The Bitcoin cryptocurrency has gained in notoriety and in U.S. dollar value in the last year. But what is the true value of Bitcoin, and who should consider adopting it?
Bitcoin's true value today can be found in what it says about the state of money and payment in the modern connected world, said David Furlonger, vice president and Fellow at research firm Gartner.
"Bitcoin is a massively overhyped piece of noise in the marketplace in and of itself," Furlonger told eWEEK. "That said, it evidences something more fundamental, which is a shift in the notion of how value is calculated and how value is transferred between entities."
What Bitcoin represents to the future of money is somewhat different from the shift that Paypal helped pioneer at the beginning of the e-commerce era, Furlonger said.
Now owned by eBay, Paypal got started in 1998 as a way to electronically transfer and accept payments online.
"Bitcoin is fundamentally different; it's not a payment mechanism per se," Furlonger said. "Bitcoin is a currency and should be compared with other cryptocurrencies."
Bitcoin value is stored in a digital wallet, which is not a payment mechanism itself, Furlonger said, adding that there is a lot of confusion in the media about the use of the terms "digital wallet, "digital payment" and "cryptocurrency"—which are often used interchangeably when, in fact, they are distinct activities.
The digital wallet is the storage vehicle that can also be a form of identification, the payment system is how value is transferred, and cryptocurrency is the actual unit of value.
Rising interest in Bitcoin is evidence of consumer desire and willingness to use a different form of currency and exchange to conduct daily business. For the most part, Bitcoin holds the highest degree of interest in the retail sector.
"I think you will continue to see, at least at the individual level, people wanting to use payment mechanisms in the context of what they find themselves doing in their daily lives," Furlonger said.
Those payment mechanisms could include the use of a paper bank note, Paypal, loyalty points from a vendor or Bitcoin. Additionally, people will continue to use different stores of value to capture all their transactions. Those stores of value will include prepaid cards and mobile payment methods.
In Furlonger's view, Bitcoin is just one noisy part of the continuing change in how payment and value storage options are evolving.
Value in Dollars
Helping fuel Bitcoin's hype has been its value in U.S. dollars. Over the course of 2013, major Bitcoin exchanges were trading 1 Bitcoin for $1,000 U.S. In mid-December, the value of Bitcoin fell dramatically after news that the cryptocurrency could not be used in China. Bitcoin's value has since rebounded, and in 2014, once again hovers around $1,000 U.S. dollars per Bitcoin.
Whether a Bitcoin is worth more or less than $1,000 is not easy to forecast and is determined by the market. Value is determined by what the buyer is willing to pay the seller for something at a moment in time.