For many people, the purpose of cryptocurrencies, like Bitcoin (BTC), has always been a mystery.
There is no such thing as a Bitcoin “coin”. It is shown as a coin because that’s a useful analogy. But it’s an encryption key, one of roughly 21 million answers to an intricate computer puzzle, that can only exist on a computer supporting the currency’s blockchain.
What can you do with it? You can buy an Initial Coin Offering (ICO), but most ICOs fail. The joke is you can buy pizza with it. The “Bitcoin Pizza,” bought with 10,000 coins in 2010, is now worth over $82 million.
It was once assumed you could run away from the law with it, but that’s no longer true, as law enforcement has learned how to break the currency’s supposed anonymity.
The best use of Bitcoin is fleeing a failing economy.
Zimbabwe showed us the way. As that country’s currency collapsed last year people turned to Bitcoin. It worked, not only for those trading the currency, but for the country. Dictator Robert Mugabe was overthrown by his own military.
Recent action in Bitcoin shows you don’t have to be a failed state to make use of it.
Consider the Russian Ruble. Its value plummeted early in April, falling from 58 to the dollar to over 64 to the dollar in a single day. This coincides with the latest spike in Bitcoin, from below $6,900 per coin to its April 19 price of over $8,200.
But coins, real and imagined, aren’t the only stores of value. Oil is also a store of value. Oil bulls are now predicting a price of $100 per barrel. Unfortunately, a Russian oligarch can’t just leave the country with barrels of the gooey burnable under his arms. It would be messy. What has happened, instead, is that the price of the ruble has stabilized and so (coincidentally) has Bitcoin.
Asset War of All vs. All
Russian President Putin’s policy is to encourage the war of all vs. all. In an environment torn by civil and international strife, Russia’s military and relative stability loom larger than its economy would allow it to, given a Gross Domestic Product expected to be almost $250 billion short of Canada’s this year.
But assets already live in this world. All assets — oil, currency, stocks, Bitcoin — are in constant competition with one another, and can be compared. It’s a check against the actions of every CEO, and every President. Bitcoin, because it’s invisible, makes this check on power easy to place.
The Bottom Line on Bitcoin
Two economists recently got drunk together and calculated the “real” value of a Bitcoin at $200.
That’s not true. A Bitcoin is worth what someone will pay for it, just as anything is worth only what someone will pay for it. There are often “Bitcoin premiums” when a country’s traders can’t easily meet demand. This happened last year in Zimbabwe and (curiously enough) South Korea.
We make these value calculations with currencies all the time, and oil, and stocks. Computers make it easy. In the asset war of all vs. all, Bitcoin is just another player. Its key advantage is its invisibility.
The current value of all the Bitcoin in the world as of July 23 was about $132 billion. That sounds like a lot. But Netflix Inc. (NASDAQ:NFLX) is worth $155 billion.
I’d rather have Netflix.
[Editor’s note: This story was originally published April 20, 2018.]
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story, nor any cryptocurrency. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com.