3 Things People Get Wrong About Bitcoin
If you think that Bitcoin is some high-tech voodoo that will make you rich – you are probably right. But there is a little more to it. And that “little more” is where all the disappointments and misunderstandings come from.
You see, most people do not get Bitcoin. They hear “digital money” or “digital gold” and immediately click “Buy.” But that’s not really what Bitcoin is—or, at least, not everything it is. So let’s deconstruct the biggest misunderstandings about Bitcoin and other cryptocurrencies!
Bitcoin is not a currency; it’s more like a share
It’s quite difficult to imagine people using a currency which has daily or even hourly fluctuations for a few hundred dollars. Sometimes it rises and drops for thousands of dollars overnight.
Imagine that you want to buy a car for 1 BTC when it equals 13,000 USD. The day when the deal must be made, the rates crash and Bitcoin costs 8,000 USD. The owner of the car doesn’t want to accept crypto anymore—now he wants hard cash, and nothing else. Or imagine it’s you who owned the car and sold it for 1 BTC, hoping that the price will skyrocket—and then you just watch the declining line on the graphs with eyes full of tears and blame yourself for agreeing to accept these goddamn digital coins.
Here’s another example. Would you take a mortgage in Bitcoin? You wouldn’t, or at least we hope so. Because if Bitcoin’s price double or triples in a month, your humble mortgage of 10 000 USD will become an unbearable 30 000 USD.
Crypto-evangelists insist that Bitcoin has all features of currency. Well, let’s look at it. According to the definition, currency is:
- hard to counterfeit;
- generally accepted by a population.
Bitcoin has all characteristics of currency, except the last one. And, ironically, that is perhaps the most important feature. Money’s value is determined by the possibility to go to the nearest shop and buy a bunch of carrots with it. Can you do it with Bitcoin? No, unless you use a special card, that converts crypto into fiat.
As long as you can’t pay with crypto directly, it’s not a full-fledged currency. You can tell people that Bitcoin is durable, portable and so on, but unless it’s generally accepted, they won’t use it as a currency. Of course, there are services that accept crypto, but their number is incomparably small to those where you can pay with fiat. Maybe, in the far future, the rate will become stable, and Bitcoin will be used as well as fiat for day-to-day shopping, but now this idea is a utopia.
But if Bitcoin is not a currency, then what is it? Well, turns out the “king of crypto” has a lot of similarities with shares:
- you can’t pay with Bitcoin or shares directly, but you can trade them for fiat money;
- both Bitcoin and shares are volatile;
- Bitcoin and shares are long-term investments;
- the rates are based on supply and demand;
- value is determined by market capitalization, not by the price of one unit;
- Both the cryptomarket and the stock market are full of newcomers who believe that they will become millionaires in a month of trading. They won’t.
Cryptocurrencies are not independent
In the stock market, prices of different shares are not counter-dependant. If General Motors’ shares are crashing, it won’t affect Microsoft, because companies work in different industries. Of course, there were precedents like Black Monday in 1987 or the financial crisis of 2007-2008, when all stocks were plunging, but it’s an exception, not the rule.
Cryptocurrencies are different. If Bitcoin plummets, others will follow. So even if you invest in some coin, because you are sure it is backed by solid project and has a promising future, you are not protected against sudden fall if Bitcoin is going down. It doesn’t work in reverse—some altcoins may fall, but it won’t affect the Bitcoin.
You can hold a fraction of Bitcoin
Shares are indivisible. You have to buy at least one unit, but also some companies set a minimum number of shares you can buy, and it’s much higher than one. Also, companies can split their stock when the price is skyrocketing; They make it keep rates reasonable. If you own one share, after the split you will have two, which halves the price.
Each Bitcoin can be split into 100 000 000 pieces. Each 0.00000001 BTC is called satoshi. Bitcoin has finite supply—the absolute maximum of coins that can be mined is 21 million. The last coin will be mined around 2140.
The stock market is associated with huge capital essential to come in. For example, the price of one stock of Berkshire Hathaway owned by Warren Buffett is almost 300,000 USD. It’s unlikely that ordinary office manager, for example, can afford to become a shareholder of this company. But that same manager can buy one satoshi and become a crypto investor. Low barrier to entry is a great thing about Bitcoin.
So what is Bitcoin?
Questions that many potential investors ask themselves: is Bitcoin a currency that will expedite commerce or an asset that has intrinsic value? Neither.
Bitcoin is three-in-one:
- digital currency;
- digital share;
- digital gold.
It’s a completely new kind of asset that needs a new approach. Most users now buy Bitcoin to keep it as a long-term investment, to speculate on its value or just to cover up their transactions by making them anonymous. But digital money is exactly what we need in our digital world, and it’s just a matter of time before they will be widely used.
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