As supply is relatively fixed, the long term value of Bitcoin is a function of demand. Demand for Bitcoin depends on the uses of the cryptocurrency. The following article discusses the various Bitcoin uses.
Satoshi Nakamoto’s vision
The initial idea for Bitcoin was conceived during the financial crisis of 2008/09. The aim was to liberate a currency away from central banks. Furthermore, Bitcoin was designed to be a private currency.
A dark beginning for Bitcoin uses
Initially, Bitcoin’s main use was for purchases on the website Silk Road. This website sold all sorts of items from weapons to class A drugs. Bitcoin was used as the main means of transacting on the Silk Road as it helped users of the website to remain anonymous.
As word of an untraceable currency spread, others began to use it as a means of payment where the non-crypto world wouldn’t allow it. In countries that have an outright ban on gambling Bitcoin gambling websites have grown in popularity. Examples of such countries include, Australia, China, India, Israel, Malaysia, Russia, Turkey, United States and many of the Middle Eastern and African nations.
Bitcoin was also a means for internet users to offer donations and support to sites who would traditionally have found it difficult to process transactions. Wikileaks is a well known example of such an occurrence. Paypal and Mastercard refused to process donations to the controversial site. However, given the existence of Bitcoin exchanges, supporters could make donations in Bitcoin. Wikileaks could convert the Bitcoin into fiat currency using exchanges in order to keep the site running.
However, aside from some of the less conventional uses Bitcoin can be used to make online purchases of goods and services. Additionally, there are physical stores that accept Bitcoin via smartphone software. Arguably, you can probably make all of these purchases using fiat currency. However, Bitcoin has more to offer than a simple fiat currency. There are various other Bitcoin uses.
As discussed previously, Bitcoin is a decentralised currency. This means that it isn’t run by any central bank. Furthermore, it has a set supply growth and fixed maximum supply of 21 million Bitcoins. The result is that holders of Bitcoin will not find their savings eroded by the effects of inflation over time.
Holders of cash in a fiat currency may not be fully aware of the damaging effects of inflation over time. Most western economy central banks have a target inflation of around 2%. Central banks are comfortable printing more money in order to help boost the economy and keep inflation steady.
Let’s say that inflation was held steady at 2% per annum and that you had $10,000 in a current account. Over the next 35 years the spending power of your $10,000 will have effectively halved. This would mean that in today’s money the $10,000 could only buy you $5,000 worth of goods. Holding Bitcoin reducing the risk of such an occurrence (albeit, arguably at the expense of other risks).
Ever waited for a cheque to process?
Another of Bitcoin uses is in asset/balance transfer between accounts. Have you ever received a cheque and paid it into your account? It’s incredibly frustrating that it can take up to five working days for the cheque to be processed such that you can access it. Why does the fiat banking system take so long? Even when you make bank transfers it can take a few hours to be processed.
In contrast, Bitcoin transactions are significantly faster than any cheque or bank transfer. A user of Bitcoin can even pay an additional to have transactions processed within 10 minutes.
Bitcoin is all about gaining control over your wealth and finances. It is in that vein that payments are made directly between users. As such, there is no waiting for a third party middleman to process transactions.
Moreover, the lack of any bank acting as a middleman means that holder of Bitcoin must take responsibility for their own security. Furthermore, Bitcoin is private. This makes Bitcoin a perfect means of transacting if you mistrust your government or want to hide assets.
We should note that your desire to remain anonymous may not be for malicious reasons. Were Bitcoin to have been around during the 1930s, there were probably many in Nazi Germany who would have benefited from such a technology. It is naïve to believe that you can always blindly trust that your government has your best intentions to heart.
Moving your money around
It is speculated that Bitcoin can capture some of the international escrow service market. This could potentially be one of the key Bitcoin uses. Moving money across borders is easy and cheap using Bitcoin. Where traditional fiat escrow services may charge up to 15% and beyond using Bitcoin will be a fraction of the price.
Let’s say that you wanted to move $1,000,000 abroad to Europe. Simply, you would move to Europe and buy $1,000,000 worth of Bitcoin. Immediately after you could sell your Bitcoin for Euros. The total fee would have been the initial fiat to Bitcoin transaction fee plus a spread on the price. This may have cost you about 3% representing a large saving.
The cheap cross border transfer possibilities of Bitcoin seem to have been one of the biggest drivers of price. There has been speculation of large amounts of Eastern Asian investors using Bitcoin to move funds cross border. Hence, the increased demand for Bitcoin has driven the price up.
Trading your way to a fortune
Trading is one of the more obvious Bitcoin uses and the one that’s making most of the headlines. As with any currency or commodity that trade on an open market, there are traders. The volatility of the Bitcoin price has attracted large amounts of professional traders into the space. They are attempting to take the opportunity of arbitrage between Bitcoin exchange prices.
Furthermore, 2017 has seen an increased boom in price speculators. Added to this has been the introduction of Bitcoin CFD trading and futures.
The one coin to rule them all
One of the final main Bitcoin uses are the Altcoins. Bitcoin can be used as a mastercoin in order to purchase alternative cryptocurrencies. The value of most other cryptocurrencies is quoted in terms of BTC. As such, an increased demand for other coins results in an increasing demand for Bitcoin.