In 2009, the value of a single Bitcoin was one dollar. On the last day of November 2017, the value was about $10,000. Ten days later, the value of a single Bitcoin had jumped to $15,000. It has become so newsworthy as a financial phenomenon that we need to fully understand what a Bitcoin is and how it can be used.
According to Bitcoin’s advocates, it is money in the truest sense of the term. Money represents three basic elements:
- We can use money to buy and sell things. Economists use the term “medium of exchange”. The medium of exchange has to have a recognized value to both the buyer and the seller.
- The second aspect is also relatively simple: you can keep money instead of keeping massive amounts of a product. When you want to buy that product, you can access your money from your wallet or local ATM. You can also use a credit card as an alternative to using actual money.
- The final aspect of money is trickier and is one of the reasons that people are confused by Bitcoins. Money is accepted as a way of keeping track of your financial assets. It might be a retirement plan, or a sales ledger, or anything that involves the use of money.
Historically, money has been physical but the money you “have” in your credit card is actually digital. Bitcoins are another form of digital money. When money was always something physical, we used the actual physical item to make trades. As that became inconvenient, banks and governments began to issue paper money “backed” by the recognized physical entity. This has historically usually been gold but many other physical entities have been used as money.
Bad Government Handling of Money
Another thing that is historically true is that governments tend to print too much of the paper money they are responsible for or they remove the physical entity from backing the government’s paper money. If this behavior of the government gets out of hand, the result is hyperinflation or the collapse of the money because people have lost confidence in it. The most famous hyperinflation was in Germany in the early 1920’s but poor government handling of money and currencies in general is exactly what has sparked the cryptocurrency “revolution”.
Money for the Modern Age
Bitcoin was conceived as money for the digital age. If Bitcoins are recognized as a medium of exchange; if Bitcoins are supported or backed by something accepted by everyone; and if Bitcoins are accepted as measurements of the money you have in all your asset accounts, then Bitcoin or anything like it can be used as money instead of the government’s money.
A Bubble or Real Money of the Future
The fact that Bitcoins are rising in value so quickly means only one of two things: either the public is fast losing confidence in government money or Bitcoin is wildly over-valued and will come crashing down at some point in the near or far future.
So Bitcoin and all of the hundreds of other so-called crypto-currencies are digital records of the value of everything we have chosen to put into the place where Bitcoins are kept. That place has a common name: wallets but these wallets are purely digital. Unlike the wallet you have in your purse or pocket, these wallets have a long address. This long address is the name of the owner of that particular Bitcoin wallet.
Bitcoin Mining is Limited
The value of Bitcoins has increased so much because Bitcoins are limited. The process of how Bitcoins come into being is called mining. For our purposes here, we only need to know that Bitcoins are, at present, accepted as money by many businesses.
One Industry and Bitcoins
We’ll continue with a short discussion of how Bitcoins are used in online gaming. Some new online casinos operate exclusively in Bitcoins. More likely, a casino will offer Bitcoins as a banking option.
In either case, you must purchase Bitcoins digitally in order to use them at a casino. Interestingly, online casinos are all run through software. The tables, slot machines, and other equipment common to land based casinos has already been digitalized for online gaming. Thus, having a digital currency is not such a stretch in concept. The big difference is that a digital slot machine is intellectually more accessible than a digitalized supply of money.
As people become more familiar with the concept of Bitcoins and other cryptocurrencies, it will become more accepted to play casino games with Bitcoins. But the danger that Bitcoins are in a massive speculative bubble means that you have to be extra careful when you purchase Bitcoins for any use, not just for gaming.
Most casinos that operate with or accept Bitcoins make you exchange your government money for Bitcoins at an ewallet. These “wallets” have become popular in the past ten or so years as anonymous “banks” that simply facilitate transactions online.
The bottom line on cryptocurrencies is that as people become more familiar with the concept and the terminology, cryptocurrencies will become more widely used for buying and selling goods and services both online and in land based businesses.
The only problem at the present time is that the real world value of Bitcoins is extremely uncertain. So, caution is advised.