It seems the old saying that history may not always repeat itself, but often rhymes pretty much sums up the enthusiasm we're seeing for Bitcoin these days. Bitcoin is new, hip and Bitcoin is sexy. And so Bitcoin is all the rage this year, the new media darling. And why not? Bitcoin's meteoric rise and volatility are more than newsworthy. But is Bitcoin a keeper or a repeat of one of the countless bubbles we've seen come and gone in the past?
Let's have a look at what Bitcoin is and what it has to offer.
Bitcoin is a virtual currency, also known as a digital currency or cryptocurrency. Bitcoin is a departure from the formal currencies that have served us since the end of our bartering days, because whereas currencies in the past have always been centralized, Bitcoin is completely decentralized. This mens there is no third party intermediary that issues or runs the currency. Instead, Bitcoin relies on cryptographic verification through a ledger.
The ledger that Bitcoin uses – Blockchain – is a socalled trustless technology by virtue of its decentralized architecture. Basically, Blockchain allows all Bitcoin users to see each other's transaction details, negating the need for a (trusted) third party to manage risk.
In other words, Bitcoin isn't only peer-to-peer, but it's secure and cheap too, along with borderless and permissionless. Just the kind of royal flush of fortes you'd need for a cryptocurrency like Bitcoin to one day superseed regular money.
Now, under normal circumstances, if the regular trusted money system in use today had been effective, it would be extremely hard for Bitcoin to supplant or even supplement this regular trusted money system.
However, it appears that the "trust" that users afforded the regular money has been repaid by a substantial reduction of value over the past century of this money. Worse, it also appears that these government-backed currencies (read: USD, EUR, JPY) may be a less than ideal unit of account or store of value.
Perhaps then, there is something to be said for Bitcoin after all? Given the loss of trust and the erosion of savings, capital and pensions as a result of some governments' need to relentlessly increase the pool of money in circulation, perhaps it's time for Bitcoin to make its digital entrance?
In fact, in light of the various smart city initiatives around the world, in general, and Singapore's Smart Nation drive, in particular, perhaps Bitcoin is the only missing piece of the puzzle left to fall into place.
But before drawing conclusions, let's take a look at what else Bitcoin can do. We've seen that transecting with Bitcoin is cheap and fast. But does it really beat regular money?
Let's take a look at a telegraphic transfer of Euro 1000 from Spain to Australia. This takes up to a week, sometimes longer, and will set the sender back a flat transfer fee, along with possibly a percentage of the sum. The transfer fee could well exceed Euro 50.
In addition, the Euro denominated funds will need to be converted to Australian Dollars, which usually is another source of income for the banks involved. Lastly, the recipient may also be charged a separate fee for the privilege of receiving the transfer.
Meanwhile, a Euro 1000 Bitcoin transfer would take a few minutes to arrive at the receiver's end at most and in all likelihood would cost less than 1 Euro.
What's more, because Bitcoin will only ever comprise 21 million units, there is no danger of it eroding value on account of more and more units being printed or minted. The Bitcoin protocol is actually maximized at 21 million.
This, in fact, renders Bitcoin deflationary, rather than inflationary. And this trait is highly sought after in store of value assets. In this regard, Bitcoin is similar to gold, although even gold isn't truly finite the way Bitcoin is, which is why Bitcoin is often termed "Digital Gold".
Si, in conclusion, as we can see, Bitcoin isn't just media hype. Bitcoin holds a lot of potential, given its innovative and revolutionary concept. It may well become the preferred payment means during Singapore Smart Nation's era.
But, clearly, it's early days yet. Bitcoin needs to mature on a lot of fronts first. Regulation needs to be comprehensive, for starters. And Bitcoin's code has to be upgraded so as to remove all scalability concerns. And, most of all, Bitcoin needs to be adopted wholesale.
Once these three conditions have been met, there's very little left in the way of obstacles for Bitcoin to become the digital currency befitting a Smart Nation.
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I am not an investment advisor and above article is for purely informational purposes and is not to be taken as investment advice. Investors are advised to personally undertake adequate due diligence, or to consult a financial advisor in order to determine what assets - if any - are appropriate to invest in.