In the current phase of its adoption, consumers predominantly use Bitcoin for the following reasons:
Many people consider Bitcoin as a good ‘investment’. This is driven by a number of factors, some or all which may apply:
Bitcoin was modelled to behave similar to gold. It has many of the same characteristics, including:
The most important of these comparisons is scarcity. Society has given gold a value, measured in other currencies, due to its relative scarcity. This is one of the main reasons why many people treat Bitcoin as a modern, digital store of value.
Bitcoin is actually better at the first two: it’s easier and faster to transfer Bitcoin than gold, it’s cheaper and easier to divide Bitcoin (one Bitcoin is made up of 100,000,000 satoshis).
Normal currencies, such as US dollars, are known as fiat money.
Bitcoin as a payment system: xxx By buying Bitcoin you are in some sense ‘investmeing.
Bitcoin as a non-correlated asset class: Whether you believe in some, or none of the reasons, Bitcoin has value that is traded and is uncorrelated to most other aset classes, so some poeple see it as a meanss of diversification of their investments.
Warning: Do not use Bitcoin blah blah blah more than you can afford to lose etc.
The price of bitcoin is dependent on demand and supply and derives its value from the expectations of its future value being much greater than today. The current total value of all bitcoins in circulation is around $7Bn (2016). The price of the currency has been volatile over the years as with any new asset class, but off late has been more stable indicating that it is reaching a relative maturity. All indications are positive for the asset - increasing consumer adoption, miners margins are more healthy, upward price momentum, trustable exchanges in operation. No one can predict what the price can be in the near future but if you believe in its value as an asset, as a technological breakthrough, as driving the future of payments, it’s an asset worth investing in. Over the past year, the price of bitcoin has risen 90% (2015-16). Most people allocate a tiny portion of their investments to bitcoin purely on a speculative basis.
In some way by buying Bitcoin you are buying a piece of ‘internet real estate’, ‘piece of the future’.
Using bitcoin to transact is easier, faster, cheaper, and safer. Merchants pay much lesser compared to traditional payment networks such as Visa & Mastercard and many merchants pass this benefit on to consumers.
Thinking of bitcoin purely as a trading asset class has proven lucrative to traders. This segment has taken advantage of bitcoin’s price volatility to make profits.