Since the inception of Bitcoin, it has appreciated exponentially in value. Some view this as a 'bubble' or 'ponzi scheme' that is waiting to burst. There are many reasons for why Bitcoins value is so high. Its value is a by product of its success. Its success is attributed to its many advantages over our traditional fiat currencies. These include:-
- Store of wealth
- Ease of use
- Fast transfer
- Secure (big network)
- Future promise (stocks, contracts, etc)
As a store of wealth, bitcoin is better than gold and especially fiat currencies. This is because the Bitcoin protocol is capped to a maximum of 21 million Bitcoins. If this becomes a successful currency across the world, these 21 million bitcoins will have to be shared between 7 billion people. This makes a full bitcoin an extremely rare acquisition in the future for the average person. In the early days when few people used Bitcoin, people would trade thousands of Bitcoins for tens of dollars. Now the average person is lucky to have one Bitcoin at today's price of £237 (05/12/2014). As Bitcoins popularity has grown, the finite supply of Bitcoin has had to be shared between millions of people who are interested in purchasing. This is in contrast to the early days where very few people were interested in bitcoin and as a result you could buy many for a very cheap price. https://bitcointalk.org/index.php?topic=92.0
This is a principle of basic supply and demand that occurs in any free market. The reason so many people wish to purchase Bitcoin at today's price is because of the qualities pointed above.
In terms of ease of use, Bitcoin can work at any time and anywhere with an internet connection. It does not take holidays and allows for the effortless transfer of payments to anywhere in the world. The transfer fees are significantly cheaper than bank transfer fees. Bitcoin is also an open source technology meaning it can be easily integrated into new and existing software, you can also pick from a range of bitcoin wallets(as a user) or bitcoin payment systems(as a business).
Bitcoin allows for extremely fast transfers when paying a small fee. For a full confirmation of transfer on the bitcoin network you will have to wait roughly 10 minutes. Businesses that accept payments for high value items(electronics retailers, car dealerships, etc) will want to wait for the confirmation of a valid transfer. Businesses that sell small value items (coffee shops, restaurants, etc) will be happy to trust the sender as soon as they get the transaction to their bitcoin wallet address. It is extremely hard and almost impossible to fake a Bitcoin transaction, hence a small merchant will be happy for 0 confirmations as it is unlikely a person would go through the difficulty of faking a transaction for a low value item.
The Bitcoin network is extremely secure and as the world's largest computing network is very resilient to attack from outside sources. Bitcoin transactions are secured by military grade cryptography. Bitcoin can give you full control over your money and a very strong level of protection against fraud. The only weakness to the security of Bitcoins are the end user, but with a well protected wallet you can rest in peace that your money is safe. There are constantly new wallet technologies arriving on the Bitcoin scene. One of the most convenient and safest is the new Trezor Hardware Wallet.
The future holds a lot of promise for Bitcoin. Bitcoin is not just a digital currency, it has many more use cases and to describe it as merely a currency would be erroneous. At the back end Bitcoin uses a technology called the ‘Blockchain’. The Blockchain is a public ledger (database) of all transactions in the Bitcoin network. The Blockchain can be used for more than the transfer of Bitcoin as a currency. There are currently developments underway to allow it to be used as a means of recording contracts and also for peer to peer bond and stock trading. As the Bitcoin protocol is open source anyone can create new and innovative services that integrates with Bitcoin. This can not be done with the current monetary systems as they are heavily restricted and monopolised.
The aforementioned is merely scratching the surface of what Bitcoin can and will do in the future. Bitcoin is already functioning as a small scale currency that is accepted by cex.co.uk expedia.com, dell.com, cheapair.com, newegg.com, Microsoft.com and many more. There are constantly new retailers accepting Bitcoin as they slowly realise the potential and cost savings.
(Image by Jason Benjamin)