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Jan 22, 2014

Bitcoin. The Future of Payments

The news about bitcoin in the Philippines caught my attention, and it is about a website being advertise as a new way to send money home for Filipino Expat. The question I've been think is, Is Filipinos ready for bitcoin? Do they have the right knowledge about it and how it works?

Few days ago, I have a wonderful discussion with Marvin Germo, one of the best Financial Planner in the Philippines. We've discussed few important things investors usually asked. His questions and inquires were really interesting and will be very informative (if shared). That gave me an idea to blog and share it and help educated Filipinos about Bitcoin.

BTW, I've been watching the Movie Series Almost Human and bitcoin was used in that movie series. Check it out!

Before I do that, let us first understand what is Bitcoin.

What is Bitcoin?
Bitcoin is a peer-to-peer payment system and digital currency introduced as open source software in 2009 by pseudonymous developer Satoshi Nakamoto.

It is a cryptocurrency, so-called because it uses cryptography to control the creation and transfer of money.

Users send payments by broadcasting digitally signed messages to the network.

What are bitcoins?
Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number carefully embedded inside. See also an easy intro to Bitcoin.

How do Bitcoins work?
The diagram below will give you a simple understanding of how it work.

How can I get bitcoins?
It is widely spread in the internet now. But in the Philippines, there is a new website that works as a bitcoin exchange and enables you to purchase a bitcoin thru cash deposit to any BPI Branches.

And now, Let me summarized few questions Marvin and I have discussed. I also added some questions I personally asked to myself about this bitcoin. I even try, as much as possible, to gather every details available online for you to understand it:

Is Bitcoin an Investment?
The value of bitcoin is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. As Marvin also said, it is affected by Supply and Demand. 

Its exchange rate fluctuates continuously, and sometimes wildly. It lacks wide acceptance and is vulnerable to manipulation by parties with modest funding. Security incidents such as website and account compromise may trigger major sell-offs. 

Other fluctuations can build into positive feedback loops and cause much larger exchange rate fluctuations. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency. Later, as Bitcoin becomes better known and more widely accepted, it may stabilize, but for the time being it is unpredictable. Any investment in Bitcoin should be done carefully and with a clear plan to manage the risk.

What is its Intrinsic value?
Bitcoins have been described as lacking intrinsic value because their value is not backed by hard assets or the full faith and credit of a sovereign government but their value depends only on the belief that bitcoins have achieved significant acceptance and lasting permanence. 

Velasco and Medina counter this argument by noting the abstract work involving in minting a bitcoin: while the use value of a bitcoin is not universally agreed upon, its labour value is firmly established.

Austrian economists refute the notion of "intrinsic value". Their subjective theory of value suggests that for bitcoins to have value it suffices if "rational expectations of the potential utility of bitcoin for the potential buyers exceed the price demanded", Konrad S. Graf and Nick Szabo seeing a possible source of exchange value in bitcoins being used as collectibles.

Continue Reading Bitcoin. The Future of Payments (Part Two)

Jo Valerio is an IT Professional working in Singapore. He is an advocate of Financial Literacy in the Philippines. He founded Mag-Invest Ka Pinoy in year 2012 and started the website www.maginvestkapinoy.com. The mission of the website is to encourage every Filipino to learn how to SaveInvest their money and plan their Retirement.

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