Since this Bitcoin boom and it starting to get in the mainstream I have had several family members and friends approach me about how to get in, what gives bitcoin value, etc. As I am sure a lot of people who have been preaching Bitcoin for the last couple years have been getting the same attention. I have found it quite difficult to explain how the blockchain and bitcoin works to someone who has no clue about the technology. So instead of breaking down what the blockchain is and how it works I have come up with three key points I believe give Bitcoin it's value.
- It is Decentralized.
Basically you can transfer funds to anywhere in the world with little to no fees INSTANTLY. As opposed to going through a bank that charges you a wiring fee and can take 1-7 business days depending on where you are transferring to. For example, I used to run a marketing company and we would outsource our leads to India (I am from U.S.). So I would have to wire them money weekly for the leads. First inconvenience of doing this is I would have to physically go to the bank to send wire because international wires had to be done from a branch of the bank. After being charged $100 wire fee I was then told that the recipient of the wire will not receive it for 5-7 business days! Bitcoin eliminates all of those tedious inconveniences by allowing you to transfer from the comfort of your own home, with little to no fees, and instantly. Imagine someone coming to America from a poverty stricken country to work and send money to their family back home. That $100 wire fee would be devastating to their financials.
- Demand for it.
The value of anything is the demand for it and bitcoin has a ton of demand. There are over 2 BILLION people in the world who do not have access to banking systems so therefore they have no way of storing or transferring funds. Everything is cash so they either have to be right there with the person they would like to exchange it to or risk sending it in the mail. Also cash is dangerous. You can lose it, you can get it taken from you, it can get burnt up in a random house fire, etc. Cash is king but it is not convenient. Bitcoin works as a way to store and transfer funds for people who can not open a bank account. Usually when I point this out I get the response "Well how are they supposed to buy bitcoin if they dont have a bank account?". My answer is Bitcoin ATMs. They are popping up everywhere. When I backpacked SE Asia I saw at ton of them in mostly Thailand, but also Vietnam, Cambodia, and Indonesia. All the person would have to do is get an online bitcoin wallet, go to the BTC ATM, input cash, and send to the wallet. This demand for bitcoin gives it tremendous value.
- Limited supply.
At the time I am typing this there is only a circulating supply of 16,736,800 BTC and there will only ever be 21 million. The reason this has value is because as long as the demand for Bitcoin is there, then deflation will occur as opposed to inflation like fiat. Everyday the Federal Reserve continues to print ant print money so the value of the dollar continues to decrease. Since Bitcoin came out in 2010 there has been a 13.1% inflation rate. Meaning $10,000 in 2010 is now actually worth $8,840 because there has been more printed. The rarer something is, the more its value. Now if you bought $10,000 of bitcoin in 2010 it would now be worth over $200 million. So the more the demand for bitcoin goes up the the more the price will because the limited supply.
After pointing out in simple terms these points of value for bitcoin to anyone skeptical or curious they pretty much always go ahead and invest. This is how I have been explaining it to the people who approach me about it. I would rather have a 20 minute conversation about these key points than try to explain the blockchain for hours.
Hope this helps any one who has trouble explaining why bitcoin has value. Happy Investing!