Bitcoin, the cryptocurrency has been making major headway this year, increasing in value by an incredible 1000%, in spite of its vocal detractors and volatility.
But what actually is this new-fangled Bitcoin? Where's it from? And what's its purpose? This article will explore the source of Bitcoin, its various utilities and its future.
Bitcoin is a digital kind of currency, a payment system that exists only on computers and the internet. In other words, Bitcoin isn't paper bills and change, the kind of tangible money that sits in the average wallet; instead, Bitcoin is fully virtual. Payment, in contrast to the usually way money is spent, is exclusively peer-to-peer. This means there's no bank, credit card, Western Union, PayPal, or any other kind of intermediary involved.
And this, right off the bat, is one of the areas where Bitcoin shines. Because it's easy to imagine that payments without a third party involved are not only faster, but cheaper too. This is Bitcoin's forte: fast and cheap (at times even free) transfer of money from A to B, even if B is in another country, on the other side of the world.
Bitcoin operates as a network of thousands of computers that runs on the Blockchain protocol, a kind of distributed public ledger. This Bitcoin Blockchain ensures Bitcoin is incorruptable, uncensorable, incommutable, and, as stated above, decentralized. As such, Bitcoin's value cannot be adjusted at the whims of a central bank or any other third party. Bitcoin's worth is determined by the people, its users.
Why is this such a big deal? Primarily because over the past several decades, money has been at the mercy of nations' Powers That Be that manipulate their respective currencies to their heart's content. Typically, this means that additional money is being printed to add to circulation endlessly, thereby increasing liquidity, making it appear as if there is a lot of money, which, in turn, fans spending.
Of course, the flip-side of this so-called quantitative easing is that all moneys not in actual use, that is, intended for future purpose, such as savings, pensions, etc will actually be worth less when that future has arrived. The culprit? Inflation, resulting from the race to the bottom that countries have been engaged in.
Not so in the case of Bitcoin. Since Bitcoin's value is hard-coded by its Blockchain script, it's value cannot be altered. What's more, Bitcoin's number has been limited to 21 million pieces. This cap ensures that Bitcoin will always be scarce.
In fact, it's fair to say that Bitcoin will always be finite. And by extension, Bitcoin is completely resistant to inflation. If anything, it can be said that Bitcoin is deflationary - so long as you hold on to Bitcoin, it's bound to appreciate in value vis-à-vis fiat currency.
It's for this reason that Bitcoin has been called digital gold. In fact, it appears that Bitcoin may well be a better safe haven store of long term value than gold itself, a point not lost even on gold bugs, given that gold has been seen deflating recently, to the benefit of Bitcoin.
As Bitcoin gains mainstream traction, naysayers become more strident, particularly those that stand to lose the most by Bitcoin's disruption. Bankers, money wiring outfits, payment providers, clearinghouses, all manner of Finance incumbents are crying blue murder for fear of losing their money monopoly. And rightly so, because Bitcoin is looking to be the light bulb to their candle.
Are there no drawbacks to Bitcoin at all? Sure there are. Let's not forget that Bitcoin now is where the internet was in the early 1990s. It's early days yet. As Bitcoin's usage rises exponentially, scaling issues are unavoidable, in the same way the internet's bandwidth shortage was an issue as more and more people went online back in the day. But, just as the internet's protocols were upgraded by various innovations, so too will Bitcoin's. Throughput will not be an enduring problem.
What about regulation? Well yes, Bitcoin isn't regulated yet, although in a number of countries it's enjoying government-sanctioned acceptance. Japan, Switzerland and Korea being just some.
That said, not all countries welcome Bitcoin with open arms. Although, clearly, with so much innovation potential, blocking Bitcoin may ultimately turn out to be quite detrimental to those respective countries.
Some countries foresee a time where Bitcoin and the Blockchain may well play a core role in their economy. Singapore is one such country. This tiny but trend-setting FinTech powerhouse has set its sights on being the world's first Smart Nation.
For Singapore and most of the world's other democracies, Bitcoin and the Blockchain will be indispensible going forward.
Do you want to know more about Bitcoin and Singapore? Click here for details.