Bitcoins – Bit of a waste or the real deal?

Everyone is always looking to live better for less. To be able to sustain a healthy and enjoyable lifestyle on a pittance really is a dream. So naturally, in order to achieve this dream we need to be frugal and need to shop around – this may bring you into contact with bitcoins.

Bitcoin

The US Treasury view bitcoin as a decentralised virtual currency. In essence, bitcoins are used for online peer-to-peer trading between client and provider.

In the upcoming months, bitcoin is going to become ever more prevalent. So can this digital currency be useful for you or is it best avoided?

There is no definitive answer for this, but, with the currencies lack of a central bank, costs are reduced. You bitcoins are kept in your virtual wallet, effectively a bank account, when you want to buy something the money comes straight out of your wallet and into the venders. In theory you could say that the removing of the bank is a removal of a barrier of trade, as a result, bitcoin transactions are 2-3% cheaper than using a credit card.

This removal of the bank is also good in other regards, most notably betting. More and more MicroGaming powered sites are allowing for bitcoin betting. The reason: the site’s ability to pay out straight away, thanks to not having to go through a bank, is hugely popular for both punter and bookmaker. It’s not just bookmakers that are fond of this instantaneous commerce but coffee shops in Amsterdam implement it as to various online shops.

Many economists are looking at bitcoins as a catalyst for innovation and competition. In the bitcoin world there are no monopolies, as of yet, and as such competition should drive prices down, as companies compete for sales. Whilst innovation should increase to help companies differentiate from competitors. Kevin Dowd of Durham University believes it could have a similar effect to the British government opening up the telecom market, which saw innovation and competition increase tenfold. The winner of the telecom opening was the British public. If bitcoins can bring about the same then they should be embraced.

However, for all its benefits bitcoins do come with one huge drawback, the unpredictable nature of the value of the currency. In the later stages of 2013 a single bitcoin reached a record high of $1135, just three days later it had crashed to $693 per bitcoin. To put that into perspective, if you had 10 bitcoins at the time you would have $11350 in assets, three days later you have $6930, that is a depreciation of $5420. This slump was the onslaught of the FBI bust on the Silk Road, an online black market, and although they were justified to make the sting it does show the volatility of the currency. No currency fluctuates quite like bitcoins. They can increase in worth rapidly but fall in price even faster. What makes it all the worse is that the lack of a centralised bank means there is no government intervention, so money lost is lost.

So, as a whole, bitcoins are something to be considered but it will probably be best to wait until there is some sort of stabilising mechanism to stop the fluctuation. Nobody wants to wake up in the morning and see that their money has diminished by half.

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