Is Bitcoin the way to beat Brexit inflation and Mediterranean money woes or is it just a cyber criminals dream?
There are hundreds, if not thousands, of digital currencies but only a few have significant support. Most so-called alt coins are likely to remain niche. Many who put cash into them are speculators who hope wider take-up will send their investments soaring. But digital currencies have now caught the attention of financial institutions and central bankers.
The first digital currency to gain widespread adoption has the highest market value at about $11bn. Since its creation in 2009, bitcoin has demonstrated that the numbers driving it are solid. However, it will be forever tainted in the eyes of many because of its use by criminals on dark-net sites and its association with scandals in which customers’ bitcoin were stolen from hacked exchanges. It runs on an open-source protocol that operates across a network of users’ computers. But its flaws are preventing it from being more widely adopted so it can become a means of payment as big as MasterCard or Visa.
Bitcoin and Brexit
Hard-working Britons with their life savings stashed in British pounds woke up one morning about 8 percent poorer after the country voted to leave the European Union. Meanwhile, bitcoin investors were shielded from the Brexit news: They enjoyed an almost 9 percent jump in the value of their holdings.
It's the type of international event that bitcoin enthusiasts anticipated because of growing political and economic instability in many regions of the globe. Meanwhile, many have continued to criticise the "cryptocurrency" as a high-risk bet on an unprotected and unregulated alternative to money.
Bitcoin is effectively becoming a digital gold — we nor any credible bitcoin investor — could ever recommend selling all your pounds, euros or dollars in favour of the "cryptocurrency". There is tremendous volatility involved, and the currency still has limitations in how and where it can be used.
The price of a bitcoin surged as much as 8.7 percent post-Brexit to $680.19, according to CoinDesk. That followed the Brexit vote, which sent the pound spiralling downward against the U.S. dollar to $1.32, the lowest since 1985.
Bitcoin is not for the faint hearted. It started the year around $430, sank below $360 in mid-January, jumped to $768 in mid-June and then plunged to $603 a week later.
This volatility drives many back to conventional currencies and banking transactions.
One British company, said bitcoin is most effectively used for business-related transactions and money transfers that would take several days to clear in the traditional financial world but can be done digitally with bitcoin on the same day.
There's an advantage to having a currency that isn't political, isn't tied to a government and not subject to these kinds of things happening. It's purely governed by math.
But bitcoin has its own variables. The size of the market expands through a process called mining, whereby coders use software to solve complex math problems and are rewarded with bitcoins. Every four years, the number of bitcoins rewarded is cut in half.
The next halving takes place in July, when miners will receive 12.5 coins every 10 minutes, down from 25 today. So one reason for the recent spike is likely the view that bitcoin supply will be more restricted. Three-quarters of the total supply of bitcoins have been mined.
Speculators can drive the price up and down in ways that would be terribly unsettling for people with significant bitcoin investments.
Is It For Me?
I wouldn't tell anybody to put their life savings into bitcoin because that could just as easily be wiped out. Think about it in terms of diversifying your portfolio. If you have investments in gold or an index, maybe think about bitcoin or cryptocurrency as an asset class you want to have some money in.
Bitcoin fans expect that the currency will eventually have greater utility in the marketplace and move from being a savings and investment tool into transactions. Businesses that already take bitcoin include Expedia, Dell, Microsoft and dating site OkCupid, but they typically require the use of a bitcoin wallet like Coinbase.
Unlike gold, which only works as an alternative asset for investment purposes, the idea with bitcoin is that it's also easily spendable on everything from groceries to money transfers. We may get there eventually.
Most people are buying it for investment or stored value. They're not paying their rent. It's the beginning.