Bitcoin’s Real Utility – UCBS News
Bitcoin, the first cryptocurrency invented, was initially created during the Global Financial Crisis (2008), to combat the reliance on banks and the government to secure money (Nakamoto).
Why is this important?
In order to understand bitcoin’s uses, one must first understand why it differentiates from the current financial system. Bitcoin differs from the current digital cash system as it takes away the need for a third party, such as a bank, to manage money transfers, hereby de-centralising itself from the government and banks (Nakamoto). This means that issues such as hyperinflation in countries such as Argentina have no effect on Bitcoin (Forbes). No bank, government or company can control your funds when you use Bitcoin. Essentially, it’s a way of storing your money securely with full control on how to utilise it.
Utility
The most commonly known utility that bitcoin provides is of course how its original inventor, Satoshi Nakamoto, envisioned it — a currency that can be used on purchases such as coffee or cars (Nakamoto). In Australia, there are certain restaurants, property markets and car dealerships that accept bitcoin as a payment (Deering). However, it is still rare to find places that accept bitcoin as payment. Most people would prefer to just easily do a payment via cash or the digital cash system, especially in a place such as Australia. So, the question can be asked, if we cannot use it to pay in most places and for most things, what is the actual value of bitcoin?
Countries like these….
Diagram 1- (Washington Post)
As previously mentioned, bitcoin is decentralised, meaning that whatever is happening within a country, for example, Venezuela’s historic inflation rates of 130,060% in 2018 (CNN), does not affect the value of bitcoin. A country’s inhabitants, whose currency is being devalued at a rate that makes it practically worthless, like Venezuela, would benefit greatly from converting their money into bitcoins as it conserves the value of their money, while avoiding heavy fees that converting into other foreign currencies may include. Bitcoin can bypass government laws that restrict banks to only exchange local currencies(Law Library of Congress). For example, in 2018, when Argentina prevented Argentinians from converting the local currency to US dollars, many Argentinians turned to bitcoin as a way of ensuring their money isn’t devalued (BBC). For many Venezuelans working abroad to provide for their family, transferring in bitcoin provides an option to bypass government regulations. Another common situation that occurs, is the risk of carrying money for people in Venezuelans, particularly those trying to cross the border. Bitcoin can be received, converted and liquidated in any place in the world, providing an option for Venezuelans that do not want to risk carrying large sums of money during dangerous border crossings (BBC).
The heart of this
The heart of this example is to show the utility that bitcoin can provide. As Nakamoto said, ‘the root problem with conventional currency is the trust that’s required to make it work … but the history of fiat currencies is full of breaches of that trust’ (Nakamoto). Bitcoin serves to safeguard money against failing economic systems that devalue money and increase economic pressure onto its citizens, which creates situations such as the ones in Venezuela and Argentina. The value of any currency lies within the trust that citizens place onto it and for people that live in flailing economic countries whose leader’s solutions is to devalue the current currency, bitcoin is a great way to ensure a person’s financial value is preserved. A similar situation happened in Greece, where citizens invested their depreciating currency as gold to conserve its value (Guardian). Bitcoin is similar to gold in many aspects- the only reason why gold would have value is because people value them highly compared to other metals. This value they place does not change in respect to the current economy. However, during times of economic crisis, using gold as a form of currency is unlikely as local merchants are usually unwilling to accept gold as a form of payment. Bitcoin is superior to gold for this purpose, as not only can it be used to purchase goods as a form of payment, it is virtual and can be done with security whenever needed (CNBC). Bitcoin can potentially become the new gold as technology evolves, offering people a way to protect their money during times of financial crisis.
Trading
Despite the increase in number of locations that accept bitcoin as a form of payment, by far the biggest activity that bitcoin is involved with, is trade and exchange (Bloomberg).
Table 1 — (Bloomberg)
Bitcoin’s volatility makes it an intriguing opportunity for investors; yet, the volatility makes investing in bitcoin extremely risky. Despite the acceptance rate of bitcoin by merchants rising over 702% from December 2013 (Coinmap), the amount of bitcoin received by merchants is decreasing (Bloomberg). This trend shows that although companies wish to include bitcoin as a source to spend, most people are holding onto bitcoin with the hope that it’ll grow. The volatility of bitcoin makes its utilisation less practical for those that want to use it as an everyday currency (Bloomberg). Statistics show companies that allow bitcoin to be used as a form of payment, received few transactions from bitcoin or any other cryptocurrency (Bloomberg). Furthermore, many companies stopped bitcoin as a form of payment, such as Steam, a video game distribution platform (BBC). Despite all this, prices of bitcoin have not decreased, meaning few people want to spend bitcoin due to fears the price may increase after spending it. For the full utilisation of bitcoin to be used as Taokakoi envisioned, not only do more merchants need to accept bitcoin, but rather people must be more willing to part with this bitcoin, perhaps in a time when the price isn’t as volatile.
Diagram 2-(Bloomberg)
Buyer beware
Despite the uses above, buyers should be aware of changes and obstacles when utilising bitcoin. Firstly, although bitcoin has the largest price of any cryptocurrency, its main selling point is its brand power as the first cryptocurrency and its storing of value. However, bitcoin cannot survive based on these two points alone. Currently, bitcoin is being driven by the fact that it is the oldest cryptocurrency and cryptocurrencies are seen to have a lot of potential (Cryptonews). Its actual practical use is used little in places like Australia where there are limited places accepting its use.
Conclusion
Bitcoin’s true utility comes mainly from the properties that make it unique, particularly its secure decentralisation that protects the people that use it from unstable economies and governments. With the increase of instability in world economy, especially in major economic powerhouses China and America (Forbes), could bitcoin be on the rise soon? Only time will tell.
DISCLAIMER:
This article provides information of a general nature. You are not authorised to rely on this article or any other article published by UCBS for legal advice, business advice, or advice of any other kind. The authors at the time of writing hold various cryptocurrencies including those discussed herein. In no way are the authors, UCBS or any of its affiliates responsible for any actions or investment decisions made by you in reliance upon this article, or any other article published by the authors or UCBS.
Published at Sun, 23 Jun 2019 08:48:48 +0000
