Many people who have heard about the cryptocurrency Bitcoin still have questions about what exactly it is used for. Wrapping your mind around how Bitcoin works is one thing, but understanding all the possible use cases is an entirely different animal.
In this article I’ll be breaking down all the different use cases for the BTC network and its underlying blockchain system. Once you have a grasp on what bitcoins are used for, you will be well on your way to understanding the potential of cryptocurrencies as a whole.
1. Buying & Selling Physical Goods & Services
The most obvious use for bitcoins is that they can be exchanged for physical goods and services. The first ever Bitcoin transaction happened when two users of the BitcoinTalk.org forum exchanged 10,000 bitcoins for a couple of pizzas. After that, merchants slowly began adopting the technology. Some stores were illicit, such as drug dealers on the now-defunct Silk Road. Others were simply ecommerce stores looking to attract a new customer-base like Overstock.com in 2014.
Brick and mortar stores have joined the fray as well. Companies like BitPay and Coinbase offer simple solutions for merchants to accept in-person Bitcoin transactions. Back in 2014, I used the Coinbase merchant program myself for a waffle food truck I was running. As of December 2017, CoinTelegraph estimates that there are 11,291 brick and mortar businesses that accept bitcoins. If you are looking for a comprehensive directory, SpendBitcoins.com is a great resource and includes listings for everything from lawyers to doctors. Coinmap.org also features over 14,000 venues around the world.
While there is still a long ways to go before bitcoins are considered “widely accepted” for goods and services, there is no doubt that this remains a primary use case. The long-term trend for businesses that use bitcoin continues to be upward. We’re proud to offer Bitcoin and other cryptocurrency payment options for every product sold on Cryptocurrency Posters.
2. Buying Other Crypto Assets
Maybe the most common use case for Bitcoin at the moment is that it can be traded for other cryptocurrencies. Crypto aggregator CoinMarketCap lists over 2000 coins and the large majority can only be purchased with Bitcoin or other cryptocurrencies. And, while some coins like Ethereum are also available for purchase directly with fiat currencies such as the U.S. dollar, this ability is often only available after they have already been established. If you’re looking to find the next “big” cryptocurrency before it gets popular, it is very likely that buying it with Bitcoin will be your only option.
To buy other cryptocurrencies with bitcoins people usually utilize online exchanges. These exchanges act as marketplaces where participants around the world can meet and freely exchange crypto assets. Some of these exchanges allow for trading via fiat currency, while others are strictly cryptocurrency based. Here are some of the most popular sites (Disclaimer: The following links utilize affiliate codes):
Coinbase: Good for buying and selling Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and Ethereum Classic with a bank account or debit card. They also have a more traditional exchange (GDAX) for advanced traders.
Binance: Cryptocurrency-only exchange with a large volume of users and wide variety of coins. They also feature their own coin (BNB) which reduces fees and offers innovative profit incentives.
Changelly: Quick and simple exchange that offers fast movement from one crypto to another. Exchange widget for 3rd party websites and a payment function as well. They also offer the ability to buy bitcoins with a credit card.
Beyond simply buying and selling other cryptocurrencies, there is also a burgeoning field of digital asset sales. This includes art, data files, and even (theoretically) operating systems that are stored within smart contracts. As blockchains continue to develop and attract innovation, this crypto asset economy may produce some of the most exciting future use cases for Bitcoin.
3. Store of Value
While some may argue that Bitcoin is too volatile to be a store of value, the reality is that it has succeeded in holding a non-zero monetary value since July 2010. The graph above shows just how far the journey has come since then.
When people are looking for a store of value, they generally want something that will maintain currently value or increase. People who have trusted Bitcoin as a long-term store of value have generally been rewarded with impressive increases in value. There is no guarantee this will continue, but the Bitcoin network has proved up to this point that it can be relied upon to hold some value.
It’s also important to consider the known alternatives when judging Bitcoin’s use as a store of value. While most citizens in developed countries have access to reliable fiat currencies such as the U.S. Dollar or British Pound, much of the developing world has no such luxury. Citizens of countries like Venezuala have seen their savings erased by the poor monetary policy of their governments. This article contains the graph below and outlines how Venezuelans are turning to cryptocurrency as a solution for hyperinflation.
Financial issues are not isolated to economic disasters such as Venezuela. According to Business Insider, two billion people worldwide do not have a bank account or access to a financial institution via a mobile phone, or any other device. This is often due to failures by their governments to properly develop modern economic systems featuring digitized payments. Bitcoin and other cryptocurrencies lets these people take advantage of a store of value that isn’t perfect, but offers improvements on their current situation. Bitcoin’s strengths as a store of value include:
- Storage without a custodial 3rd party: Since bitcoins only exist as an entry in a distributed ledger, you do not need to rely upon a specific 3rd party (like a bank) to store your wealth.
- Anonymity: With a little work, it’s fairly easy to guarantee your anonymity when sending and receiving Bitcoin transactions. This is appealing if you are concerned that your wealth may make you a target for theft.
- A predictable supply: Bitcoin has a controlled supply that is scheduled to never exceed 21 million individual coins. This means that users do not need to worry about an increasing supply of bitcoins reducing the value of their own coins.
4. Bitcoin’s Use for Storing Information
One of the least known uses of the Bitcoin blockchain is the storage of information. There are multiple ways to embed messages on the blockchain. Five of them are outlined in this Bitcoin StackExchange post. The most famous message stored on the Bitcoin blockchain is the Genesis block sentence shown above:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
According to the Bitcoin wiki, the message was a statement from Satoshi Nakamoto about the purpose behind Bitcoin:
This was probably intended as proof that the block was created on or after January 3, 2009, as well as a comment on the instability caused by fractional-reserve banking. Additionally, it suggests that Satoshi Nakamoto may have lived in the United Kingdom. This detail, “second bailout for banks” could also suggest that the fact a supposedly liberal and capitalist system, rescuing banks like that, was a problem for satoshi . . . the chosen topic could have a meaning about bitcoins purpose.
In July of 2017 a paper from Augustana College was published titled Data Insertion in Bitcoin’s Blockchain. Within, it provides a comprehensive survey of methods for inserting arbitrary data in Bitcoin’s blockchain. It also compares them on the basis of efficiency, cost, convenience of data reconstruction, permanence, and potentially negative impact on the Bitcoin ecosystem. The biggest benefit of storing data on the blockchain is that it cannot be censored. As long as proper fees are paid to utilize the blockchain, the data is accepted and cannot be erased moving forward.
While Bitcoin’s blockchain is capable of storing data, progress has been made to design blockchains that are far superior this aspect. Sia is likely the most developed blockchain completely devoted to pure data storage and Ethereum has pioneered utilizing blockchain technology to run distributed applications.
Bitcoin is far more than just a digital currency and has numerous use cases that are not apparent at first glance. Furthermore, as technologies are developed on top of the blockchain such as the Lightning network, it’s reasonable to assume that new uses for Bitcoin will continue to develop.
Feel like we missed a use case? Reach out on a Twitter and we’ll get it added to this article.