With quick expansion of bitcoin machines locations, they become more and more available to general public. One of the bitcoin ATM use-cases is investing in bitcoin.
Advantages of bitcoin machines
The clear advantage of using a bitcoin ATM vs. online exchanges is verification time (exchanges usually take longer, when you register for the first time). Another advantage of bitcoin machines is ability to purchase BTC much more easily and quickly as you deal with cash exchanged to bitcoins (immediately), comparing to sending a wire transfer to exchange first and then waiting for it to get received and credited to your exchange account before you can trade.
So bitcoin ATMs have their own usage and customers niche. At the same time, some users complain about high fees, which is a payment for convenience. The question is of personal perception level of convenience advantage. However, given that the number of machines increases and there are places represented by many operators and machines (see Los Angeles or Atlanta, for example), so users have a choice. All this means that those fees set for using bitcoin ATMs (usually 7-15% in the U.S.) are market defined pricing.
Why should one invest in bitcoin
Bitcoin is the first crytpocurrency, which introduced a new type of asset or currency, depending on how you look at it. At inception price of 1 BTC was not established by a market, until someone did a first purchase paying with bitcoins (famous 2 pizzas). As of today 1 BTC is priced at ~$2.5K.
Many people still don’t fully understand why Bitcoin and other cryptocurrencies rapidly increase in price, here are several characteristics that can give an answer. We compare Bitcoin with gold and fiat currencies (like USD or CAD, etc).
- Borderless. Bitcoin is a global phenomena, which can not be restricted by any man-made state borders. You can easily send bitcoins to your friend in another country, and this payment will be absolutely the same as if you pay to someone within your country. Bitcoin has no borders. On opposite fiat payments are usually much easier and quickly done within countries, as there are internal domestic payment networks in place. Foreign payments are much more cumbersome, e.g. wire transfer usually goes through a chain of correspondent banks, which is more costly and takes much longer time (1-2 weeks can be normal). Gold is very hard to be used as a foreign payment instrument at all.
Moving bitcoins to another country is much easier as well. There is usually a capital control introduced when you cross the international border, means you can bring only limited amount of cash or gold, for example. With Bitcoin you can literally remember by heart 12 words (your seed) and bring unlimited amount of money over the border. Nobody will be able to detect it, as it has no physical form.
Another aspect of borderless characteristic is its recognition. When you come to another country you usually need to convert your cash banknotes into local ones and lose on conversion fees. Although bitcoin acceptance is still low with its increase one would not need to convert bitcoin to something else, you could use it directly as it has global nature. Gold will hardly ever be used as a means of payment (unless you have time machine and can go back to Medieval Ages times), as it is usually perceived as a store of value and not easily divisible.
- Highly divisible. Gold can hardly be split and usually is delivered in particular sizes, e.g. 1 ounce, 10 oz, 20 oz etc. 1 gram of pure gold still costs ~$40 (based on $1230 for troy ounce), which makes it unpractical for purchases. Fiat currencies are usually very well divisible up to the smallest currency unit (2 decimal points), e.g. 1 cent for USD. Bitcoin is even more divisible, there are currently 8 decimal points supported. There is usually a misunderstanding that you need to purchase a whole bitcoin, which is not correct as you can easily buy any smaller part of bitcoins, e.g. worth $20. The following are generally assumed names for parts of bitcoin (USD rate as of July 2017):
1 BTC (1 bitcoin) = 2500 USD
1 mBTC (1 millibitcoin) = 1 thousandth of a bitcoin = 0.001 BTC = 2.5 USD
1 uBTC (1 microbitcoin) = 1 millionth of a bitcoin = 0.001 mBTC = 0.000001BTC = 0.0025 USD
1 satoshi = 0.01 uBTC = 1 hundred millionth of a bitcoin = 0.00000001 BTC = 0.000025 USD
So it is seen that bitcoin is much more divisible today than most fiat currencies. Theoretically, if the price increases that makes 1 satoshi too valuable, it can further be divided. As the total money supply will be the same, it won’t influence any other currency metrics.
- Trustless. Right now in order to be able to pay someone, user needs to open either bank account, or any other form of account (e.g. with PayPal, which is basically no different than a bank account). At this moment you don’t have money, but rather a promise of the bank, that they will pay to someone whenever you instruct them. So basically you need to trust an intermediary. The problem is at some moment these intermediaries can lock the funds, e.g. as it happened many times with merchant Paypal accounts, or banks will expropriate your money, like it happened recently in Cyprus, when part of savers deposits were forcefully cut.
Bitcoin, on opposite, provides full control over funds to users. When you control private keys — you fully control your money. No bank or other financial institution can steal from you. Bitcoin is a peer-to-peer system, means there are no intermediaries when you want to transfer or store bitcoins. In the same way you control gold when you have it physically, but it is much less convenient compared to Bitcoin’s digital form.
- Censorship resistant. As said before traditional financial systems are built on control through intermediaries. E.g. when you want to support Wikileaks and donate money, you can’t do this by transferring money from your bank account or Paypal account. Those intermediaries will not allow you to do this. With Bitcoin it is totally different, as nobody can say “no” to you. You can pay to anyone you want any amount and any time you want. Bitcoin also works 24/7 compared to limited office hours of banks.
Another aspect of censoring payments, is that all funds you have in traditional banking systems are subject to forfeiture in some cases. For example, you run a company and then someone opens a legal case against you. Court decides to lock funds and your bank will freeze the funds based on their instructions, which means you won’t be able to use it. In case the court case is resolved against you, they can use your funds without your permission. With Bitcoin it is totally different. You don’t care about corrupt courts and other institutions, as your private keys is the only thing you need to get access to your funds and nobody else can restrict your access to your funds.
- Inflation control. Fiat currencies are printed like crazy nowadays. Quantitative easing (QE) in the U.S. is a power of small group of people to issue as much money they want. There was QE1, QE2, QE3, many more to come in the future. What does it mean — that more money is in circulation, which means all the money are getting cheaper via inflation, which means ordinary people can buy less and less goods with their existing funds. Bitcoin on opposite has a fixed money supply target. Both fixed in the distant future (there will be only ~21 million bitcoins issued maximum), but also short term, as the curvature of bitcoins issuing is defined mathematically and in a transparent form. So there won’t be any extra bitcoins “printed” out of thin air. That guarantees the stability of monetary policy defined for many years ahead. But the main advantage, is that is can’t be changed or controlled by a small group of people.
In this regard Bitcoin is even much better than gold. In case price of gold increases significantly (demand becomes higher than supply), new gold mines are explored, people invest more money into mining equipment etc. As a result gold’s supply adjust (increases) to meet the demand and price will stabilized or go lower. With Bitcoin it is different. Bitcoin mining difficulty is automatically readjusted bi-weekly, which means when demand for bitcoins significantly increases even if people invest a lot of money in new mining equipment, there won’t happen any significant growth in bitcoin supply as every 2016 blocks the speed of mining will drop back to 1 block per 10 minutes (12.5 BTC currently). All this means that with increased demand bitcoin price will increase much more than that of gold in similar conditions, for example.
All these characteristics make bitcoin a good means of preserving wealth and worth investment.
Here is a list of other circulating in internet comparisons of Bitcoin vs. Gold and fiat currencies:
In the next article we talk about which events might increase bitcoin price long-term and also what kind of bitcoin investment strategy can be used.