What is Bitcoin?
Bitcoin is a decentralized digital currency that was invented in 2008 by unknown person or a group of people using pseudonym Satoshi Nakamoto. From 2009 Bitcoin began gaining followers among IT-enthusiasts as it was released as an open-source software.
Bitcoins are created using mining. Mining is a process of computing, the end result of which is 1 Bitcoin. Mining can be performed on a powerful computer. There will be only 21 million bitcoins. Most of them (around 90%) are already created. It will take more than 100 years to mine all bitcoins because each new bitcoin takes more time and computational power to be mined.
Investments in Bitcoin
Bitcoin and other cryptocurrencies became tremendously popular in the last 10 years. There are opinions that cryptocurrencies can hegde you against the crises (similar to rising price of gold during calamities) and can protect you from inflation. However, statistics shows us that price of bitcoin moves in tandem with stock market but with increased volatility. Another argument of crypto proponents is based on the scarcity — number of bitcoins is limited due to the design of the system (in contrast to the money supply which is based on the whims of central bankers). When last Bitcoin will be mined the game of mining will be over and the only way to obtain this coin will be through buying it from another person.
Warren Buffett on Bitcoin
Some famous investors critisized cryptocurrencies relentlessly. Charles Munger (partner of Warren Buffett) called Bitcoin «rat poison» and believes that world would be a better place if cryptocurrencies were not invented. Buffett likes to read history books and that’s why knows that all this euphoria with crypto looks like bubble ready to explode. Humanity have seen such situations before. On the other hand, Bill Miller (famous US investor) keeps half of his personal investment portfolio in Bitcoins. Ray Dalio is also warm to crypto — he thinks that for average investors it is prudent to keep 1-2% of investment portfolio in Bitcoins.
Warren Buffett has never invested in Bitcoin directly although his holding company Berkshire Hathaway invested $1 billion in largest fintech bank in Brazil — Nubank. Nubank is very popular among crypto enthusiasts and investors in Bitcoin. So, you can assume that this investment by Buffett is some kind of bet on the future of cryptocurrencies in whole and Bitcoin in particular.
Bitcoin got a lot fans. Nevertheless, there is strong critisim around the world of Bitcoin and other cryptocurrencies. Most popular arguments include critics of the use of Bitcoin by criminal world, inadequate price rise and limited use as a payment method. In the last years Bitcoin became more popular as a payment medium but transactions are processed very slowly, with big comissions. Volatile price of Bitcoin also exacerbates its use as a payment method.