It appears one cannot go so much as a single day without multiple commentaries about the cryptocurrency Bitcoin crossing the wires. From nightly news stories to critical comments of hot-shot CEOs. Even Hollywood has a say in the matter.
Bitcoin has become the topic du jour. But what's the reason Bitcoin is garnering all this attention? We've had "New Money" before in the Liberty Dollar and that ended prematurely; how come Bitcoin's traction seems to have no bounds?
Bitcoin is no Liberty Dollar. Let that be said for a start. But what is Bitcoin? Bitcoin is the brainchild of a crypto-mathematician, or perhaps a crypto-mathematics organization, that had had enough of the fractional banking system and all its flaws. Its representative, Satoshi Nakamoto, released Bitcoin's prototype soon after the 2008 banking crisis, upon which he/they were never heard from again.
Ever since, Bitcoin has been making its mark. Starting off its life with a value of less than a cent, Bitcoin appreciated in leaps and bounds - along with suffering precipitous drops - culminating in the nosebleed valuation we see today.
In spite of a decent segment of the population denigrating Bitcoin to Tulipmania territory, Bitcoin appears to be hell-bent on reaching 5 digits, perhaps even 6 digits. Given the speed of its rise, this certainly isn't out of the question.
But why? What's driving this relentless wave of optimism? Is Bitcoin really just a humongous bubble, or is there something else going on, something revolutionary? In order to get down to the bottom of this question, we'll next take a closer look at Bitcoin's inner workings. Once we've covered its main pros and cons, we'll leave it to you, the reader, to draw your own conclusions.
A look inside Bitcoin
Bitcoin is a decentralized digital or virtual currency. Bitcoins are always depicted as shiny gold coins in the countless articles online and offline, but this is just for cosmetic purposes, since Bitcoin is an intangible kind of money. Bitcoins are kept only in computers and other electronic devices. Bitcoiners may talk about "wallets" but even these are purely electronic.
To be sure, regular money is stored and kept digitally too. But regular money (known as fiat
money) can always be converted from zeros and ones to physical paper bills and/or actual coins.
The decentralized aspect of Bitcoin is causing severe repercussions throughout the world in general, and the Banking industry, in particular. By not requiring a middleman, such as PayPal, VISA or Western Union, Bitcoin stands a good chance of disintermediating these financial institutions permanently. Disruption at its best.
Bitcoin is Legacy Banking's Worst Nightmare
So now you why so many Finance CEOs have been dissing Bitcoin as a failure-in-waiting, a bubble, even a fraud; it's because they know full well that their day in the sun has come to an end. In light of this, it's unlikely they're going to recommend Bitcoin. On the contrary, they have no choice but to lay into Bitcoin as best as they can, in hopes of turning the tide. Basically, banks' agenda is for you to fear Bitcoin.
But no innovation can be stopped when its time has come. Uber, Booking.com, Airbnb, each has become entrenched in our lives, taking huge chunks out of the revenues of the established players. Now it looks to be legacy Banking's turn to make way.
Money money everywhere
And why not? People are tired of not getting a decent interest rate on their savings. Or more to the point, having their savings hollowed out by inflation year after year. Millennials, in particular, have had more than enough of the constant quantitative easing, the wholesale money manipulation.
In inflation adjusted terms, in barely a century, the Swiss franc, for instance, has lost 75 per cent of its value, whilst the US dollar has lost 95 per cent and the pound 98 per cent.
Bitcoin doesn't have this problem. As Bitcoin's number has been capped to 21 million, there's no inflation to speak of. In fact, Bitcoin may even be said to be disinflationary
. That means that Bitcoin will continue to appreciate versus fiat money, a great way to hedge against the never-ending inflation-based loss of purchasing power.
Bitcoin has been dubbed "Gold 2.0", "Millennial Gold" and "Digital Gold", for the simple reason that Bitcoin is a superb safe haven store of value. In fact, it may be said that it's a better store of value than gold, because whereas gold isn't portable or very divisible, Bitcoin is both very portable and divisible. What's more, whilst gold is scarce and may be capital-intensive to mine, let's face it, there's still a huge amount of it in the ground, with huge gold deposits still being discovered every so often. Bitcoin, on the other hand, is truly finite, plus still has tremendous upside yet untapped.
This is, in part, why gold tends to climb incrementally, if at all, whereas Bitcoin's trajectory has been and will be meteoric; Bitcoin is still in the price discovery stage of its relatively short existence. And, given the tiny percentage of the world's available funds in Bitcoin currently, Bitcoin's valuation still has immense upside. This applies in particular as the Millennial segment of the world's population comes of age and starts generating real spending power.
The Future is Bitcoin
The future of fiat currency has been a matter of a fair amount of debate, with Bitcoiners especially tending to predict its demise. That being said, in the here and now, what's indisputable is that physical cash is pretty much on the way out.
In a time of widespread contactless payments, administered by credit card, debit card, smartphone and even smartwatch, metal coins and paper notes are both an inconvenience and nothing more than a relic to a bygone era.
All that remains for Bitcoin: the currency of choice to become reality is for its teething problems, such as scaling, to be resolved. The good news, for Bitcoiners anyway, for bankers not so much, is that Bitcoin developers have already come a long way in fixing scaling with off-chain solutions in general and the Lightning Network, in particular.
Bottom line? Bitcoin payments are on their way in becoming the new normal. Live with it :)
Incidentally, if your point of reference is Singapore, then it may interest you to know that Bitcoin could well be on its way in becoming the currency to forge Singapore's Smart Nation
For further details, Bitcoin in Singapore
, just click here
I am not an investment advisor and above article is for purely informational purposes and is not to be taken as investment advice. Investors are advised to personally undertake adequate due diligence, or to consult a financial advisor in order to determine what assets - if any - are appropriate to invest in.