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Unless you’ve been living under a rock, you should know that a bitcoin is basically a decentralized virtual currency that you can keep in virtual wallets and can be used to make real-life purchases and even be exchanged for real money.

Critics say that using cryptocurrencies like bitcoins can be dangerous as they have no intrinsic value, are not regulated, and can be used in making illegal transactions. So why are market players still talking about bitcoins? Here are possible reasons:

Reduced transaction costs

Unlike existing online payment systems such as PayPal and credit cards, bitcoin payments don’t have to deal with middlemen and international regulations. This significantly brings down the cost of bitcoin transactions (think transferring millions of US dollars for only a few pennies).

Alternative to fiat currencies

Some believe that bitcoins is a good alternative to holding national currencies dealing with capital controls, high inflation, and economic sanctions. For example, Cypriots probably would have preferred holding bitcoins over euros when banks had imposed withdrawal limits earlier this year.

Semi-anonymous trading

While a lot of exchanges require personal information, other services don’t require such trivialities. Identification isn’t impossible though. Remember that all bitcoin transactions are recorded in a public ledger!

If you think that you’ve seen the advantages listed above before, you are not wrong. So why the heck did the bitcoin’s popularity skyrocket early this month? Here are more recent reasons:

Bitcoins as a new type of asset class

Since breaking above $200 on the Tokyo-based Mt. Gox exchange in April, speculators and long-term traders are slowly recognizing the cryptocurrency as a possible investment. It also didn’t hurt its appeal when it staged its impressive spike a few days ago. But more on that on my next point.

Bitcoins are getting more legitimate

Over the past weeks major institutions such as the BOE and the Fed have joined Germany and have stepped closer to recognizing the crytocurrency as a unit of payment. In fact, just last week Ben Bernanke’s statement that virtual currencies “may hold long-term promise” was one of the main reasons why the value of bitcoins spiked to $900 on Mt. Gox and $1,100 on BTC China. Yowza!

More and more are using it

If you’ve read articles on what the heck bitcoins are, then you have no doubt also seen that a lot more merchants are now accepting payments in bitcoins. This includes China’s Baidu, Reddit, WordPress, some pizza chains, apartment rentals, and other small businesses.

Incentive to make it mainstream

Due to the cryptocurrencies’ nature, those who are holding bitcoins have incentives to make it more popular, more mainstream. Remember that cryptocurrencies technically have no instrinsic value and instead their value mainly depends on their demand.

This is why you shouldn’t be surprised that British billionaire Richard Branson, a bitcoin investor, recently announced that Virgin Galactic is accepting bitcoins for tickets to space. Heck, the famous Winklevoss twins who are on their way to establishing a bitcoin ETF also said that bitcoins are worth 100 times that they are now!

This doesn’t mean that bitcoin trading is some elaborate scheme formed by techno geeks though. Fact is, whether you think bitcoin trading is some type of Ponzi scheme or the future of money, there’s no denying that we’ll see and hear more about bitcoins in the future. This means that you should seriously start reading up about bitcoins (if you haven’t yet) so you can make informed decisions in case we see another significant development on the industry.

How about you? What is your opinion about bitcoins and cryptocurrencies in general? Give me a shoutout!

[Here’s a newbie-friendly guide to bitcoins!]

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