Bitcoin is the first crytpocurrency, which introduced a new type of asset or currency, depending on how you look at it. At inception price of 1 BTC was not established by a market, until someone did a first purchase paying with bitcoins (famous 2 pizzas). As of today September 17, 2017 1 BTC is priced at ~$3.6K.
Many people still don’t fully understand why Bitcoin and other cryptocurrencies rapidly increase in price, here are several characteristics that can give an answer. We compare Bitcoin with gold and fiat currencies (like USD or CAD, etc).
Bitcoin is a global phenomena, which can not be restricted by any man-made state borders. You can easily send bitcoins to your friend in another country, and this payment will be absolutely the same as if you pay to someone within your country. Bitcoin has no borders. On opposite fiat payments are usually much easier and quickly done within countries, as there are internal domestic payment networks in place. Foreign payments are much more cumbersome, e.g. wire transfer usually goes through a chain of correspondent banks, which is more costly and takes much longer time (1-2 weeks can be normal). Gold is very hard to be used as a foreign payment instrument at all.
Moving bitcoins to another country is much easier as well. There is usually a capital control introduced when you cross the international border, means you can bring only limited amount of cash or gold, for example. With Bitcoin you can literally remember by heart 12 words (your seed) and bring unlimited amount of money over the border. Nobody will be able to detect it, as it has no physical form.
Another aspect of borderless characteristic is its recognition. When you come to another country you usually need to convert your cash banknotes into local ones and lose on conversion fees. Although bitcoin acceptance is still low with its increase one would not need to convert bitcoin to something else, you could use it directly as it has global nature. Gold will hardly ever be used as a means of payment (unless you have time machine and can go back to Medieval Ages times), as it is usually perceived as a store of value and not easily divisible.
1 BTC (1 bitcoin) = 3600 USD
1 mBTC (1 millibitcoin) = 1 thousandth of a bitcoin = 0.001 BTC = 3.6 USD
1 uBTC (1 microbitcoin) = 1 millionth of a bitcoin = 0.001 mBTC = 0.000001BTC = 0.0036 USD
1 satoshi = 0.01 uBTC = 1 hundred millionth of a bitcoin = 0.00000001 BTC = 0.000036 USD
So it is seen that bitcoin is much more divisible today than most fiat currencies. Theoretically, if the price increases that makes 1 satoshi too valuable, it can further be divided. As the total money supply will be the same, it won’t influence any other currency metrics.
Fiat currencies are printed like crazy nowadays. Quantitative easing (QE) in the U.S. is a power of small group of people to issue as much money they want. There was QE1, QE2, QE3, many more to come in the future. What does it mean — that more money is in circulation, which means all the money are getting cheaper via inflation, which means ordinary people can buy less and less goods with their existing funds. Bitcoin on opposite has a fixed money supply target. Both fixed in the distant future (there will be only ~21 million bitcoins issued maximum), but also short term, as the curvature of bitcoins issuing is defined mathematically and in a transparent form. So there won’t be any extra bitcoins “printed” out of thin air. That guarantees the stability of monetary policy defined for many years ahead. But the main advantage, is that is can’t be changed or controlled by a small group of people.
In this regard Bitcoin is even much better than gold. In case price of gold increases significantly (demand becomes higher than supply), new gold mines are explored, people invest more money into mining equipment etc. As a result gold’s supply adjust (increases) to meet the demand and price will stabilized or go lower. With Bitcoin it is different. Bitcoin mining difficulty is automatically readjusted bi-weekly, which means when demand for bitcoins significantly increases even if people invest a lot of money in new mining equipment, there won’t happen any significant growth in bitcoin supply as every 2016 blocks the speed of mining will drop back to 1 block per 10 minutes (12.5 BTC currently). All this means that with increased demand bitcoin price will increase much more than that of gold in similar conditions, for example.
All these characteristics make bitcoin a good means of preserving wealth and worth investment.
Here is a list of other circulating in internet comparisons of Bitcoin vs. Gold and fiat currencies:
In the next article we talk about which events might increase bitcoin price long-term and also what kind of bitcoin investment strategy can be used.
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