Chatter about Bitcoin has been virtually impossible to avoid lately, and rightfully so. With its price surpassing $6,000 USD in the past week, the cryptocurrency’s lifetime high has investors wondering whether they missed the train, or if the ascent is just getting started. If you aren’t familiar with Bitcoin, it’s a decentralized cryptocurrency managed by a peer-to-peer network. The idea is undeniably thought-provoking: a world in which banks, government and other third-party intermediaries can’t control or manipulate the money supply. In practice however, Bitcoin’s volatile nature has turned off traditional investors, and its digital existence has warranted concerns of “disappearing currency” that would leave no trace at all. And since the whole concept is rooted in independence, there’s no company or government entity responsible for backing the loss of the currency.
So why the heck would anyone want to use Bitcoin? Good question. The answer lies in the cryptocurrency’s potential. If you would have purchased $1700 worth of Bitcoin in the middle of 2012 (about 170 shares at its then-price of $10 per share), and sold your shares this past week (at the $6,000 mark), you’d be a millionaire walking into work today. You can’t deem numbers like that irrelevant even if you want to. But why would the value continue to rise? Because, like real estate, there’s a finite number of Bitcoins on the market at any given time. The production is being capped after generating 21 million, which is expected to be reached in the year 2140. Meaning that many investors foresee Bitcoin’s price going up and up as they become more and more scarce. Suggesting that money will still be going into Bitcoins, but each slice will cost that much more.
More recently, Bitcoin has made headlines in the real estate sector. The company Bitpay has successfully carried out a number of transactions, usually guaranteeing the seller a dollar amount and keeping the buyer’s Bitcoins. The idea is to hold the Bitcoins and then, at the right time, engineer a profitable take away on the appreciation of the currency. This idea is extremely interesting, and potentially game-changing. By using a completely alternative money source, one has the ability to invest in foreign currency and execute trades like a typical day trader. For someone who has a lot of money in Bitcoin, yet nowhere to spend it, real estate (if it can be done) is a wonderful market. And because the money doesn’t pertain to one solitary country, the idea of “foreign investment” in domestic markets is much easier, both from a legal and logistical standpoint. And when that digital currency turns into real dollars, the economic stimulation is just the same.
The production is engineered to be a self-sufficient economy, independent from politics, war, or any other external factor. That being said, many argue that complete separation is impossible – citing that when the purchasing power of your country’s currency is dependent upon its inflation or deflation relative to the other worldly currencies, whatever you’re buying is an extension of that inclination or declination.
Along with volatility, another concern lies at the intersection between politics and Bitcoin. With an alternative currency, governments lose a lot of their power, and many people (primarily in the financial sector) lose their jobs. Russia’s Central Bank has even revealed plans to ban websites that offer Bitcoin as an accepted payment. Some might say that Russia’s actions only validate the need for a currency that’s independent from government oversight.
Bitcoin or no Bitcoin, the concept of cryptocurrency leads a conversation that needs to be held: where lies the government’s power when it comes to controlling the money supply? And what does the outcome of a public policy that trie
s to ban a digital currency look like?