The hype surrounding Bitcoin rises and falls, but as an investment, how seriously should you take it? Is it a viable payment platform? Why do some investors believe cryptocurrencies are a hedge against uncertainty? Before you buy into Bitcoin, let’s take a closer look at Bitcoin as a payment system, investment, and hedge.
Paying with Bitcoin
Bitcoin is a decentralized digital currency based on a peer-to-peer platform. Blockchain technology gives users secure, real-time access to a global ledger via which payments can be sent or received with no central bank other institutional involvement.
Transactions are exceptionally secure and not bound by the limitations of a fiat currency. Buyers pay a small fee per transaction, but businesses pay nothing. Additionally, because transactions are irreversible, chargebacks aren’t a risk.
Because it’s decentralized, Bitcoin is the ideal medium for making international payments. Transaction processing time can be slow during peak times, so that’s a disincentive for some businesses to accept it, yet it’s comparable to other payment systems including credit cards. Companies like Overstock.com, Microsoft and Intuit already take Bitcoin, and as confidence in it rises, expect more big names to join in.
Investing in Bitcoin
Bitcoin has a short track-record, and a highly-volatile one, owed to an uncertainty of future value. Bitcoin is worth only what buyers are willing to pay for it. Only its novelty and scarcity suggests that its value will increase over time.
Governments worldwide are exploring digital money as an alternative to physical cash, yet a state-backed cryptocurrency will still be fiat money. For some investors, Bitcoin has value because it’s a free and private payment system that’s beyond government reach. Others believe its technology will be the basis for the future of money. As an investment, Bitcoin is risky, but the potential for return is sky-high.
Bitcoin as a Hedge
Bitcoin has no intrinsic value, so it has limited use as a hedge against normal inflation until it’s volatility eases. It is, however, a unique alternative to fiat currencies backed by unstable governments, and it can be a powerful hedge against hyperinflation and geopolitical uncertainty.
Digital money is the future, but will it be Bitcoin? There’s no way to tell, but there’s worldwide interest in the technology that drives it, and it’s well-positioned to grow. Embrace it as a payment system, but as an investment or hedge, tread carefully and stay diversified.
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