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The many uses of Bitcoin

The many uses of Bitcoin

When people hear of Bitcoin for the first time they often ask what can Bitcoin be used for. Some dismiss Bitcoin as being play money or magic internet money upon hearing about it, but the reality is Bitcoin has a wide variety of uses ranging from serious financial investment to buying a bottle of hot sauce. This article will detail the various ways people use Bitcoin.

Many people buy Bitcoin as an investment, and this has turned out to be quite profitable for the early adopters of Bitcoin. When Bitcoin was listed on an exchange for the first time in 2009 it cost $1 for 1300 Bitcoin, and some analysts at the time thought that value was overpriced. The value of Bitcoin exploded from there however, and in December 2013 Bitcoin hit a peak value of $1163. That means if you bought $1 of Bitcoin in 2009 it was worth $1.5 million in late 2013. Such extreme profits simply aren't seen anywhere else in the economy. Many early Bitcoiners became millionaires. Currently each Bitcoin is worth $630, and investors are buying up Bitcoin in anticipation of its price rising. Some analysts say Bitcoin will be worth $1000-2000 by the end of the year. This makes sense, since Bitcoin is becoming more widely adopted by the day. Currently there is $8 billion invested into Bitcoin, which may seem like a lot but it is small compared to major corporations in the United States. If Bitcoin continues on the path to becoming a widely used global monetary transfer service, the total amount invested into Bitcoin could easily exceed $100 billion. If that happens the price will be more than 10 times higher than today. Also Bitcoin is an investor safe haven in times of economic crisis, much like gold. When a country prints more money to keep their financial institutions afloat the value of the fiat in that country goes down. Bitcoin's supply cannot be manipulated, so Bitcoin's price will rise relative to fiat in that situation. This has undoubtedly attracted more investors to Bitcoin, especially in countries with weak fiat currencies like Greece and Cyprus.

Aside from investing in Bitcoin in anticipation of a long term price rises, many people day trade Bitcoin to make profit. Bitcoin's price is constantly changing according to supply and demand, and it's possible to make a lot of money if you know how to play the market correctly. This is much like the stock market, except when trading Bitcoin you don't have to rely on a stock broker, and thus don't have to pay high trading fees/commission. In general the trading fee for Bitcoin is between 0.1% and 1%, so you can make money even when trading small amounts of Bitcoin. Compare this to stocks where the fee per trade is $10 or more, requiring you to invest large amounts of money to avoid losing all of your profit to trading fees.

Arbitrage is another popular way to make money when trading Bitcoin. There are several major Bitcoin exchanges across the world, including Bitstamp, BTC-e, and Huobi. There is often a 1-10% price difference between these exchanges, so you can buy Bitcoin on the cheaper exchange and then immediately sell it for a higher price on another exchange. Some people have created bots that do this automatically, and it's possible to make a living off arbitrage if you have enough money.

In addition to buying Bitcoin for long term profits and making money with arbitrage, many people invest in the alternative cryptocurrency markets to make money. There are hundreds of alternative cryptocurrencies; these alternative cryptocurrencies are based off Bitcoin but have their own unique attributes. Some of the more popular alternative cryptocurrencies include Litecoin, Dogecoin, Black Coin, and Dark Coin. Litecoin is the most popular alternative cryptocurrency with $235 million invested into it at this time, while the other cryptocurrencies I listed each have tens of millions of dollars invested. The price of these alternative cryptocurrencies is constantly changing relative to Bitcoin, so it is possible to make more Bitcoin when investing in alternative cryptocurrencies. It is common for an alternative cryptocurrency's price to change 10-50% in a single day relative to Bitcoin, making the profit potential much larger than the stock market, although the potential for losses is much greater as well. Oftentimes an alternative cryptocurrency's price will rise 100-1000% during the first month after it is launched if it becomes popular, so investors are always looking to invest in new alternative cryptocurrencies. There are many alternative cryptocurrency exchanges, including Mintpal, Cryptsy, BTER, Poloniex, and C-Cex. The price of alternative cryptocurrencies is often different between exchanges, and since there are dozens of cryptocurrencies on each exchange there are many opportunities for arbitrage. Some people compare alternative cryptocurrency arbitrage to picking up pennies in front of a bulldozer however, since the market can change wildly while you're in the middle of an arbitrage. Also, there are numerous alternative cryptocurrency arbitrage bots, making it difficult to make profits when doing arbitrage manually.

Aside from investment opportunities, Bitcoin is also used as a currency to buy/sell products and services, which is the original intention of Bitcoin. When a customer buys something with Bitcoin they don't have to pay the 3% credit card transaction fee, which can save a significant amount of money over time. Also Bitcoin transactions can't be reversed/chargedback, so merchants who accept Bitcoin save thousands if not millions of dollars, allowing them to lower their prices and giving them peace of mind. is a major online marketplace that sells basically every product known to man, and they accept Bitcoin. It is estimated that $10-15 million of products are bought with Bitcoin on per year. Dish TV is one of the biggest satellite TV services in the United States, and they just recently started accepting Bitcoin. Some Subway locations accept Bitcoin, and all you have to do is swipe your phone to pay. It costs about 0.01 Bitcoin for a full meal at Subway. Hundreds of small businesses also accept Bitcoin, including barber shops, honey producers, hot sauce/pepper aficionados, shoe makers, jewelers, technology shops, and many more. Also there have been several houses and cars bought with Bitcoin, including a $500,000 house in Kansas which was bought with ~800 Bitcoins.

Due to the anonymous nature of Bitcoin there is a darker side to the Bitcoin marketplace. On Silk Road every drug in existence can be bought with Bitcoin, and it is estimated that billions of dollars of drugs have been bought with Bitcoin so far. It is becoming common for drug dealers to get all of their supply via the Silk Road. Unless police intercept the drugs in the mail there is no way to trace who is buying/selling drugs on Silk Road. Fake bank accounts, credit cards, and passports are sold for Bitcoin as well, and these are used by scammers to make PayPal accounts. Also, hackers often sell their services and scripts for Bitcoin. There have even been some cases of people paying hit men with Bitcoin, including the infamous case of Ross Ulbricht (the former owner of Silk Road). Basically everything available on the black market can be bought with Bitcoin, and that is undoubtedly part of the reason Bitcoin has become so widely used.

Thus, there are many ways you can use Bitcoin. Investors buy Bitcoin in anticipation of long term profits, and they also day trade Bitcoin to make money on short term price changes. Since there are many Bitcoin exchanges around the world, investors can take advantage of the price differences between exchanges and make money via arbitrage. Buying and selling alternative cryptocurrencies is another popular use of Bitcoin. There are hundreds of alternative cryptocurrencies based on Bitcoin, and the price of these cryptocurrencies relative to Bitcoin is constantly changing. Some investors focus all their energy trading on the alternative cryptocurrency markets, and it is possible to make a large amount of money since prices on the alternative cryptocurrency markets regularly fluctuate by 10-50% in a day. Perhaps the main use of Bitcoin is buying/selling products and services, which is becoming very popular since Bitcoin transaction fees are low and chargebacks aren't possible. You can buy just about any product with Bitcoin, including houses, cars, computers, satellite TV, hot sauce, honey, or a sub at your local subway. Considering that Bitcoin is only 5 years old it is remarkable that Bitcoin can be used for so many things. It is likely that the uses of Bitcoin will continue to grow in coming years as Bitcoin becomes more widespread.

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