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How is bitcoin used?
Basically you can think of bitcoin like a currency. Just like you can exchange your dollars for euros or yuans you can exchange them for bitcoins. Just like the Dollar is the currency of the US, and the euro is the currency of a bunch of european countries, bitcoin is the currency of the internet (or one of its currencies).
More and more stores and e-commerce websites are already accepting payments in bitcoin. The thing though is that people don’t really want to spend their bitcoins like that, at least for now.
For one because bitcoin is pretty volatile, the price keeps going mostly up right now, but it could be a bubble and suddenly drop by a lot and people don’t like that kind of volatility for a currency.
It’s also not that easy to rebuy bitcoins, so why spend the bitcoins and then have to laboriously replenish them. Most people still get paid in government currencies. Really only people who get paid in bitcoin or who for some reason almost exclusively own bitcoin and no other currency care about having lots of places to spend them. But even those people mostly exchange their bitcoins for government currency whenever they need to buy things.
So that initial vision of bitcoin replacing all other currencies and people only using bitcoins for everything … didn’t happen … it just wasn’t practical. Why learn how to use a completely new type of currency, if your credit card is working just fine and you already know how to use it and who to call if something doesn’t work?
So if it’s apparently not that useful as a currency, why do so many people buy bitcoins and why is it so resilient? Well, like with any technology, those people will use it for whom it has an advantage over their alternatives. So it’s important to understand what bitcoin’s advantage is.
Bitcoin has a very uncanny resemblance with another internet technology … torrent. Imagine it’s ledger or blockchain like a torrent file that can simply be appended. That tells you something about bitcoin’s competitive feature. Like torrent it can’t be controlled or shut down.
One of bitcoin’s first major uses was a deep web e-commerce site called silkroad. With bitcoin something was possible that was not possible with any other currency. A website, similar to e-bay that couldn’t be controlled by the government. Therefore it was really only worth it for people who couldn’t sell things on normal sites like e-bay to go through the trouble of figuring out how to use it. So it became a place where only things were sold that were illegal, mostly drugs.
As terrible as that sounds, Satoshi Nakamoto should maybe get a Nobel peace price for reducing drug violence. Selling and buying drugs online got rid for the need for a lot of the armed thugs in the drug business and allowed users to leave ratings and reviews about the quality of the drugs. The same is possibly true for prostitution. It’s certainly safer for sex workers to be able to advertise online instead of standing on the street or having to work in a brothel.
But today and especially outside of the US the biggest use is for international money transfers. People learn to use this strange new currency thing on the internet to be able to circumvent all the red tape and high fees of sending money abroad, often also tariffs and capital controls.
Not surprisingly the main use case of bitcoin in countries with crazy inflation like Venezuela some more tech savvy people convert their income immediately into bitcoins to hedge against their currency’s inflation and convert them back into their currency when they need to pay bills or buy groceries.
For the moment Bitcoin’s use is simply to give a middle finger to the governments, but let’s see what will happen in the future. Like music and movie sharing sites that forced the entertainment industry to get creative and invent iTunes and streaming and stuff like that that people actually prefer over downloading pirated files, it could simply force governments to be more responsible, and innovate so that people prefer to use their currencies instead of going through the hassle of using bitcoin.
Or maybe Bitcoin or another crypto currency becomes more widely used and easier to use and people really decide to use it as a primary currency.
It could also simply replace the dollar as the world reserve currency.
Or something else could happen that I don’t have the creativity to even imagine. It’s hard to predict the future.