Hey guys, please enjoy this guest post from Oli Sanders. She is a freelance writer residing in North Carolina who writes about money and other finance-related topics.
I’m sure you’ve probably heard about Bitcoins. The first time I heard about it was from a couple of friends who got interested and were trying to earn as much of it as they could online. They tried to explain what it was to me, but I didn’t quite get it.
Shortly after that, I heard about a coffee shop here in my hometown who were, at the time, devising a plan to start accepting Bitcoins as payment. I never did get interested enough to do more research (and it all sounded too complicated anyways!). However, I think this post will do a great job of explaining what it is and how it might be relevant to us millennials.
When Bitcoin comes up in conversation, it’s pretty tempting to fake comprehension. Yep, that’s right — you’re not the only one who secretly has no idea what people are talking about with regard to Bitcoin! Frankly, I have a few friends who have taken the time to study it and buy up Bitcoins of their own, and I’m convinced even they hardly know what they’re doing.
So what’s all the fuss about?
Well, the overview actually isn’t too complex, even if it’s a little bit weird.
Bitcoins are virtual currency with value that’s dictated by supply and demand unconnected to any government. In other words, no one is setting a standard value for Bitcoins. They’re essentially made up digital coins, but the more people want them, the more they’re worth (and in that sense they wind up functioning like ordinary currency).
Bitcoins are stored digitally (because, you know, they’re not real), either in a cloud or on your hard drive, just like any other digital resource or document. In fact, thinking of Bitcoins as miniature documents with financial value is probably the easiest way to understand them. Imagine you had 25 Word documents, each with “1 Bitcoin” written on it. You could store them on your hard drive or in the cloud, and transfer them one-by-one to someone else to hand them over. That’s basically how Bitcoin works.
The thing that makes Bitcoin particularly unique is the blockchain, which is essentially a public record of all Bitcoin transactions. If you use Venmo to exchange funds with friends, you might get the basic idea. On Venmo, you can actually see transactions related to anyone you’ve connected to on the app. “Lucy $10 to Peter – thanks for the pizza!” might pop up at any time (and yes, those are two of the kids from the Chronicles of Narnia, but that’s neither here nor there).
The Bitcoin blockchain isn’t quite so casual, but every Bitcoin transaction ever is recorded there, which helps to prevent fraudulent activity even though actual users remain anonymous. Getting back to the Word doc analogy, no one can copy/paste the same doc in multiple transactions – each one is essentially certified, and its movement is recorded in the first transaction. Some have suggested that the blockchain is more useful than Bitcoin in terms of its long-term impact on society.
Hopefully that serves as a decent overview of what Bitcoin is and how it works (but again, if not, don’t worry – no one really gets it). What I want to focus on though is specifically how millennials ought to feel about this leading “cryptocurrency” – and really, whether it ought to be ignored.
As currency, I can almost definitively say that yes, Bitcoin can be ignored.
As currency, Bitcoin is effectively a complicated digital I.O.U. that you can only use in certain places that happen to be interested in such things. It’s only fair of me to acknowledge that the number of places that fit that description is growing as Bitcoin hangs around and (for the most part) maintains a pretty high value in 2016. This list of vendors both online and elsewhere was put together late last year and remains relevant now. More and more stores, websites, etc. are accepting Bitcoin, and that means that you can indeed use it as you use real money. The question is why you’d really want to. It kind of feels like a push-to-start car. Maybe it’s cool and electronic, but that’s about it.
As an investment, I can’t quite answer the question of whether or not Bitcoin should be ignored.
To be clear, not everyone buys Bitcoins to spend them. Plenty buy them simply to hold on to them in the hope or expectation that their value will increase over time, and they can be sold for a profit like any other investment. One U.S. regulator has even officially designated Bitcoin as a commodity (which is to say, not as a currency). But, as with any source of investment, it’s difficult to gauge whether Bitcoin as a commodity is a strategic acquisition.
What is fair to say is that millennials are pretty uniquely situated to make decisions about Bitcoin. This is a younger generation’s thing, and while nothing is keeping older investors from jumping on board, it almost feels like it’s an opportunity set aside for young folks. But that doesn’t mean it’s one that requires action.
So, in conclusion…
As a currency you can pretty much leave Bitcoin alone if you’d like to. You don’t need it now and it’s not taking over currency anytime soon so you won’t regret it if you don’t buy some up. As an investment, you simply have to bite the bullet, learn a little bit about the market, and make a strategic personal decision. But perhaps most importantly, as a topic of conversation, you can probably get by just fine if you just continue to pretend you understand it all!
What’s your take on Bitcoins? Do you personally use or invest in them? Do you think Bitcoins will become more valuable in the foreseeable future?