What is bitcoin?
A practical explanation for the everyday person
Today is a good day to talk about the crypto market. The market is down not just in the crypto world but in most of the money markets in the world. Days like this are times when people sit back to rethink their decisions, tolerance and overall strategy. Days like this exist to taunt the uneducated.
Bitcoin has been around for 9 years now and the uncertainty about it among everyday people is still very staggering. First, the misinformation from mainstream media is not helping and then, the market jitters from mere speculations. The piece of information in here is to give you the basic understanding of bitcoin and hopefully that of the whole crypto market also.
1. Bitcoin is not a currency
Bitcoin is a medium of exchange of (monetary) value from one person to another person with high speed of transaction, anonymity (as it is not connected to the banking system), and low fees (although this area has been challenging of late) regardless of distance. This could make bitcoin a compelling argument to be a currency but it is not. This is because:
- Bitcoin is not a legal tender (in any country)
- Bitcoin is not controlled by any governing body
- Bitcoin is not centralized
2. Bitcoin is not a commodity
A commodity is a good or item that is tangible and used to meet one or more specific needs in the society. Examples of commodities are metals (like aluminium, copper etc.), crude oil, wheat, etc.
Bitcoin can be said to meet the need of money transfer but it is not an exclusive solution (as there are other means of money transfer). Bitcoin is not useful for the one who owns it until another person agrees to transact with it. For example, you can make your own wheat into bread and eat to quench your hunger, but you can’t do anything with bitcoin all by yourself.
3. Bitcoin is not a store of value
Many often compare bitcoin to gold and refer to it as a better store of value, but the volatility (that is, the rate at which the price fluctuates) is too high for it to be a store of value. People who make bitcoin a store of value are setting themselves up for headaches and heartaches especially on days it plummets by double digit percentage. This volatility is a norm with bitcoin and will remain a norm for the time being. So, gold is still the store of value while bitcoin is something quite different.
4. Bitcoin is not an asset
You may have reasons to disagree with this part, but there is a reason for it. An asset (as far as I am concerned) produces income for the owner while still retaining its value. Stocks have dividends, bonds have interest rates, bitcoin has nothing of that nature. Bitcoin doesn’t reward you for owning it. Which is what makes the unique platform that it is.
What then is bitcoin?
5. Bitcoin is an investment vehicle
Bitcoin is here to stay. It is not going away. The strength of bitcoin is the community. People who love privacy, hate excessive bureaucracy, love the idea of peer to peer and do not trust big corporations as intermediaries of value exchange. Bitcoin puts the people in charge that is why the core community loves it. The community grows day by day and they are majorly of the younger generation. This fact makes it a big prospect for the future. Most (if not all) of those who are avid critics of bitcoin are 50 years and above. So, they will all soon leave.
Bitcoin is an investment vehicle unlike any other. Different people get in and out at different times but the vehicle keeps moving. The use cases for it is still in its infancy and there is a significant number of people yet to join the community who should. So, there is a lot of room for growth.
Bitcoin is quite delicate but also very simple and direct. A friend introduced it to me about a year ago. Even though I understood the concept then, I didn’t know what to do with it. I was financially educated enough to know that I can’t just put my money in and wait for it to “rise”. It had to have an investment use. It took me some weeks to figure out what to be doing with bitcoin. After I coined out a strategy, I got a wallet and dived in on the action. All I need to do each time is to stay disciplined and stick to my strategy no matter what seems to be the trending information. And so far, life is good.
Finally, whatever you are doing on bitcoin or the crypto world, be in it for the long term. There are good short term plays but nothing beats the long term prospects. Short term plays and short sightedness can make you lose money; a lot of money. Bitcoin is an offensive hedge in investing.
I hope this has helped someone. Cheers