Like most people, you've probably heard of Bitcoin, but, like most people, you're probably not at all sure what Bitcoin is, how Bitcoin works and why Bitcoin is getting so much media attention.

This article will pop the Bitcoin hood and will highlight some of its strengths and weaknesses. Hopefully, it will give you a more enlightened perspective, enabling you to decide on what steps - if any - you may take to become part of the Bitcoin revolution.



In fact, when discussing Bitcoin,"revolution" is quite an apt term. Bitcoin is a digital currency, a kind of money that only exists on computers. And whilst that sounds like something that belongs in a sci-fi movie, Bitcoin has actually been gaining considerable traction around with world. As it happens, in countries like Japan, Switzerland, Sweden and South Korea, to name a few, Bitcoin has already been in broad use as a retail currency.

Sure, there are still countless people who consider the whole Bitcoin concept far-fetched and unlikely to ever become mainstream. But the fact of the matter is that Bitcoin has become ever more valuable, both in dollar terms and in status.

Why? What makes Bitcoin so special? A number of things.

For starters, Bitcoin is the only currency in the world that isn't centralized. In practical terms, this means that, unlike regular (fiat) currency, there's no bank or government that controls Bitcoin. Bitcoin's integrity is maintained solely by its algorithm. This sounds complex, but it basically means that Bitcoin's various components, its cryptographic code, the nodes and the so-called miners that comprise its computer network, ensure that only legitimate transactions are validated and locked into its database, the Blockchain, for all to see.



The huge advantage of this Blockchain system is not only that corruption, fraud or abuse is as good as impossible, but also that no middleman at all is required, such as a bank, a credit card or a Western Union. This renders the use of Bitcoin way cheaper than regular currency.

Take remittances, or telegraphic transfers of funds, from country to country. Typically, these take up to a week to be completed and are subject to high cost. Some financial institutions charge a flat fee and a percentage of the sum. As if that's not enough, a prohibitive conversion rate is charged as well. Compare this to sending and receiving Bitcoin, which usually takes mere seconds and cost a dollar or less.

Also, as Bitcoin is on its way to become a global currency, users will never have to convert the fiat currency of their country to the fiat currency of the country they will be going to for a holiday or a business trip. This, again, equates to conversion fees saved.

Of course Bitcoin being decentralized also means that there's no middleman like a central bank or a "Fed" with the power to tweak the interest rate according to the rate du jour. Let's face it, one overwhelming drawback of regular money is that it's tempting for central banks to have their money printers running red-hot non-stop, so as to try and reduce the central banks' debt burdens.



This constant printing of additional money has resulted in currencies world-wide being embattled in a race to the bottom. Which currency can out-inflate the others? The unfortunate victims of this arms race? The public. After all, it's the public's savings, pensions, capital etc that is hollowed out year after year, as inflation ravages the value of money.

Nobody can print more Bitcoin. In fact, there will only ever be 21 million Bitcoin is existence, ever. This has been hard-coded in its very script. It's in its DNA. And this cap of 21 million Bitcoins will only be reached in the year 2140. From now until that year, Bitcoin will gradually increase in number from the 15 million in circulation now (give or take) to its ceiling number 21 million.

So Bitcoin, much like gold, is actually disinflationary in nature. And this, like gold, renders it a very suitable store of value. This is why pundits have been ascribing hefty future valuations to Bitcoin. By allocating a mere 5% of the total money supply currently invested in all available assets to Bitcoin would swell Bitcoin's value to 1,000,000 US$ between now and 5 years from now.

All that having been said, for all its promise and potential, Bitcoin does have some maturing to do, both in terms of its acceptance in the world and also in terms of the code that drives Bitcoin. Until Bitcoin has shaken off its infancy, it will undoubtedly encounter its fair share of turbulence. This is an unavoidable rite of passage.



The question is: Do you wait until Bitcoin is established, at which point its value will be much much higher than it is now? Or do you start dabbling in Bitcoin a-sap, whilst it's still affordable. Sure, you'll be in for a pretty wild ride. But then, no reward without risk. Besides, given the significant part Bitcoin will be playing during Singapore's ambitious Smart Nation drive, adopting Bitcoin now, no matter how modestly, seems the prudent approach.

Want to know more about Singapore Bitcoin? Click here.

DISCLAIMER
I am not an investment advisor and above article is for purely informational purposes and is not to be taken as investment advice. Investors are advised to personally undertake adequate due diligence, or to consult a financial advisor in order to determine what assets - if any - are appropriate to invest in.