Bitcoin

With a value of over $7,000, Bitcoin is the worldwide digital phenomenon that any investor worth their salt is already seeing the returns from – or itching to get involved in. Looking back with our Bitcoin Calculator you can see exactly how your real or imaginary (if only I had just spent £100...) investment has grown over time.

Yet if you ask someone on the street what Bitcoin is, and why they should invest in it, you'll likely be met with a blank response. With no well known figurehead, business or physical currency, along with the 'dark arts' of technology, Bitcoin may always be limited by the lack of simple understanding. Bitcoin has always been somewhat exclusive to people with good technological know-how, as just setting up a wallet in 2012 was a cause of headaches for many; let alone making that wallet secure.

Generating Value from Nothing

Fundamentally, Bitcoin became valuable just as anything else does, harking back to our past of trading animals, spices and fabrics – because people want it and are willing to trade another item to own Bitcoin.

But Bitcoin was borne out of competitive problem solving, fuelled by the completion of computer based mathematical problems for a Bitcoin reward.

We are competitive by nature, so as more individuals identified the chance to earn something unique, an easier way of getting Bitcoin was established by simply parting with traditional currency. Instead of using time to earn Bitcoin, they risked their own valuable resource for a new reward, thus building a monetary value.

Skip to 2017 and the demand for the limited supply of Bitcoin is high, as the difficulty to organically acquire only seems to increase, even to those in the know. By and large, the currency is a mysterious fortune to those who only know Bitcoin by name and value.

Now countless articles take many more words to attempt to explain the significance of this and why it matters as Bitcoin continues to grow in value, yet general understanding never seems to be comparable to the production and fluctuation of currencies attached to traditional economies.

Limiting trade simply by being different

At the simplest level, fundamental differences exist, with some arguing that the differences drive demand. No doubt some of these will be familiar to seasoned readers, however, some prove unfathomable to an average member of the public.

- There is no visible Mr. Bitcoin or Government of Bitcoin. Mr/Mrs/Ms/Miss Satoshi Nakamoto is/are the definition of an enigma, and they are not engraved onto the coin itself.

- On that point, any Bitcoin investor is putting resource in the hands of an unregulated power. Not a bank or trust fund, but a global flow of information.

- There is no Bitcoin headquarters to visit or physical stock exchange like the FTSE or NASDAQ. This, makes it more difficult to develop a general interest in Bitcoin without making a large time investment.

- There isn't a source of physical Bitcoins, requiring a user to create virtual wallets, thus completely changing the idea of how currency works, as before the Internet, all forms of money had been based on tangible objects.
(Available physical coins only act as representation of digital wallets)

- Traditional investment in stocks and shares show an interest in the performance of a physical company and its people. Investment in something digital is still viewed as a 'dark art'.

- While there are now many ways to purchase Bitcoin, the process can be risky even for experienced traders, let alone someone with limited understanding.

Becoming digital acts as a barrier to understanding

Wealth

Imagine encountering someone wealthy. For some that might simply involve looking in a mirror. Whoever it is, you are likely to assume their wealth stemmed from one of many ways of acquiring traditional currency, a good job, inheritance or maybe even luck resulting in a healthy bank balance. Everyone knows a bulging wallet or a suitcase full of cash is tantamount to traditional wealth. However, a Bitcoin wallet containing 100 Bitcoin may be the stuff of dreams for some, but also meaningless to many more people.

Being digital by nature, Bitcoin allows almost anonymous wealth. Bank accounts are associated with a branch and a name, whereas Bitcoin wallets are a string of random numbers and letters with no high street branches or physical wallets, limiting understanding of owning a commodity or being wealthy.

Trust

There is a huge amount of trust in public bodies in traditional finance with bank managers, vaults and government departments being ultimately responsible for the economy of a country. As there is no Bank of Bitcoin, all existing Bitcoin is either in a wallet or yet to be attained through the solving of mathematical problems, mentioned earlier. In addition, all transactions are visible with validation performed by dedicated members of the Bitcoin network (which in itself is hard to understand) subsequently replacing the governmental banking authority with an everyday person behind an anonymous wallet ID.

Change beyond physical understanding

Yes, without a basic understanding, it's almost impossible to see how continued growth in Bitcoin is sustainable. It's a far cry to imagine our political leaders endorsing a Bitcoin-based future, as it requires a whole country to change not just its understanding of what money is but also how it is made and traded. The change from our understanding of our comfortable currencies is, right now, just to much for some to deal with.

But with a limit set in stone to the volume of Bitcoin, demand will always exist at a certain level. However, with no past trends to go off, there is no way to tell if we are at a plateau now, or if increases will continue until all available Bitcoin is owned.

With the above differences and limitations in mind, the value of Bitcoin is like anything hard to access or attain, leading to an open question: would Bitcoin be worth so much if it was less complex and more accessible?


Adriano Caccamo is the Digital Marketing Manager, Clarendon