Over the past few years, the popularity of bitcoin and cryptocurrency, in general, has grown exponentially. It has become a hot topic at social occasions and often seems as though every man and his dog is rushing to get involved.
From an outside perspective, it is easy to view the crypto space as an exuberant bubble of wild speculation and greed. Whilst there is an element of truth in this perspective, it doesn’t paint the entire picture of what’s going on here.
In this article, we take a closer look at the top 8 reasons why people are buying cryptocurrencies such as bitcoin and what the underlying reasons for their involvement are.
Wait, but why? – Source
1. Early adopters are excited by the future of technology and want to be a part of the emerging economy of tomorrow
Blockchain technology (and distributed ledgers in general) is rapidly evolving our existing industries, and changing the framework that we use to interact and transact with one another. Over time, smart contracts, dApps and blockchains will propagate into almost every aspect of our lives. Some of the first industries to be disrupted include:
Early adopters represent a diverse group of people – programmers, futurists, and more generally, people who look to tomorrow (rather than yesterday) for inspiration.
In a much broader sense, the increasing globalization and connection of our economies has resulted in unprecedented levels of collaboration, interdependence and innovative disruption. As our barriers to trade have gradually diminished, we’ve become much more reliant on other countries for our goods and services…
… My shoes are made in Nepal. If something goes wrong with my shoes, I will be assisted by a call center in the Philippines…
…When I need design work done, I contact my graphic designer in Romania, and a web developer in India…
Our existing centralized systems were built decades ago for a much less interdependent world. Now, blockchains such as bitcoin and DLTs like IOTA present an exciting alternative that is much more suited to our connected economies.
For a detailed analysis of the broader trends influencing our future, and how this is contributing to the rise of the collaborative commons, check out The Zero Marginal Cost Society by Jeremy Rifkin.
2. The economic incentives underpinning bitcoin make it a truly scarce asset
Just like gold, bitcoin is a scarce asset. There are a range of economic incentives at play, which are pre-programmed into the bitcoin code.
“Roughly every 10 minutes, a new block is produced which mints new bitcoins. For the first 4 years, 50 bitcoins were produced in each block. This amount halves every 4 years so that the last bitcoins should be produced in the year 2140 with a total supply of 21 million bitcoins.”
People can contribute their computing power to ‘mine’ blocks with the intention of receiving new bitcoins in exchange for their contribution towards maintaining the network. As the price of bitcoin rises, the incentive to mine bitcoin also increases. This results in more electricity being devoted to the bitcoin network, which in turn increases the cost of mining bitcoins. Roughly every 2 weeks, the difficulty to mine bitcoin is adjusted to account for the level of network competition. This unique phenomenon creates a cost base that underpins the value of bitcoin, and helps to ensure the security of the network.
Unlike traditional fiat currencies, which have no set limit on the volume of money that can be printed, the amount of bitcoin in circulation will never exceed 21 million. When people lose or forget their private keys, the bitcoin contained within their wallets becomes inaccessible and reduces the amount of bitcoin available. In a similar manner to gold, this makes bitcoin a truly scarce asset.
Before 1973, our monetary system was underpinned by the gold standard, which limited the amount of new money that could be printed and ensured that solid assets were backing the value of each dollar.
When people that don’t understand the economic programming of bitcoin see the price rising rapidly, they become compelled to get in on the action and make a quick dollar.
“And since they were unaware of the apparent scarcity of bitcoin, hearing about this scarcity after expecting lots of abundance made everyone very eager to get their credit card out of their wallets.”
3. People buy bitcoin to protect their wealth outside of the traditional financial system
This group is not only made up of doomsday preppers and people who dislike the government, but rather includes a much broader range of interests.
Investors often purchase bitcoin as a hedge due to its non-correlated nature with traditional investments (stock, bonds etc.). This can help to reduce the overall exposure of an investment portfolio if structured correctly.
People who live in unstable economies under oppressive regimes such as Zimbabwe, South Africa and Venezuela purchase bitcoin to protect their wealth from runaway inflation. By owning bitcoin and other cryptocurrencies, they are also able to escape the country without carrying large amounts of gold and diamonds across dangerous borders. Ownership of bitcoin allows them to access their wealth from almost anywhere in the world, and begin a new life in a safer place without needing to start from scratch.
A recent survey indicated that the majority of bitcoin owners are 18-34 years old, with 71% of them being male:
“About one-third of Bitcoin owners said it was a means to avoid government regulation—24% also said they trust Bitcoin more than the U.S. government in a separate question—and about two in 10 saw it as a hedge against crashes in traditional assets.”
Unlike the United States, banks in most countries don’t have deposit insurance to protect depositors’ money in the event of an economic crisis. This means that if banks without deposit insurance go bust and the government refuses to bail them out with taxpayer money, then account holders will lose much of their savings.
When we consider how the fractional reserve banking system operates, it becomes clear that the risk of holding money in the bank can often outweigh the reward, especially during times of debt-fuelled crisis.
The bank may take your house, but they can never take your Bitcoin – Source
4. Our debt-based dollar system is backed by little in the way of tangible assets
Following the 2007 quantitative easing and subsequent rounds of wholesale money printing, the underlying value of our dollar-denominated currencies (i.e: not crypto) has been eroded away right before our eyes. Falling interest rates have masked the dilution of our money supply and left us in a situation where we have much more money in circulation, but low inflation levels.
As a result, the value of cash producing assets (stocks, bonds and property) have skyrocketed over the past decade due to this artificial money creation. When the next widespread repricing of assets occurs, a proportion of that wealth is likely to move into other asset classes – such as cryptocurrency.
Combined with the scarce and non-correlated nature, competitive network structure and underlying production cost of bitcoin, this makes it a very attractive investment in a world of rock-bottom interest rates.
Not to mention the portability aspect of cryptocurrencies…
5. As a new-age digital money, bitcoin and other cryptocurrencies are highly portable
To send and receive cryptocurrencies, you need little more than a smartphone and an internet connection. For a large proportion of the world’s poor, basic smartphones and satellite-based wifi are becoming affordable, ubiquitous and easily accessible.
OneWeb is an ambitious project that is launching a constellation of low-orbit satellites, with the intention of providing internet coverage to every corner of the globe. Although there are many other initiatives aimed at bringing the rest of the world online, this project is backed by some of the world’s leading organizations (Virgin, Coca-Cola, Airbus, Qualcomm and more).
Many people that live in developing countries without access to wealth are not serviced by the current banking system. Cryptocurrencies such as bitcoin are therefore perfectly positioned to bank the unbanked and provide a disruptive way for family members to send remittances back to their loved ones at a much cheaper rate.
At the other end of the scale, digital currencies provide the framework to facilitate large transactions in a more effective manner than traditional fiat money. Businesses that send commercial payments to suppliers and clients in different countries can benefit from lower fees and faster transaction speeds.
“Bitcoin is better than currency, in that you don’t have to be physically in the same place and of course for large transactions currency can get pretty inconvenient” – Bill Gates
6. Digital currencies provide the payment rails to enable the internet of things
The internet of things (IOT) is a reality.
Smart currencies such as IOTA are creating a disruptive new model for machines to transact with one another like never before. Machine to machine (M2M) transactions are often made up of large amounts of extremely small microtransactions.
Imagine trying to send a fraction of a cent using traditional fiat currencies. The fees imposed by intermediaries make this impossible.
As our IOT infrastructure becomes more prominent and we become more reliant on IOT networks, we will see more cryptocurrency-based transactions being conducted between machines.
If you would like to learn more about the internet of things, and some of the projections by leading authorities around the world, take a look at this resource.
7. Decentralized networks are censorship-resistant
Bitcoin and other cryptocurrencies are sometimes used to prevent governments and powers with vested interested from censoring communication and commerce.
It is possible to publish messages to the bitcoin blockchain, and send communications that cannot be blocked by third-parties.
Cryptocurrencies are also known to be used to facilitate transactions on the darkweb. Whilst this has given bitcoin a bad name for being used by drug dealers and terrorists, it is a fact that this is another reason why people buy cryptocurrency.
However, due to the increased State surveillance, bitcoin is a much less attractive option for conducting illegal commerce. The key point here is that cryptocurrencies allow an unprecedented level of privacy that has been eroded from citizens in recent years. Although much can be said about whether this is right or wrong, it is important to note that cryptocurrencies allow people to maintain their private affairs, away from prying eyes.
8. Speculation and fear of missing out
The final, and most commonly referenced reason why people buy cryptocurrencies is to make a quick buck. Over the past couple of years, cryptocurrencies have exploded onto the speculative scene as a way to make fast money. This has fuelled a manic drive for people to get involved and buy their own slice of the digital pie.
FOMO – Source
“Rather than a currency, bitcoin is being treated more like an asset, with the hope of reaping great returns in the future”
Bitcoin has been welcomed into modern pop culture, with celebrities getting involved and songs and art being devoted to the space. For the average person who doesn’t understand the underlying technology behind cryptocurrency, this creates social proof and makes it easier for the mainstream public to part with their money.
During 2017, a wide range of unregulated initial coin offerings (ICOs) returned vast sums of money to investors, and attracted lots of interest from people all around the world. Whilst increased regulatory scrutiny has somewhat calmed the speculatory effervescence, ICOs are still attracting people to buy bitcoin and other cryptocurrencies. New business models are emerging from the vast sums of money being devoted to ICOs, which is resulting in a great deal of disruptive innovation.
So what’s next?
Bitcoin and other cryptocurrencies are bringing a diverse crowd of people and organizations together to form what is emerging as a powerful ecosystem – the economy of tomorrow.
The real question is whether you are going to be a part of the future of money, or watch the change happen from a distance.
Cryptosaver is a simple to use platform to automatically buy bitcoin weekly, fortnightly or monthly & invest in your future. We collect small purchase amounts from lots of different people and buy bitcoin in bulk on a regular basis. This way, we are able to provide you with bitcoin at the best rate on the market. By purchasing regularly, you are able to make the most of dollar cost averaging and reduce the risk of investing in bitcoin over time.