A currency is a medium that allows for exchange of goods and services; Bitcoin is a digital currency.
Sounds dull as heck, so what is the reason for the current Bitcoin mania? The new kid on the block is a currency independent of any government; Bitcoin operates on a ‘peer-to-peer’ basis meaning that it is decentralised. An argument for this is that banks take a cut for processing transactions, not so with Bitcoin. Also some level we all have to take it on trust that a bank will do everything right, again, this is not the case for Bitcoin.
It has been argued that Bitcoin is similar in nature to gold. Like gold, there is a limited supply of the currency - there will only ever be twenty-one million Bitcoins. A result of this Bitcoin is guarded against hyper-inflation , a factor that can pose an issue for traditional currencies when governments print money.
Another characteristic that Bitcoin shares with gold is that its value is recognised internationally. So in the event that capital controls are re-introduced around the world, say, Bitcoin could be the best way of transferring value internationally.
Another positive trait that Bitcoin has over gold is that the digital currency is not expensive to physically store. Transactions with Bitcoin are also faster than traditional currencies and it fits in the ecosystem our ever increasingly tech-orientated world. To quote Merryn Webb on the MoneyWeek podcast, “All the marginal wealth over [the next few decades]… is going to be made in the tech sector, and what fits with that? A digital currency.”
'Where do I sign up?' I hear you say, well you should know there are drawbacks to Bitcoin. Price volatility for one, this time last year one Bitcoin would set you back $8,653 (USD) , today ( 22 January 2021) that figure was $32,585. There is also the issue of anonymity, while the details of cryptocurrency users and transactions are often held in a public ledger, names and locations are encrypted. This can pose an issue when complying with KYC regulations or fraud protection.
Let's discuss - I have a few days off work and I am bored as heck!
Do you own any Bitcoin? Do you think it will emerge as a new dominant worldwide currency?
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