bitcoin uses

Bitcoin Use Cases

Bitcoin was launched on January 3, 2009, when Satoshi Nakamoto mined 50 Bitcoin. Over the course of the past decade, several use cases have emerged for this now-famous cryptocurrency.

Before we examine some of the most common uses for Bitcoin, let’s review the actual meaning of a use case. How does it apply to Bitcoin and why is it such an important topic in the technology universe?

What is a Use Case?

Without use cases, there would be absolutely no reason to continue discussing Bitcoin or the entire cryptocurrency ecosystem. This is because the main purpose of discovery or technological innovation is to add value to our daily lives. Discoveries are created to enhance the well-being of society. Without some type of societal benefit, a discovery will lose its appeal very quickly. Even cryptocurrencies.

The official definition of a use case is an engineering term that describes how an individual uses a system to accomplish a goal. In simple terms, a use case is a measuring stick for determining the true value of a new product or service. So, what can Bitcoin be used for?

Elimination of Intermediaries

Arguably, Bitcoin is the most revolutionary discovery in the history of money. It can completely alter the way consumers and businesses interact with financial institutions.

BTC allows you to send and receive money without the use of a bank, credit union, or credit card company. It eliminates the role of a bank in a financial transaction.

Technically speaking, a bank is nothing more than an intermediary. It serves as the middleman between customers and their money. While not true for Bitcoin, cryptocurrency overall can remove all intermediaries.

The elimination of intermediaries would extend well beyond the financial services industry. The global economy is filled with intermediaries across all industries. Removing intermediaries would lead to savings as well as create a surge in productivity.

Tokenization of Assets

Tokenization involves fixing an asset to a token. These assets include such things as stocks, bonds, commodities, real estate, fine art, antiques, precious metals, etc. In fact, any type of asset involving a buyer and seller could be tokenized.

You may be wondering how does Bitcoin become part of the tokenization process? Removing financial assets from the legacy financial system would involve the elimination of the US Dollar as the payment mechanism between the buyer and seller. Therefore, a new payment system is needed to settle all transactions. Bitcoin is a perfect replacement because it is linked to a public blockchain, which is one of the necessary ingredients for successful tokenization.

Financial assets are a multi-trillion-dollar business for the financial services industry. Therefore, using Bitcoin as the payment mechanism in the tokenization process would save an incredible amount of money for investors. Tokenizing all asset classes will allow more people to invest in these products because it will lower the cost and remove barriers to entry.

Store of Value

Store of value is arguably the most important function of an asset. As you know, there are many assets within the global financial system. However, very few of these assets can serve as a store of value.

Many people believe the US Dollar is an excellent store of value because it has remained relatively stable over the past few hundred years. On the surface, this is a true statement. The US Dollar is a stable currency in terms of volatility. The Dollar rarely fluctuates more than 10% per year against a basket of foreign currencies.

However, over an extended time, the Dollar has proven to be a poor store of value. In fact, the Dollar has declined in value 43.3% since 1985.

If we measure the Dollar against the rate of inflation (purchasing power), it fails miserably as a store of value. Because the loss of purchasing power occurs so slowly people simply don’t realize it is happening. Purchasing power is a difficult concept for many people to understand as well which means that this downside to the US Dollar often goes unnoticed.

Inflation

Concerning fiat money, the major concern among currency experts and professional economists is the fact that governments (through the use of central banks) can create an unlimited amount of money. Basic economics teaches us that increasing the supply of any good or service will ultimately decrease the underlying value of the good or service. The same economic laws apply to money.

This explains why the US Dollar has lost a tremendous amount of purchasing power over the past several decades.

Inflation is inherently built into all fiat money systems because (as mentioned) governments have the ability to print unlimited quantities of money. As the supply of money increases, its underlying value decreases. As long as the US Dollar is based on a fiat money system, the value of the currency will continue to erode. In other words, the dollar bills in your wallet or bank account will continuously purchase a smaller amount of goods and services over time.

Fiat Currencies

There have been over 3,000 fiat currencies throughout recorded history. The first fiat paper currency was used in 960 AD by the Chinese. The average lifespan of each currency is less than 30 years. The currencies in existence today will eventually fail. This includes the US Dollar.

In fact, the US Dollar (in its current fiat format) has lasted much longer than 30 years. Officially, the US Dollar became 100% fiat in August 1971, when Richard Nixon eliminated the Gold Standard. Therefore, the US Dollar has survived for 50 years, 20 years longer than the average currency.

Don’t panic though the US Dollar could easily maintain its current format for another few decades. But eventually, it will be replaced by another currency system. This explains why so many currency experts, economists, and investment professionals are fascinated by Bitcoin. Many people believe that Bitcoin will ultimately replace the entire global fiat currency system. This would include the Australian Dollar, British Pound, Canadian Dollar, Euro, Japanese Yen, Mexican Peso, Swiss Franc, US Dollar, and all other global currencies.

Role of Bitcoin (and Cryptocurrency)

As you can see, fiat currencies are a terrible store of value because they are constantly printed into circulation. All G20 nations create an unlimited supply of currency units through their central banks. Bitcoin is completely different because the supply is limited. When Satoshi Nakamoto unveiled Bitcoin in the 2008 white paper, it was revealed that Nakamoto limited the supply of Bitcoin to 21 million. Arguably, this is the most important feature of Bitcoin.

Unlike fiat money, it’s impossible to increase the circulating supply above 21 million.

Cross Border Remittance

As we discussed in a previous section of Blockademy, approximately 1.7 billion people are unable to obtain basic financial services. These services include transferring funds across borders to friends and family members. Unfortunately, the legacy financial services industry has done little to change the basic structure of its own industry because there is no financial incentive to make these changes. This is particularly true with cross-border remittance.

Cross-border remittances involve payments where the payee and the recipient are located in different countries. These types of transactions are generally very expensive because the payments involve foreign currency fees. It’s not uncommon for fees to exceed 10% of the transfer amount.

The vast majority of cross-border transactions occur within the unbanked population. Based on the fact that the unbanked have very little access to basic financial services, the vast majority of cross-border remittances occur outside of the banking industry. Instead, these transactions are conducted through money transfer agents (MTA) such as Western Union, MoneyGram, and TransferWise.

The majority of the unbanked population resides in Africa. Mobile phone usage is quite common throughout the African continent. As a result, an increasing number of workers are using Bitcoin wallets to transfer funds to friends and family members. The fees are much less expensive compared to money transfer agents. This is another example of how a decentralized payment network is adding value to the lives of people across the globe.

Brief Summary of Bitcoin Use Cases

  • A use case is a measuring stick for determining the value of a new product or service.
  • Without legitimate use cases, new products and services are basically worthless.
  • The number of use cases for Bitcoin continues to expand.
  • Bitcoin can eliminate intermediaries, tokenize assets, and be used as a store of value and for cross-border remittance.
  • Unbanked consumers are big users of Bitcoin when sending money across borders.

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