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But first, there are two things you should know about me: I tend to be almost as afraid of losing money investing as I am of flying. On some level, I figured one fear might cancel out the other. So last Thursday, while waiting for a flight to Nashville, I pulled up a popular application called Coinbase that can be used to buy and sell bitcoin. News of bitcoin's rapid rise was everywhere, including on CNN.

Related: What is bitcoin? For 15 minutes at the airport, I refreshed the price of bitcoin over and over, watching as it gained and lost hundreds of dollars in a matter of minutes. I called out the price fluctuations breathlessly to my wife, who gently encouraged me not to be an idiot, before returning to her magazine.

She was in good company. Are you trading Bitcoin? We want to hear from you. And yet bitcoin has climbed more than tenfold since Buffett's warning.

Earlier this month, one college friend casually told me over drinks he'd made tens of thousands of dollars investing in another cryptocurrency. He said he hoped it would be worth enough one day to buy a house. One hundred dollars, or 0. My wife's opinion of me has reportedly decreased by the same amount. Other cryptocurrencies have seen similar spikes, though they trade for much less than bitcoin.

There's a long list of factors people may point to in an attempt to explain this. Regulators have taken a hands-off approach to bitcoin in certain markets. Dozens of new hedge funds have launched this year to trade cryptocurrencies like bitcoin. The Nasdaq and Chicago Mercantile Exchange plan to let investors trade bitcoin futures , which may attract more professional investors.

Yet a key reason the price of bitcoin keeps going up is, well, because it keeps going up. Small investors like yours truly have a fear of missing out on a chance to get rich quick. And when the value of your bitcoin doubles in a week, as it did for me, it's easy to think you're a genius.

But you can get burned assuming it will keep skyrocketing. Some investors have likened the bitcoin hype to the dot-com bubble. Others, like Dimon, have said it's even " worse " than the Dutch tulip mania from the s, considered one of the most famous bubbles ever. As Buffett put it back in , "the idea that [bitcoin] has some huge intrinsic value is just a joke in my view.

There's also no interest or dividends. Bitcoin serves as a new kind of currency for the digital era. It works across international borders and doesn't need to be backed by banks or governments. Or at least that was the promise when it was created in The surge and volatility of bitcoin this year may be great for those who invested early, but it undermines bitcoin's viability as a currency.

Related: Bitcoin boom may be a disaster for the environment. Then again, if bitcoin crashes, at least I'll always have the socks. Rather than a currency, bitcoin is being treated more like an asset, with the hope of reaping great returns in the future.

So is there anything truly valuable about bitcoin? Bitcoin is built on the blockchain , a public ledger containing all the transaction data from anyone who uses bitcoin. Transactions are added to "blocks" or the links of code that make up the chain, and each transaction must be recorded on a block. Even bitcoin critics like Dimon have said they support the use of blockchain technology for tracking payments.

Is there a legal and legitimate way to invest in bitcoin? Bitcoin exchanges have a checkered history. Gox, once the largest exchange, shut down in after losing hundreds of millions of dollars worth of bitcoin after a hack. Square SQ , the payments service, is also rolling out a bitcoin product. There are also bitcoin ATMs in scattered bodegas and convenience stores around the country, through companies like Coinsource.

The ATMs let you exchange bitcoin for cash, or vice versa by scanning a QR code from the digital wallet application on your phone. Related: Millions of dollars stolen in bitcoin hack. With Coinbase, you must first give the app permission to connect to your bank account.

As with other stock trading applications, you pay a small fee for each transaction, buying and selling. But the transaction can take significantly longer. The price I bought it at remains the same, but I won't be able to sell at the earliest until Friday.

Where's the skepticism as bitcoin keeps soaring? Inside a Russian cryptocurrency farm. CNNMoney Sponsors. SmartAsset Paid Partner. These are your 3 financial advisors near you This site finds and compares 3 financial advisors in your area Check this off your list before retirement: talk to an advisor Answer these questions to find the right financial advisor for you Find CFPs in your area in 5 minutes.

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How this digital currency works and why it's so controversial

I'm sitting at my kitchen table at p. ET on Friday, December 1, It's here that I'm worh of something Warren Buffett's often said. Price is what you pay, value is what you. That's what I'm going to attempt to answer in this article. Before we can attempt to value Bitcoin, we first must agree on what it is. That turns out not to be so easy.

What is happening?

Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence. Bitcoin is the first implementation of a concept called "cryptocurrency", which was first described in by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. The first Bitcoin specification and proof of concept was published in in a cryptography mailing list by Satoshi Nakamoto.

INFO ON Bitcoin

I'm sitting at my kitchen table at p. ET on Friday, December 1, It's here that I'm reminded of something Warren Buffett's often said. Price is what you pay, value is what you.

That's what I'm going to attempt to answer in this article. Before we can attempt to value Bitcoin, we first must agree on what it is. That turns out not to be so easy. Describing Bitcoin as a currency seems like a natural place to begin.

After all, I'm told some retailers accept Bitcoin as a method of what is 1 bitcoin worth. On closer inspection, however, comparing Bitcoin to a currency is like comparing lightening to a lightening bug apologies to Mr. As the WSJ has notedBitcoin is the hottest currency that nobody is using. First, it's too unstable. Put another way, would you accept Bitcoin as payment for a car you were selling if you had to wait 60 days to convert it to dollars?

I doubt it. Second, it's too slow. It can take days to complete a single transaction. By then, the cup of coffee you're trying to purchase is stone cold. Gold apologists love to describe the precious metal as a store of value. It somehow gives the "investment" an air of sophistication.

The idea is appealing at. They note that the U. In other words, there's nothing backing the value of currencies today, like gold once did. While that's true of digital currencies, they are limited in number. A government can't step in and start "printing" more Bitcoin. It reminds me of the argument people made to justify the meteoric rise in real estate values ten years ago.

After all, they aren't making more land. That argument didn't turn out so. All of that said, one can certainly see a use for digital currencies in some parts of the world. In the U. That's not the case in many parts of the world, where a digital currency free from government intervention and corrupt bankers could prove very useful.

The problem, however, is that Bitcoin and other digital currencies are still not widely accepted as a medium of exchange. That they may be useful in limited circumstances and geographies doesn't, at present, make them a store of value.

Bitcoin and other cryptocurrencies can best be described as potential currencies. As noted above, they are not widely accepted today as a medium of exchange. And they have significant limitations holding them back from developing into full-fledged currencies.

But it's possible, though I think unlikely, that they could become more widely used in the future as a medium of exchange. Bitcoin fanatics will take issue with all of the. They will point to the devaluation of fiat currencies. They will hype the blockchain. They will argue that cryptocurrencies are the future. The short answer is that you can't. It's impossible to assess the value of Bitcoin with what is 1 bitcoin worth degree of reasonableness.

And this is a critical limitation to understand. It's not uncommon to pass on a potential investment because you can't determine its value. I love Amazon as a company. I have no idea what its intrinsic value is. Same goes for Tesla. So I've passed on both potential investments. Bitcoin is far more difficult to value.

It has no intrinsic value. It has a short history with wild price swings. And as of yet, it has limited usefulness. In this what is 1 bitcoin worth Bitcoin is experiencing a classic bubble. The rise in price has motivated more buying, which in turn raises the price. The rise in price motivates more buying, and this cycle continues for a time. Eventually the process will reverse.

The price will eventually reach a peak that motivates Bitcoin owners to sell. When enough sell, the price will start to drop. The drop in price will motivate more selling, which will lower the price. It's now a. And if you are still bullish on Bitcoin, here are city trading in york bitcoin leverage new ways to invest in the digital currency. The number of Bitcoin is capped at 21 million. He graduat Rob Berger Forbes Staff.

I write about building wealth and achieving financial freedom. Share to facebook Share to twitter Share to linkedin I'm sitting at my kitchen table at learn more here. Rob Berger.

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