Since Bitcoin’s mainstream adoption, there has been controversy about whether the digital asset should be classified as an investment or a currency. Although Bitcoin has played an important role in the global economy, the majority of individuals use it as a substitute for fiat currency.
However, due to its significant volatility, the digital asset is unable to hold a stable value like a typical fiat currency would, begging the question of whether Bitcoin is a currency or an investment (asset).
What is Bitcoin?
Bitcoin is described differently by various research papers. However, it is commonly referred to as digital money that can be utilised within a decentralised peer-to-peer payment. In other words, the decentralised digital currency can be used for any payment transaction (buy, sell, and exchange, for example) without interference from central authorities such as banks and gateway payment services.
Notably, Bitcoin is built on blockchain technology which further implies that each transaction exists on a publicly accessible ledger. As such, it is remotely impossible to reverse or fake any transaction.
How does Bitcoin works?
Bitcoin is hosted on a blockchain which is a linked body of data storage – the blockchain is made up of different storage blocks that are strung together like a chain.
Notably, each block contains details of every Bitcoin transaction including the name of parties involved, date, time, amount, gas fee and unique wallet address among others. Once a new block is added to a blockchain, it automatically becomes accessible to anyone who desires to see it. It is this transparency attribute which makes the digital asset stand out from the fiat alternative.
Also, Bitcoin transactions on a blockchain are facilitated by a set of people known as ‘nodes’. These people are responsible for verifying the provenance of a transaction, validating payment, and ensuring the finality of any transaction.
The aforementioned process can also be dubbed as mining, which is also an applicable term for referring to the process of injecting new digital assets into circulation.
Bitcoin as a currency
According to Researchgate, Bitcoin is a hybrid between precious metals with intrinsic value and fiat currency backed by a monetary authority. In simple terms, Bitcoin can function both as a currency and as an asset. So what attribute of Bitcoin makes it suitable as a currency.
Generally, two things that make a currency include a system where it can be used and, secondly, general acceptance by a group of people. In this context, Bitcoin operates within the decentralised system and is generally accepted as a means of payment therein.
Also, because Bitcoin can be paid in exchange for a service, it can also be considered as a currency, especially now that it is widely accepted both by individuals and the corporate world.
Bitcoin as an investment
Just like precious stones, Bitcoin is a store of value and, more precisely, an investment asset. According to industry definition, an investment asset include both tangible and intangible instruments which investors buy and sell for the purposes of generating additional income.
While the above can be achieved on either a short or a long-term basis, it also implies that the value of the item involved is not fixed and subject to market volatility. That said, Bitcoin, being a highly volatile asset can be considered an investment as the value is not constant. Rather, it is subject to the law of demand and supply, in addition to other factors such as competition, and regulation.
How to invest in Bitcoin
Investing in Bitcoin, just like a typical stock, requires some level of understanding of the market. Aside from trading Bitcoin for other cryptocurrencies, another prominent way to invest in Bitcoin is through a retirement scheme known as Bitcoin IRAs.
Otherwise known as Bitcoin individual retirement accounts, this type of investment allows individuals to invest in alternative asset classes (in this case Bitcoin). Other asset classes include real estate, precious metals, and many more.
Because this type of investment is on a long-term basis, investors can take advantage of its several benefits including high returns, and Tax advantages.
Other ways to invest in Bitcoin include mutual funds such as Grayscale Bitcoin Trust (GBTC), Proshare Bitcoin Strategy, Valkyrie Bitcoin Strategy ETF (BTF), and many more.
Is Bitcoin a good investment for the future?
Whether or not Bitcoin is a good long-term investment is a matter of personal interest, and while the digital asset’s potential is boundless, its long-term viability is dependent on mainstream adoption and utility.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.