A lot of guides have been written to describe the basics of bitcoin. They usually start with an analogy around gold and mining, and something called the blockchain. These guides are great, but they often get into the technical weeds and don\u2019t explain why people are investing in bitcoin or why it can change the future of money. In this guide, you\u2019ll learn what bitcoin is, its pros and cons, and what it means for the future of cryptocurrencies.\r\nWhat Is It?\r\nBitcoin is a currency. It can be sent digitally. It can also be stored securely, either digitally or on paper. Unlike traditional money, it can\u2019t be easily forged. Unlike traditional currency, bitcoin transactions are both public and largely anonymous.\r\nWhy is Bitcoin Valuable?\r\nBitcoin does a number of things that traditional money, gold, credit cards and checks do, but it does it without a central bank. It also does it digitally and in a way that is very difficult and arguably impossible to forge. These characteristics are so desirable that many people are trading traditional currencies for bitcoin. In fact, so much of this is happening that it\u2019s causing the price of bitcoin relative to traditional currencies to skyrocket, creating an investment opportunity for many people coming into the currency.\r\n\r\nLike other currencies, bitcoin\u2019s value is driven by supply and demand. Bitcoin has a limited supply (today there are only 16 million bitcoins and the currency will only ever have 21 million coins). This is a limited global supply but an in increasing global demand. Bitcoin is becoming more widely accepted and easily transferable. It\u2019s now possible to send money from person to person and country to country, without it going through a bank.\r\n\r\nWhile this may seem basic (that\u2019s the point), it\u2019s transformative. It\u2019s was previously impractical for people to be their own bank. You could store money in a vault or under your mattress but it was difficult and impractical to do so because ease of transfer and portability are important. This is why centralized digital payment companies like credit cards, PayPal and Venmo took off. They made payment easy and portable. But these methods are centralized. Anyone who has had their credit card stolen or had their PayPal account locked up knows how crippling this can be. The differentiator of bitcoin is that it\u2019s decentralized.\r\nWhy Does Society Think Bitcoin is Valuable?\r\n\r\n \tIt can store your money.\r\n \tIt can protect against forgery.\r\n \tIt can be used to pay people securely.\r\n \tIt can be exchanged globally for goods and services.\r\n \tIt can appreciate in value (investment).\r\n \tIt is decentralised so that no government or individual bank is in control.\r\n\r\nTechnological disruption often eliminates middlemen. It allows people to deal directly rather than indirectly. Bitcoin is eliminating the arbitrage of a bank. It allows people to control their own funds directly.\r\nWhat\u2019s Wrong With Bitcoin?\r\nFor all the things that are positive about bitcoin, there are a number of problems worth discussing. These problems are being worked on by teams around the world, and given the decentralized nature of bitcoin, will require consensus to solve.\r\n\r\n \tBitcoin is slow. Transactions, sending money\u00a0and receiving it is slow; currently too slow for real-time purchases. Bitcoin is faster and more secure than sending a check, but it\u2019s often measured in minutes and hours, not milliseconds.\r\n \tBitcoin uses a lot of electricity. Part of the algorithm of bitcoin is designed to make it difficult to create new bitcoins. This process is intentionally inefficient. Because of the rapid scale of the currency, it\u2019s estimated to be using enough energy to power about 2 million homes.\r\n \tBitcoin is currently an unstable currency. It\u2019s so new that it changes price daily in 10 percent swings both positively and negatively. This can equate to even larger weekly fluctuations. I expect it will settle, but it\u2019s hard to tell how long this will take. In the meantime, there will be investment winners, losers and inevitable bubbles.\r\n\r\nThe Future of Cryptocurrencies\r\nGlobal wealth is measured in the $100 trillion range and up. Cryptocurrencies, including bitcoin, are in the $200 billion range. I believe that the future will have more cryptocurrencies rather than fewer. My predictions:\r\n\r\n \tI expect cryptocurrencies such as bitcoin will grow north of 1 percent or $1 trillion in global value in the next year. Over the next few years, I expect it to be 5\u201310 percent.\r\n \tThe decentralized encryption technology behind bitcoin (blockchains) will be used for many new things including accounting, medical records, insurance and more.\r\n \tNew cryptocurrencies may begin to grow even faster than bitcoin as the performance and energy issues with bitcoin become more pronounced.\r\n \tWhen the growth rate stabilizes, we\u2019ll see more personal payment solutions (similar to PayPal) as well as traditional banking solutions built on top of cryptocurrencies.\r\n \tGovernments and tax agencies will begin to pay a lot more attention. Bitcoin is considered an \u201cintangible property\u201d by the IRS. Expect further regulation and taxes around cryptocurrency to measure and track capital gains.\r\n \tExciting new technologies will become more popular. New currencies and blockchain tools like Ethereum will allow a new breed of apps to be built and run in the cloud. This is still in the experimental phase, but people are already using Ethereum for\u00a0identity,\u00a0crowdfunding,\u00a0voting, and even breeding\u00a0digital cats\u00a0(yeah, really.) More complex and sophisticated apps will evolve to use the technology that will further digital currency and decentralized trust.\r\n\r\nI believe that many aspects of cryptocurrencies will become inevitable. Not everyone wants to trust banks with their money, but to date, it\u2019s been impractical to do otherwise. The collapse of\u00a0Lehman Brothers, the fraud at Wells Fargo and others have created new opportunities for bitcoin and beyond. I believe the future is bright for digital currencies.\r\n\r\nWarning: Never invest in something you don\u2019t understand and don\u2019t risk money you\u2019re not willing to lose.\r\n\r\n\r\n\r\nThis post first appeared on the\u00a0Business Collective\u00a0\u2013 an initiative of\u00a0Young Entrepreneur Council, which is a free virtual mentorship programme that helps millions of entrepreneurs start and grow businesses.