Society loves a ‘craze’, right? Think of MySpace, Sea Monkeys, Fidget Spinners and Tamagotchi’s… What would you say if I said Bitcoin was a fad, just like the rest them?

The ultimate question for Bitcoin (and all crypto-currencies) is this – Will it stand the test of time, or will it fade away like the fads mentioned above?

I believe it will – but it will need to make a few changes!

Before we dive into the changes I think Crypto-Currencies need to make – let’s first discuss what they actually are!

Essentially, they are an intangible digital currency – their value is stored in your ‘digital wallet‘ and you use this to pay for, or be paid for, goods and services. Think of it like PayPal after you load money in – it’s a little account that you have deposits and withdrawals from without physically touching the money. Each currencies value is determined by an active market, similar to regular currency, however the crypto market is a lot more volatile as there is not as much volume traded as regular currency, such as the US dollar.

Sounds simple, right?

Now that we have covered that, let’s talk about Bitcoin and what changes I think need to be made for it to stand the test of time;

  1. Regulation – at this stage, there are limited barriers to entry, which means anyone can create a crypto-currency and is why there are so many crypto-currencies available. So much so that there was once one called ‘Coin-Ye (refer image above). Before you ask, no – Kanye didn’t do it, and Yes – Kanye did sue the crap out of the people that did. As of today, there are more than 1,800 crypto-currencies on the market. We talk about bitcoin mainly because it is the biggest and most widely used and accepted. The problem with no regulation is that no government will support any of them, therefore nothing will back you up if someone swipes it from you – which is possible given it is all digital and anonymous.
  2. Volatility – In 2014, US academic and financial author Mark Williams reportedly said Bitcoin’s volatility was seven times greater than gold, eight times greater than the S&P 500, and 18 times greater than the US dollar.As a result, if you can’t afford to lose it, or if you need it short term – don’t put it in bitcoin. Late last year (Dec 2017) one bitcoin was worth more than $19,000 USD, today, 1 bitcoin is worth around $7,000 USD – such high highs, such low lows.
  3. Accessibility & Stability – While the number of merchants willing to accept bitcoin instead of regular currency is growing, the vast majority of regular businesses still do not accept bitcoin as means of payment. The main reason? The volatility mentioned above. In order to keep up with the volatile nature of bitcoin, businesses would need to change their prices every day (if not every hour) to keep up – for example, if a computer shop determined that a particular laptop was worth 0.05 bitcoin (5% of one coin), then to buy that laptop in December would have cost you more than double in real terms than if you bought it this month! The retailer technically hasn’t changed their price, but has halved their income (using this example). The exchange rate risk is too much for any business to take on!

If bitcoin can figure out how to improve the points above, then I have no doubt it will be here to stay! After all, everything in the world is becoming more electronic, it only makes sense that currency follows suit – but do I think people will use bitcoin more in general day to day life than regular Australian Currency?

No – banks will continue to automate and digitalise to the point that it is always easier to use regular currency than crypto-currency and the government will do everything it can to keep us all on Aussie dollars – after all, It’s a lot easier to tax their own currency!

For more information on the taxation of Bitcoin, click here.

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