward. Either way, investors don’t like to see these guys go.

Future Risk Scenarios

There are also future scenarios that could occur that would affect Bitcoin’s price negatively. For example, if the cryptographic hashing algorithm of Bitcoin is broken, the coin will become unsecured and its market value will plummet. Along the same line of thought, major coding exploitations could also cause investors to lose faith in this cryptocurrency.

Future Regulations

Regulatory changes in the market are perhaps the biggest threats to Bitcoin prices. In the past, major countries, such as China have put heavy pressure on the market. In 2017, China banned all exchanges and ICOs in the country. These actions dropped Bitcoin’s price sharply following the news.

Satoshi’s Back

Bitcoins anonymous creator Satoshi Nakamoto has remained in the shadows for the last couple of years. In the early days of Bitcoin, Nakamoto mined over one million coins. These coins have sat in his wallets since day one. If these coins were to enter the market, the price of Bitcoin would see a huge correction to reflect the added supply.

Risks of Shorting Bitcoin

Short sales are considered a risky trading strategy because they limit gains even as they magnify losses. Shorting is especially risky if the lender calls in the assets before prices have a chance to drop. There are some techniques you can employ to simplify the process, however, none are full proof.

Let’s examine the same example from before using the $12,000 Bitcoins that dropped down to $10,000. In the first scenario the short completed according to plan, the price of Bitcoin dropped and the investor repaid their debts to the lender. Now let’s see what would happen if the price of Bitcoin didn’t drop.

Maximum Risk Exposure

Let’s say that the price of Bitcoin jumped up to $13,000 instead of dropping. In this situation, the lender would call in their loan. The lender would close your trade and keep your margin. Additionally, you would owe $65,000 worth of Bitcoin instead of the original $60,000 worth of Bitcoin you borrowed.

Shorting Bitcoin – Summary

Shorting is a great way to make some extra profits. However, if you are new to trading, or are unfamiliar with the market, shorting is one of the fastest ways to lose your booty. For these reasons, each investor needs to do some soul searching prior to jumping into the shorting market. That being said, shorting is a powerful tool that provides investors with huge ROIs when completed correctly.

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How Does Bitcoin Work? – An Easy Guide for Noobs

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As Bitcoin approaches its 10 years anniversary, the world’s first and most successful cryptocurrency is still a mystery to many people in the market. Even as Bitcoin has made its way into the vocabulary of the masses, the average person still wonders “how does Bitcoin work and what makes this computer money so valuable?”

The Current State of Affairs

The crypto market continues to expand to new heights. Every week new blockchains, tokens, coins, and exchanges enter the market. Each of these products provides users with a valuable service. However, all of these technologies owe a nod of appreciation to the world’s original cryptocurrency – Bitcoin.

What is Bitcoin (BTC)?

Per Satoshi Nakamoto, Bitcoin’s anonymous creator, Bitcoin is a “Peer-to-Peer Electronic Cash System.” Let’s examine this statement in depth to really grasp exactly what Nakamoto states here. Firstly, he states Bitcoin is a “peer-to-peer” network.

Bitcoin Whitepaper

Bitcoin Whitepaper

Peer-to-peer transactions are direct transactions. A great example of this style of transaction is when you hand cash to someone. When you hand your neighbor $5 cash, that is a direct transaction. There was no intermediary involved. There was no account validation, or central bank approving your transaction. You acted freely.

Inefficiencies in Today’s System

Now look at the same transaction, but this time you pay with your debit card or a payment App. While it may appear as if the funds instantly transfer from your account to theirs, this is hardly the case. Your payment begins a long arduous journey that can take days.

First, your payment order checks with both banks to make sure that the accounts are valid and that there are funds in your account to send. Then your payment action is sent to a major payment processing firm. In most instances, this is Visa or MasterCard.

Next, your funds bounce around 30+ intermediaries before reaching their destination around 3 days later. That’s why when you refund Debit or Credit transactions it takes days to show up in your account.

A Long Journey

All of these steps add more time to your transactions. Additionally, each intermediary and verification process tacks on a fee for their services. On top of all of these concerns, your transaction still must go through the regulatory channels. If for some reason, there is a discrepancy between your government and the person’s government you want to send a payment to, you will find it impossible to send these funds.

Bitcoin Trading - Analysis via CoinMarketCap

Bitcoin Trading – Analysis via CoinMarketCapBitcoin Trading – Analysis via CoinMarketCap

Centralization vs. Decentralization

The reason behind all of these intermediaries is simple, the current financial system is centralized. In a centralized system, there is one central organization, such as a bank or government that holds all the power. They hold your funds, they approve your transactions, and they decide when to issue more currency. You’re just along for the ride.

How Does Bitcoin (BTC) Work?

In a decentralized network, you remain in control of your assets until the exact moment that they arrive at their destination. When you send Bitcoin from your wallet to another person’s wallet, there are no intermediaries between your payment and its destination.

As such, there is no third-party to approve or deny your transactions. The entire process occurs in a “peer-to-peer” fashion. It’s the same as handing someone digital cash. Basically, you regain control over your finances using a decentralized system.

Examples of Other Decentralized Systems in Use Today

At first, the concept of decentralization can seem a bit awkward to comprehend. However, a quick glimpse into the market and you will see other decentralized systems hard at work. A perfect example of a decentralized system that you are more than likely familiar with is torrent streaming services.

Bittorrent Token

BitTorrent Token

When you go to a torrent streaming website, you probably ask yourself “how do these platforms remain open, even though they offer products that they don’t have licenses to offer?” The answer is simple, they utilize decentralization to prevent censorship. Here’s how decentralization is used in this scenario to bring you all your favorite early releases and new music for free.

Decentralization = Censorship Resistance

Websites like BitTorrent don’t actually provide you with any content. In reality, they just provide a location for people to meet up and exchange data freely, whatever that data may be. Now, granted, in most cases its music or movies, but it could be anything from political messages to actual value, such as cryptocurrencies.

Because these websites only provide a location for people to meet and exchange data, they are much more difficult to close than a centralized website that offered you these downloads directly. In essence, these streaming websites have done nothing wrong.

The same concepts can be put to use in the financial sector. Though the integration of decentralization, it becomes impossible to censor, edit, or block payments on the blockchain. In this way, Bitcoin represents an ideological shift towards more financial freedom and decoupling of government from currency.

To understand Bitcoin, you first need to take a look at some of the core technologies that make this marvelous coin function. As you now know, decentralized networks are censorship-resistant. There are also a variety of different types of decentralized networks. Bitcoin relies on a blockchain network to provide you with these freedoms.

What is a Blockchain?

A blockchain is a decentralized network that utilizes “blocks” of transactions to create a complete “chain” of events from the initiation of the network. In Bitcoin’s blockchain network, there are thousands of transaction validators known as miners or nodes. Importantly, every node validates every transaction on the blockchain but not every node receives a reward.

Who Gets the Reward? – How Does Bitcoin Work

These miners compete against each other via a complicated mathematical equation. The node that gets the question correct first gets to add the next block of transactions to the blockchain. They receive a reward for their efforts. Today, the reward is set at 6.5 BTC.

Bitcoin Consensus Mechanism - SHA-256 - Blockchain Technology

Bitcoin Consensus Mechanism – SHA-256 – Blockchain Technology

SHA-256

The mathematical equation, known as SHA-256 is so difficult that your computer examines it and decides it’s better to make educated guesses rather than attempt to calculate the equation directly. This guesswork is what drives up the processing on your computer, which, in turn, drives up mining costs.

What is Bitcoin (BTC) Mining?

When you hear that someone has a Bitcoin mining rig, this simply means that they have a specially built computer processor tailored to the SHA-256 algorithm. These devices, known as Application Specific Integrated Chips (ASIC) miners are thousands of times more accurate at guessing the SHA-256 algorithm’s answer.

More Miners – The More Security

The cool thing about Bitcoin is that it’s not purely mathematical. There is a true psychological approach behind its nature. For example, the larger the Bitcoin network, the more secure it becomes, and the higher the value of BTC. Also, the higher the market value of Bitcoin, the more miners in the market.

As the value of Bitcoin rises, the SHA-256 algorithm adjusts accordingly. These adjustments ensure that the mining rewards get paid out around every ten minutes. These rewards are vital to the Bitcoin network for two main reasons. Firstly, this strategy incentivizes nodes to continue validating transactions.

Predictable Issuance

Secondly, these rewards are the only time that new BTC enters the market. There will only ever be a total of 21 million BTC available to the world. The difficulty adjustment and mining rewards system of BTC ensures that these BTC enter the market in a concise and predictable manner.

Bitcoin Mining Rig - How Does Bitcoin Work?

Bitcoin Mining Rig – How Does Bitcoin Work?

Now let’s compare this sound mathematical process to that of the Central Bankers today. In the centralized financial system, the issuance of currency is done at a whim. Just recently, the US government issued trillions in currency into the market as a part of the Covid-19 stimulus package. However, these funds are sure to disrupt the delicate supply-and-demand balance. Consequently, inflation is sure to come soon.

Why The World Needs Bitcoin

The world needs Bitcoin now more than ever. Bitcoin represents a real danger to the centralized markets because, for the first time in history, it provides the world with a secure digital alternative to the fiat systems in place. Unlike its predecessor, gold, Bitcoin is available to the entire world and requires very little overhead in terms of security.

Gold vs. Bitcoin

Now, let’s compare gold and Bitcoin for a second to see why cryptocurrencies are the future reserve currencies of the world. Firstly, it’s important to acknowledge that gold did and still serves an important purpose in the market as a safe-haven for investors. Gold is extremely stable and universally accepted.

The problems with gold are systemic. For one, gold only functions as a reserve currency. You couldn’t use gold for day-to-day micro-transactions. Imagine going to your local grocery store and chipping off some gold to pay for your items, not realistic in 2020 at all.

Where Do You Keep Your Gold Bars?

Additionally, gold isn’t an asset that you can readily get your hands on. Sure there are tons of gold investors today, but what do they really own? If your gold isn’t in a safe located on your property, you really just own a piece of paper that states you own gold. Sadly, in times of great economic strife, gold owners learn this lesson the hard way. Really, for any reason, your gold can be taken.

A perfect example of gold investors coming to terms with reality occurred in the 1930s in the US. During this time, the government of Franklin D Roosevelt seized all the citizen’s gold bullion and coins via Executive Order 6102. The order forced all citizens to sell their gold to the government at well below market rates. Those that refused had their gold confiscated.

Can’t Confiscate Bitcoin

Bitcoin holders never have to worry about this scenario. You hold your Bitcoin directly, not just a note of ownership. Bitcoin relies on a pair of cryptographic keys to keep your holdings safe. The public key is what you give people so they can send you BTC, whereas the private key is how you access your wallet. You must never give your private key out to anyone.

As you already learned, the decentralized nature of Bitcoin’s network is set up in a way that it would be impossible for governments to stop it. Additionally, the security keys also prevent overreaching governments from snagging your hard-earned BTC whenever they deem it necessary.

Fills All Use Scenarios

Bitcoin functions as both a currency and a store of value. You can HODL your BTC and enjoy the appreciation, or you can trade or spend your Bitcoin with impunity. This unique currency affords investors the flexibility of cash, the convenience of digital transactions, and the value storage capabilities of gold.

The Future of Bitcoin

The future for Bitcoin looks bright. The network is larger and more secure. Also, more people know about this revolutionary protocol than ever. The world’s first crypto also gained some new functionality recently via the Lightning Network.

Lightning Network

After the crypto craze of 2017, it became evident that BTC’s scaling issues needed resolution. The network traffic reached a point that BTC was unable to fulfill one of its primary roles. It was unable to function as a peer-to-peer cash system due to extreme volatility, delayed transaction times, and huge fees.

Luckily, developers have since corrected many of these issues via updates and other developments. The Lightning Network is one of these developments that continue to garner attention in the market. The Lightning Network is an off-chain protocol that relies on private payment channels to reduce network congestion.

Additionally, the Lighting Network provides BTC with some new functionality such as the ability to utilize smart contracts and oracles. Oracles are off-chain sensors that can trigger on-chain events such as smart contracts.

Bitcoin is Here to Stay

Today, Bitcoin is a household name. Amazingly, Nakamoto’s single coin inspired a digital revolution in the market. There are thousands of cryptocurrencies now available to investors. While many of these platforms improve upon Bitcoin’s core design, none can match Bitcoin’s network strength and overall community support. For this reason, Bitcoin continues to reign as the king of cryptocurrencies.

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Investing in Bitcoin Cash (BCH) – Everything You Need to Know

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What is Bitcoin Cash (BCH)?

Bitcoin Cash (BCH) is a peer-to-peer electronic cash system that is the result of a hard fork from Bitcoin’s blockchain. Notably, Bitcoin Cash is by far the most successful hard fork of Bitcoin to date. This project entered the market under a cloud of controversy. However, after the smoke cleared, Bitcoin Cash emerged as one of the top ten cryptocurrencies in the world in terms of market cap.

Bitcoin Cash is the direct result of scalability issues encountered on Bitcoin’s blockchain. During the 2017 crypto craze, these issues took center stage as Bitcoin’s transaction time and fees reached new heights. This increase in fees and delays were the result of too much network congestion resulting from larger transaction sizes.

That year saw Bitcoin’s use and value skyrocket as more investors learned about this digital asset. Additionally, a flood of new investors entered the market eager to get in on the digital “gold rush.” These factors pushed Bitcoin’s network to its maximum capabilities.

Put simply, Bitcoin couldn’t handle the increase in usage. It’s one thing to cater to the programming and darknet communities but it’s an entirely different story to meet the demands of the general public. To accomplish this task Bitcoin would need to scale up considerably.

Bitcoin Congestion via WooBull

Bitcoin Congestion via WooBull

More Data = More Transactions

Bitcoin Cash does away with these concerns through an increased block size. These larger blocks are able to fit more transactions per block. This strategy increases the network’s transactions-per-second (tps) rate as a whole. The goal was to allow Bitcoin Cash to function as a medium for daily transactions as was the original intention of Bitcoin per Satoshi Nakamoto’s Whitepaper.

Bigger Blocks

While increasing the block size in most blockchain’s wouldn’t be a major issue, for Bitcoinists, changing the coins core protocol is a no-no. To these individuals, known as Bitcoin Core, The 1MB block size serves a vital function in the network they argued.

Primarily, it allows anyone to participate in the network regardless of their computer. However, with the advent of ASIC mining rigs, this argument is up for debate still today. Additionally, it prevents the network from getting bogged down in spam data.

Bigger is Better

Bitcoin Cash proponents believed that increasing the size of blocks to between 8 MB and 32 MB was the best way to provide daily Bitcoin users with the services they require. These larger blocks allow more transactions to process per block. In turn, Bitcoin users could avoid fees and delays.

This increase in transactional throughput allowed Bitcoin Cash to negate the need to incorporate the Segregated Witness (SegWit) protocol. SegWit reduces the amount of data sent for each transaction. It’s a part of Bitcoin’s core coding today.

Features of Bitcoin Cash (BCH)

Bitcoin Cash’s larger block size did accomplish its task. Keenly, Bitcoin Cash is much faster than traditional Bitcoin. Interestingly, during a stress test conducted in Sep 2018 the platform registered 25,000 transactions per block. Comparingly, the average number of transactions per block for Bitcoin is between 1,000 and 1,500.

Also, it’s way cheaper to use Bitcoin Cash. BCH users only pay around $0.20 per transaction using the network. These fees are much higher using Bitcoin’s blockchain. Additionally, Bitcoin Cash is easier to mine than its predecessor thanks to the integration of some new protocols.

Bitcoin Cash has a healthy community following that is among the most vocal in the market. Although, as of recently, the coin has had some divisions regarding updates.

History of Bitcoin Cash (BCH)

The history of Bitcoin Cash starts with a philosophical debate on how to handle Bitcoin’s scalability concerns. These issues were always an issue for Bitcoin developers. By 2017, the concerns were at the point where something had to be done. Bitcoin’s network had outgrown its technical capabilities.

Bitcoin Cash vs Bitcoin via Medium

Bitcoin Cash vs Bitcoin via Medium

For example, in 2010, the average size of a block on Bitcoin’s blockchain was less than 100 KB. By January of 2015, the average block size ballooned to around 600k. This buildup of unconfirmed transactions wreaked havoc on the network. Specifically, both market transaction times and fees went skyward.

By 2017, there were multiple cases of fees being higher than the actual Bitcoin sent. Transaction times could take days during this congestion. Effectively Bitcoin was unable to scale up to function as the electronic cash system Satoshi envisioned in this state.

Debating Options

The Bitcoin community was split on how to handle this problem. Some proposed to increase the average block size to accommodate more transactions. While others suggested that the protocol excludes certain parts of the transaction to fit more data into the blockchain (BIP 91). Critically, both options had their proponents and opponents.

Proponents of increased block size, such as Roger Ver,  argued that in its current state, Bitcoin could never function as a medium for daily transactions. This camp stated that unless Bitcoin could process transactions on par with multinational credit card processing organizations, such as Visa, it would never fulfill its original purpose as a peer-to-peer electronic cash system.

Bitmain Weighs In

The creation of Bitcoin Cash was almost unavoidable after the world’s largest mining pool and hardware creator stepped into the argument. Bitmain was opposed to SegWit at first because it negated some of the advantages of their flagship miners, the AsicBoost miner. As the largest mining pool in the world, Bitmain holds incredible sway in the Bitcoin community.

Bitcoin Cash (BCH) is Born

Eventually, no consensus was reached, and the community split. Consequently, Bitcoin Cash was launched in July 2017. The new coin was the result of a hard fork to the original cryptocurrency‘s blockchain. This hard fork officially occurred a month after in August 2017.

What Are Hard Forks?

There are two types of blockchain updates, hard and soft forks. The difference between the two is that hard forks require miners to update their nodes to communicate with the network. Sometimes, not all of the miners want to switch over to the new coin’s protocol. When this situation arises, a hard fork occurs and a new coin is born.

Coin Distribution

Bitcoin holders received an equivalent amount of Bitcoin Cash during the launch. Users could claim their BCH at participating exchanges. Wisely, the total amount of Bitcoin Cash mirrors that of Bitcoin at 21 million coins.

Mixed Feelings

Bitcoin Cash was met with mixed feelings in the market. The coin entered at a respectable price point of $900. Thanks to the support of the mining community and Bitmain, the coin was able to gain major traction within the sector. In December 2017, Bitcoin Cash reached an all-time high of $4,091.

Hard Fork Inception

In Nov 2018, Bitcoin Cash experienced a hard fork inside a hard fork. The community divisions originated over a plan to integrate smart contracts onto the blockchain and increased the average block size again. The resulting hard fork created Bitcoin Cash ABC (BCH) and Bitcoin Cash SV (Satoshi Vision). The later of the two, Bitcoin Cash SV is led by the long-time cryptocurrency programmer and claimed Satoshi Nakamoto, Craig Wright.

Consensus

Bitcoin Cash utilizes a Proof of Work (PoW) consensus mechanism similar to Bitcoin to mine new coins. Both Bitcoin and Bitcoin Cash integrate a difficulty adjustment algorithm (DAA) to keep block times consistent. Originally, both Bitcoin and Bitcoin Cash used the same DAA. However, In August 2017, Bitcoin Cash introduced an addition to the DAA, called an Emergency Difficulty Adjustment (EDA) algorithm. This allows the network to be more responsive.

Mining Bitcoin Cash (BCH)

Mining Bitcoin Cash is as easy as mining Bitcoin. Luckily, the coin shares the services of Bitmain, the world’s biggest cryptocurrency miner. Additionally, the coin revised its EDA algorithm recently. This maneuver made it easier for miners to generate BCH. It’s cheaper to mine BCH as well.

Bitcoin Cash Mining Rigs

Bitcoin Cash Mining Rigs

How to Get Bitcoin Cash (BCH)

At first, major exchanges such as Coinbase denied Bitcoin Cash entry on their platforms. It was an outcry from supporters that got this coin on nearly every major exchange globally. Today, Bitcoin Cash remains one of the top ten cryptocurrencies in the world.

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Where to Store Bitcoin Cash (BCH)

There are plenty of ways to store your BCH safely. The easiest and most convenient method is to use a mobile wallet. Mobile wallets are free and allow you to access your BCH whenever you need it. They are easy to use and allow you to send and receive BCH in seconds.

If you are a serious investor, or just plan to HODL your BCH, a hardware wallet is the right choice. Companies such as Ledger produce pocket-sized devices that keep your crypto safely stored off-line. The only downside is that these wallets can cost around $100+. That’s a small price to pay for all the security you gain using a hardware wallet.

Bitcoin Cash – A Story of Perseverance

For Bitcoinist in the market, it’s easy to dismiss Bitcoin Cash as just a rip-off of Bitcoin. However, this argument falls apart as you start to evaluate the changes, updates, and community growth the coin underwent since its creation. Today, Bitcoin Cash stands by itself as a staple in the crypto community.

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