Why use Bitcoin?
Bitcoin, the blockchain and cryptocurrencies in general have been increasingly in the news recently, and a typical first question from someone new to the technology is ‘Why?”. Why would I use Bitcoin?
This question really encompasses three ideas, with the first being what makes Bitcoin better than any other currency? Then secondly, what can I do with Bitcoin? and thirdly, what value will it give me? Let’s take each one in turn.
What makes Bitcoin better than any other currency?
One of the key ideas behind Bitcoin is that it is decentralised. The networked nature of the blockchain – where every transaction is recorded – means that a central bank or a government cannot manipulate the currency. If you are in a country with an unstable currency and rampant inflation, for example, then this would be a significant advantage over the existing currency.
A traditional, or ‘fiat’, currency is also prone to inflation. As more money is printed the value of existing money falls. In contrast, the number of Bitcoins is capped at 21 million, which means its value will increase rather than fall. This is one of the things making it an attractive investment for some.
Bitcoin was originally very popular for transferring money between countries because of its low transaction fees. Money transfer services have had to cut prices to compete, so this advantage has decreased recently. But Bitcoin remains attractive for any transaction, such as a credit card payment that comes with large fees.
Finally, Bitcoin transactions are near-instantaneous and, thanks to the blockchain, virtually impossible to alter. This adds a layer of security and convenience that is missing from, for example, credit card transactions.
What can I do with Bitcoin?
Like any technology, Bitcoin has advantages and disadvantages. If you visit your local supermarket it’s unlikely that you will be able to pay with Bitcoin; it’s not ready yet to be used as cash.
However, it can be used as payment in many places online. Microsoft accepts Bitcoin in its app stores, for example, while online retailer Overstock has accepted it since 2014.
As mentioned above, it can be used as an efficient means of transferring money across borders. Given that its value continues to increase, Bitcoin is increasingly being treated as an investment asset, though the volatility and lack of consumer protection can make this risky.
What value will it give me?
At its most basic, the value you get from Bitcoin could be its increasing price. The cost of a single Bitcoin at the beginning of 2017 was $1,000 and by the end of the year it was $14,000.
At the moment, there isn’t anything that you can do with Bitcoin that you can’t do with a traditional currency, so the value to you will depend on whether it makes certain tasks, such as transferring money, more efficient.