Since the bitcoin blockchain first appeared back in 2009, many people have wondered why this virtual currency has value, given that it is not backed by anything. Today a single bitcoin is worth many thousands of dollars but what gives it its value and what do people use it for? Here are 3 uses cases for bitcoin and blockchains in general.
STORE OF VALUE
Back in Roman times, an ounce of gold would have bought you a nice suit of clothes and some sandals. Today an ounce of gold will still buy you an expensive suit and a pair of shoes so it is fair to say that gold has held its value over the centuries. The same can’t be said for cash, which is constantly losing its purchasing power because governments dilute the current supply by printing more of it every year. We can all remember our favourite childhood sweets and snacks costing a fraction of what they cost today.
Gold has retained its purchasing power because it is scarce and cannot be mass produced like other commodities. Bitcoin is often referred to as “Digital Gold” because its supply is infinite. Gold has earned its reputation as a good store of value over the centuries and many people are now speculating that bitcoin will be an equally good store of value because its supply is capped at 21 million.
Most people first heard about bitcoin following the launch of the darknet market “Silk Road” where users were able to buy drugs and other types of contraband using bitcoin. Later when PayPal, Visa and Mastercard stopped accepting donations for Wikileaks, the site published a bitcoin address where its supports could donate money to the organisation. Julian Assange later admitted that the cryptocurrency kept Wikileaks alive during those early years. Because it is impossible to stop a bitcoin payment, it makes it a great way of making financial transactions that governments don’t want you to make.
Bitcoin gambling has also become extremely popular because countries like the United States of America and Australia have tried to prevent their citizens from gambling at online bookmakers, casinos and poker rooms. While the authorities may be able to block people from using bank wires and credit cards to gamble, they have no power to stop sports bettors or poker players from depositing at their favourite gambling sites with the Bitcoin, Ethereum, Litecoin or Monero blockchains.
Right now you can open Skype or iMessage and speak to someone on the other side of the world, instantly and for free. Once you hang up the phone, you will not be able to send that person a couple of cents even though we live in the digital age. Payment networks like PayPal, MoneyGram and SWIFT have minimum transfer amounts and minimum fees so it’s simply not possible to make micropayments to people over the internet.
This is just starting to change thanks to a new micropayment network called Lightning that is being built on top of the bitcoin blockchain. Thanks to the Lightning Network it is now possible to send payments as small as a thousand of a cent to anyone on the planet, instantly and for free. This looks like it could have profound effects for content creators because it will allow people to pay for individual articles on newspaper sites or pay per second for movie and music streams. The possibilities are endless as we enter the age of micropayments.