Bitcoin was the very first digital currency to operate without a central bank or single administrator. Since launching in 2009, it has become the most well-known and most traded cryptocurrency in the world.
Designed around the idea of using cryptography to control the creation and transfer of money, Bitcoin enables instant payments to anyone, anywhere in the world.
Bitcoin has a number of properties that are desirable for currency. For example, its portable, durable, scarce, and difficult to counterfeit.
According to research by the University of Cambridge, there were between 2.9 to 5.8 million cryptocurrency wallet users in 2017, most of them using bitcoin.
Bitcoin strengths and attributes
One of Bitcoin’s many strengths is the monetary autonomy it offers users. Bitcoin removes trust issues associated with conventional currencies through the use of cryptographic proof, decentralised networks, and open-source software.
- Do not require permission – Software can be installed and used by anybody worldwide
- Do not require ID – Suitable for people in areas with underdeveloped financial infrastructure or those wanting to protect their privacy
- Are censorship-resistant – Transactions cannot be blocked or frozen, regardless of the amount
- Are quick and irreversible – Transactions take place in seconds and can become irreversible within an hour
- Are always possible – is online and available 24/7, 365 days a year
The properties of Bitcoin also make it a good store of value. In fact, it has been described as a ‘Swiss bank account in your pocket’.
- Has no storage costs – It doesn’t take up physical space and can be stored encrypted on a hard disk or paper backup
- Cannot be printed or debased – There will only ever be 21 million coins
- Has no counter-party risk – With a private key and enough confirmations, nobody can take your coins away from you
- Is easy to protect – Impossible to steal or seize by any thief, government or bank
Price and volatility
Since released as open-source software in 2009, Bitcoin has gone through various cycles of appreciation and depreciation, otherwise known as bubbles and bursts.
In 2011, the value of one bitcoin rapidly rose from about US$0.30 to US$32 before returning to US$2. The following year during the Cypriot financial crisis, it rose again to US$266, before crashing to around US$50 in April 2013.
On 3 March 2017, the price of a bitcoin surpassed the market value of an ounce of gold for the first time, as its price surged to an all-time high of US$1,268.
Financial author and risk management expert Mark T. Williams says that as of 2014, Bitcoin has volatility seven times greater than gold, eight times greater than the S&P 500, and 18 times greater than the US dollar. However, there are applications where volatility does not matter, such as online gambling, tipping, and international remittances.
A study in Electronic Commerce Research and Applications showed the value of the bitcoin network as measured by the price of bitcoins, to be roughly proportional to the square of the number of daily unique users participating on the network.