The different uses for bitcoin

Linda Xie

Bitcoin is a decentralized digital currency. I think part of what makes it difficult for people to understand bitcoin is that it can serve a variety of purposes and means different things to different people. It can sound like a panacea which leaves newcomers skeptical. People are attracted to bitcoin often due to a combination of the following properties, some of which overlap. Note this is not a comprehensive list and alternative terms are sometimes used instead. Someone’s ranking of what is important to them can be entirely different from another person’s ranking. This has led to heated debates, but I think the different ways it impacts people is what makes bitcoin so powerful. There is no single target user for bitcoin.

  • Decentralized: Bitcoin is a global peer-to-peer network. There is no centralized entity controlling it, which means that there is no central operator that can be shut down, censored, or that can charge fees.
  • Permissionless: Anyone can own bitcoin. There is no requirement in the protocol that you must live in a certain location or belong to a certain group. This is in contrast to the existing financial system where there are many people without bank accounts or who are excluded from the existing financial system.
  • Censorship resistant: No one can limit what you do with your bitcoin. If you want to conduct a transaction, the network will process it. If a government wants to take away all of your money they can’t just seize it, unlike with bank accounts. Laws differ based on jurisdiction so what is legal in one country can be considered a crime in another. This is becoming more relevant as we see stricter capital controls in some countries.
  • Transparent: There is a known supply of 21 million bitcoin that can ever exist in the world and no one can manipulate. This is extremely appealing to those who do not want any government to have the ability to arbitrarily print more money. Citizens in countries experiencing hyperinflation are often brought up as beneficiaries.
  • Global: No one country owns bitcoin and it isn’t limited by the physical borders of any country. As more companies start hiring remote workers from around the world this form of money ensures that it can be sent to anyone in the world without having to get them set up with complicated payment structures.
  • Efficient: The technology powering bitcoin is a lot more efficient than much of the financial infrastructure we have now. Wall Street sees the potential and has pushed the “blockchain not bitcoin” narrative, as well as began work on permissioned ledgers. In capital markets, settlement costs eat into margins, so there has been talk about security tokens improving efficiency.
  • Fast: Right now it can take several days for your money to be sent. Banks are only open during standard business hours so if you need money to arrive during off-hours you could be out of luck. Bitcoin allows someone to send and receive payment quickly.
  • Cheap: It’s relatively cheap to send bitcoin to anyone in the world compared to the fees that you’ll have to pay for other services. Remittances is an often cited example of where there can be major fee savings. The Lightning Network (layer built on top of bitcoin) can enable micropayments so you can envision tipping someone a small amount for valuable content like a blog post or paying for mechanical turk type tasks.
  • Digital: Everything is moving online so it makes sense that our money does too. As VR starts becoming more popular the idea of needing a digital money for everyone to transact in will become more important. The current generation of kids is growing up more familiar with interacting and transacting digitally.
  • Immutable: This is the idea that the ledger is not subject to change or manipulation. This is critical for transfer of value since you don’t want someone to just be able to arbitrarily revert their transaction. I also often hear immutability being important in the context of tracing goods through a supply chain.
  • Hedge: Bitcoin is becoming increasingly viewed as a digital gold and a hedge against global uncertainty as the asset starts becoming less correlated from traditional assets. Even institutional investors might find this appealing as a hedge for their portfolio.

Bitcoin has many attributes that serve a variety of purposes. When you talk to people about bitcoin you’ll often hear different stories, so for newcomers it’s hard to grasp what it should be used for. For example, many early bitcoin adopters were attracted to bitcoin because it is decentralized, permissionless, and censorship resistant. An institutional investor may like the idea that it provides a hedge against uncertainty for their portfolio while someone sending a remittance might just care about it being global, fast, and cheap. In the end, bitcoin is valuable as long as it is useful to people and it is clear that there are many groups all over that could benefit from these attributes.

Thanks to Jordan Clifford and Will Warren for reviewing this post.

Linda Xie

Written by

Linda Xie

Co-founder @ScalarCapital. Previously Product Manager @Coinbase. Advisor @0xProject.

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