In 2010, Laszlo Hanyecz bought two pizzas for $41 worth of Bitcoin. Today, the amount of Bitcoin he spent on that pizza is worth just over $530 million. Bitcoin and other cryptocurrencies are a new up-and-coming form of currency that is gaining traction throughout the world. Cryptocurrencies are now widely beginning to be perceived as a newly viable currency option across the world as an alternative to fiat, with many buyers and sellers offering the option of paying or receiving through these currencies already throughout the US and other countries. People are using cryptocurrencies due to their ability to be an alternative to banks, their function as the world’s first non-inflationary currencies, and due to their ease of accessibility across the world.
One main reason why people are putting their money into cryptocurrencies is due to their ability to cut out the economic middle man of the banks. Arguably the main foundational appeal to cryptocurrencies is that you yourself and nobody else holds your wealth. Often throughout economic crises such as the Great Depression or the Stock Market Crash of 2008, banks will have loaned out too much money on credit than the amount that they actually have stored. Thus, when people need to pull their money out during an economic crisis, the banks do not have the money that all of the depositors have trusted them to. More often than not, the bank will then shut down and block people off from accessing their stored wealth, leaving the depositor in an economically helpless situation, with all of the power being in the hands of the banks. Since with Bitcoin and other cryptocurrencies, nobody holds your wealth but you, you cannot be locked out from it, and have access to it despite if there is an economic crisis. There are often also instances of sending money out of the country where banks will take lengthy or expensive processes to transfer one’s money, or they just will not allow its users to transfer funds from place to place in the first place. Cryptocurrency is deemed as a means around this aspect of banks, as transfers can be made at any time, anywhere, person to person. Moving on from cryptocurrencies’ alternativeness to banks, I will now touch upon the aspect of inflation.
The second reasoning behind people storing their wealth in cryptocurrencies and Bitcoin specifically is due to its non-inflationary title. National currencies across the world tend to hold value over time very poorly in comparison to other forms of wealth. The inflationary rate of the US Dollar from 1956 to February 2021 was 871.92%, meaning that if you were to hold your wealth in the Dollar over that amount of time, your wealth would decrease in value by over 871%. In comparison to the rest of the world’s national currencies, the Dollar is known to be one of the better national currencies out there. This “inflation tax” is a widely known fact amongst the rich population and hedge fund managers, as putting their wealth into anything but land, precious metals, artwork, stocks, and now cryptocurrencies would result in the obliteration of their wealth in just a few decades. Most of the poor or lower middle class population tends to not realize this and thus, any acquired generational wealth stored in national currencies amongst poorer families is often lost in value tremendously over just a couple of decades. In third-world countries like Venezuela or Zimbabwe where hyperinflation runs rampid, this is a very real threat to the population’s livelihood, as often when a person makes money in these countries, they will have to spend it pretty quickly on goods or services or watch their workweek’s acquired wealth lose value rapidly. Bitcoin and other cryptocurrencies like it, differ greatly from national currencies in the aspect of inflation. National currencies can be printed at will by politicians, while Bitcoin has an exact finite amount of it. Not even gold has this title, as there is an almost endless supply of gold found throughout the universe. There are about 21 million Bitcoin in existence or left to be mined, and there can never be any more made after that, making it the world’s first non-inflationary currency. This means that the value of any Bitcoin that you may own can never decrease from the creation of more of it. Thus, there is no inflation tax upon Bitcoin. Moving on from inflation, I will now go into the aspect of accessibility.
The final main reason why people are starting to store their wealth in cryptocurrencies more and more is due to its ease of accessibility across the world. 1.7 billion people across the world do not have access to a bank account, and most do not have access to easy-to-use financial institutions or a relatively stable currency. Throughout all of modern history, where you were born in the world is the predominant factor of how you can interact with wealth, whether that be buying, selling, wiring, or storing it, etc. In places like Latin America, Africa, and South and Central Asia especially, this is an economic death sentence from the getgo, as the financial institutions are just not there. More and more people do have some form of access to the Internet, however, and this is a growing number over the years as phones and computers become cheaper and more widespread throughout the third world. Despite not having access to a bank account or a stable currency, these people can use the Internet to buy cryptocurrency no matter where they live. This gives an individual with access to the Internet that is born in a country with poor financial institutions the ability to both give loans, take out loans, transfer, and store wealth. Poor families are now able to safely and securely store wealth and work towards a better future without the fear of it being taken from another individual or government, whether that be through physical means or the inflation tax. For everybody, but especially for those living within the third world or authoritarian countries, this is a groundbreaking technology that will allow for billions to begin participating in the global market as an individual.
Today I have discussed the three fundamental aspects of why people are investing in cryptocurrencies more and more. Cryptocurrencies see their main perceived value from the populace in the aspects of their alternativeness to banks, inability to be inflated, and ease of accessibility. Hopefully, after this, the next time you see Bitcoin in the news, you will know just why exactly it is becoming such a popular form of currency throughout the world.
McCarthy, Niall. “1.7 Billion Adults Worldwide Do Not Have Access To A Bank Account [Infographic].” Forbes, Forbes Magazine, 7 Jan. 2021, www.forbes.com/sites/niallmccarthy/2018/06/08/1-7-billion-adults-worldwide-do-not-have-access-to-a-bank-account-infographic/?sh=771a92cc4b01.
“Inflation Calculator — US Dollar.” USD Inflation Calculator — US Dollar (1956–2021), 8 Feb. 2021, www.inflationtool.com/us-dollar.