How Bitcoin Is Supposed to Be Used?

If you haven’t come across bitcoin or cryptocurrencies in the past few months, then you’ve clearly had no contact with civilisation. Everyone, and I mean everyone, has been talking about this stuff.

A lot of this talk has been all fluff, really. And hearing people talk about volatility, changes in prices and the belief that bitcoin is in a bubble, doesn’t really help you learn any more about bitcoin or cryptocurrencies.

So what is bitcoin?

Boiled down, it’s a digital currency — a medium of exchange. So instead of using your credit card or cash to pay for something, you could use bitcoin instead.

Bitcoin, cash, credit cards, what does it matter which one you use?

Well out of the three, bitcoin promises to make future transactions a lot quicker, cheaper and more transparent. All of this is possible because of the underlying technology which bitcoin is recorded on, the blockchain.

Again, this isn’t some complicated thing that only a computer science major could understand. It’s simply a ledger that’s digital and that’s distributed across an entire network.

I’ll let BlockGeeks explain:

Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.

Information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.

‘…Blockchain technology is like the internet in that it has a built-in robustness. By storing blocks of information that are identical across its network, the blockchain cannot:

    1. Be controlled by any single entity.
    2. Has no single point of failure.

Bitcoin was invented in 2008. Since that time, the Bitcoin blockchain has operated without significant disruption. (To date, any of problems associated with Bitcoin have been due to hacking or mismanagement. In other words, these problems come from bad intention and human error, not flaws in the underlying concepts.)

The internet itself has proven to be durable for almost 30 years. It’s a track record that bodes well for blockchain technology as it continues to be developed.

Bitcoin price rises through disruptions

Of course today, people aren’t buying bitcoin as a medium of exchange. They’re speculating on price appreciation. And so far, it’s seems to have worked out.

Take a look at the graph below. Through various macro events and bitcoin-related disruptions, the token has continued to rise:

Bitcoin Price - 14-11-2017

Source: The Conversation

Of course, this doesn’t mean that bitcoin will rise forever. But if it is accepted as a medium of exchange, the price of bitcoin could end up far higher than it is today.

If you want to learn more about the secret world of bitcoin, click here.


Härje Ronngard,

Junior Analyst, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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