With the non-stop media coverage Bitcoin has been getting, it's hard to not have heard of the relentless appreciation trajectory that this cryptocurrency has been showing the past year or so. And if industry experts are anything to go by, this is only the beginning.
Whilst wild future valuation estimates are par for the course in this field, perhaps in this case, Bitcoin reaching $500,000 in 5 years is not so wild, given that Bitcoin's potential as a disruptor of the banking and finance domains is clear to see.
But before we delve into the Bitcoin matter headling, let's parse Bitcoin the cryptocurrency a little. What is Bitcoin? How did it come about so suddenly? And what's its purpose Anyway?
Bitcoin is the brainchild of someone called Satoshi Nakamoto. Whilst it's not known if this is a pseudonym for a man, woman or perhaps a group of people, what is known is that Satoshi Nakamoto is the one who conceived, devised and ultimately released Bitcoin, its purpose being to foster a new money system, in order to counter the current set of banking and finance rules the world, Satoshi Nakamoto believes, has been weighed down by for decades.
Banks traditionally are the custodians of our money and, as such, control our money. But, how much control is too much? In our fast-growing, technologically innovative and ever-more digital world, people are growing increasingly disenfranchised with the traditional services offered by the incumbent institutions and their old-school monopolistic policies.
To wit, banks nowadays seem to decide on everything: customers' minimum account balance, minimum and maximum transaction sums, fees - indeed, a whole plethora of fees - the amount of any credit advance, collateral value, allowed payment methods. The list is almost endless.
In addition, banks are not immune to fraud and human error. Finance institutions can make - and have made - bad and inappropriate investments, with a loss of billions the result. This is customers' money. Even taxpayers' money isn't safe when "to big to fail" banks need to be bailed out.
Bitcoin's decentralized structure advocates returning the control of money back to the customers, allowing everyone to preside over their own financial decisions.
Bitcoin disintermediates banks by empowering everyone to be their own bank.
But Bitcoin can also remedy maladies further upstream. Because the persistent loss of purchasing power populations the world over are subjected to is a direct result of central banks continuously adding to the money supply by ceaselessly printing new money through quantitative easing.
This "helicopter money" as it's been dubbed, is meant to guarantee economies remain lubricated enough to keep churning smoothly. Of course, all this easy money sloshing around typically results in artificially low interest rates, which, by extension, means that savings accrue very little interest, if at all. Some banks have even resorted to charging their customers for holding their deposits!
Bitcoin has no such issues. As Bitcoin's protocol has been hard-coded to cap its number to 21 million, inflation is non-existent. As a matter of fact, Bitcoin has a tendency to be disinflationary even. And this renders Bitcoin an ideal long-term store of value. After all, the longer Bitcoin is held, the bigger the difference in value between inflation-resistent Bitcoin and fiat, which historically is being undercut by a minimum of 2% inflation every single year.
This is why Bitcoin has earned the moniker "Virtual Gold". As it happens, even traditionally unwavering gold bugs have taken notice of Bitcoin's immunity to inflation and have started trading in some of their gold holdings for Bitcoin, thereby diversifying their asset holdings further.
But how is Bitcoin superior over the current status quo? Why would Bitcoin be able to supplant banks? How does it fulfil the role of banks on its own, without an intermediary to authorize, police and, when required, resolve conflict?
The answer to this can be summed up in one word: Blockchain.
The Blockchain is what drives Bitcoin. Blockchain is a transparent, public, distributed ledger system that not only ensures validity but also keeps track of all of Bitcoin's transactions, and ultimately propagates these to all other nodes in the Bitcoin network.
Since all transactions are at all times updated and maintained by all nodes, someone intending to forge or defraud Bitcoin would need to compromise every single node of the Bitcoin networl's nodes. Well, the odds of a bad actor succeeding in this are so long that Bitcoin and Blockchain are now known as the most secure system in the world. To the extent that a number of other industries have started implementing Blockchain in order to similarly bomb-proof their data processes.
Bitcoin has so far only been scratching the surface. This revolutionary cryptocurrency has a very bright future ahead.
Clearly, to the chagrin of the established banking players, Bitcoin is here to stay.
If you're interested to know what Bitcoin's impact could be on Singapore's FinTech ambitions, especially in light of Singapore's Smart Nation campaign, click either here or here.
I am not an investment advisor and above article is for purely informational purposes and is not to be taken as investment advice. Investors are advised to personally undertake adequate due diligence, or to consult a financial advisor in order to determine what assets - if any - are appropriate to invest in.