Whether or not you’ve ever used Bitcoin yourself, this cryptocurrency was the most successful currency of 2016. At the time of this writing, a single Bitcoin is worth about $1020 American Dollars, more than double its value at the beginning of last summer. For people who use Bitcoin (and especially who have held Bitcoins during this time of great value increase) this has been an exciting time. But for the rest of us, what’s so great about Bitcoin and why has it been gaining such dramatic value?
People buy Bitcoin when things are uncertain. The currency has been described as a “disaster hedge”. 2016 gave us plenty to worry about: the Donald Trump Presidency, ongoing PPI claims in Britain, the currency denomination elimination in India, economic turmoil in Venezuela and China, and so much more. It’s this last point that has most to do with Bitcoin’s meteoric rise.
China is the world’s largest financial economy, but that doesn’t mean they haven’t seen their share of upset during the past few years. Chinese real estate and related markets have been incredibly tumultuous of late, and lots of Chinese people have the expectation that the Chinese Yen is going to be losing value in the near future. The problem is, China makes it very difficult for its citizens to take their money out of the country, into more stable markets.
China only allows its citizens to take out $50,o00 into international markets each year. The government fears that any more removal of Chinese money from its borders could make the currency go into a tailspin, much like a bank run in the Great Depression. This hasn’t stopped some Chinese citizens from finding channels of money removal. Black market pathways and Bitcoin have been the most popular. In fact, 95% of Bitcoin exchange goes on in China.
Bitcoin can be transferred anonymously. While there are limits to the stealth that a user can achieve, it is impossible for anyone to tell from where a Bitcoin was sent, once it has arrived in its location. Bitcoin transactions are incredibly fast, and much cheaper than they’ve ever been before. For Chinese citizens looking for a way to smuggle their wealth out of the country, there really is no easier way.
For the rest of the world, Bitcoin is an attractive hedge. Just as people all over the world have always bought gold out of fear that the financial system in which they are invested might collapse. Bitcoin is the new way to keep wealth outside of traditional systems. It is a decentralized currency, not controlled by any bank. In fact, it was designed by a mostly anonymous programmer, who is only known by his alias.
Bitcoin is “mined” by non-professionals, who use specialized computers to crack computer code in which the Bitcoins are hidden. There is a finite amount of Bitcoin in the world, much of which is yet to be unlocked. What’s more, recent updates to the system by a team of independent experts have made Bitcoin more efficient and secure. This year, it may surpass its all time record value of $1216.70