Are you familiar with Bitcoin? Unless you live under a rock, you have probably seen it mentioned quite a bit lately, however, if you don’t know what it is all about, here is a quick review.
Bitcoin is a digital currency that was launched in 2009, and is not affiliated to any government or central bank. It is a peer-to-peer system that can be assimilated to a way of using cash online. Bitcoin is anonymous, so if you make a payment, unlike when providing your credit card details, there is no trace of your purchase. While that may seem good for privacy, it also means that if you paid a vendor who did not deliver what you paid for, you have no way to get your money back. Bitcoin being a global currency, you can send money anywhere in the world, without having to pay currency exchange rates of hefty bank charges.
There are a lot of companies, from Expedia or Dell to bookmakers who accept Bitcoin transactions. It looks like now it is just another way to pay for a purchase, just like Paypal or using a credit card. The only thing is, being a currency, Bitcoin goes up and down in value and so you may buy it a day and sell for either a profit or a loss the following day. Due to the relatively low amount of currency being traded, Bitcoin has a high volatility, meaning it could gain or lose more value than a stable currency over a short time frame.
Considering Bitcoin as an investment can be a way to diversify your portfolio, but I would advise as always that you don’t invest money you are not prepared to lose, or would need in the short term, as you may have to exit a losing position. Bitcoins have been worth over $1,000 and are now back in the $400 range. It is not for the faint of heart!
Bitcoin is now a pretty lucrative business, while countries like Bolivia or Bangladesh have made it illegal, others like the Isle of Man are trying to encourage it to flow over. I still have mixed feelings regarding Bitcoin. On one hand, I like that it is all digital, and quick and easy, but on the other hand I wonder how something that technically isn’t worth anything can hold a value that people recognize and respect over the long term.
That said, the same goes for U.S. dollars. Before, you had silver coins, or gold coins, and the value of the coin was directly the value of its weight in gold. Now you have a paper $1 bill, and if we all went at the same time to the central bank and demand that our bills be exchanged for tangible gold, there may be a big problem.
So far, it looks like people recognize the value of Bitcoin, but since it is a pretty young currency, only six years old, it is hard to predict its future. I am sticking to “real” currency for now, while I wait to see how the whole thing gets more formal and regulated. But down the road, I am really attracted to it as an option to send money to different countries at almost no cost.