SANTA CLARA, Calif. _ Given the surge in demand and the tremendous promise of bitcoin as a tool for future digital commerce, this eight-year old "cryptocurrency" is an exciting new investment to consider for those who can afford speculative assets in their portfolio.
The key is to understand the role and risks of bitcoin.
The owner of bitcoin has access to a unique "address" with which he or she can exchange bitcoin for "fiat" such as U.S. currency or other goods and services in a digital transaction.
This transfer to the new owner is recorded in a decentralized ledger called the blockchain, after which a new unique "address" is created.
Both proponents and detractors of bitcoin agree that the blockchain is a disruptive technology that can increase the speed, efficiency and transparency of many transactions.
However, similar to the early dot-com days, when it was impossible to see how now iconic companies like Google would become ingrained parts of the internet and our everyday lives, many investors struggle to see how bitcoin fits in this economy.
I believe that, like every new paradigm-shifting technology, there are valuable economic opportunities embedded in bitcoin, an unknown number of which may come to fruition, and some which will not.
The utopian vision for the future digital economy involves using "utility tokens" rather than dollars or other traditional currency to buy digital-based goods and services.
For example, we already can use filecoin to buy storage on the cloud, litecoin to carry out money transfers and kodakcoin to buy images. But holding many different tokens could easily become unmanageable _ which would represent a vital opportunity for bitcoin.
Bitcoin could emerge as the global currency that businesses and individuals hold in their digital wallets and convert to bitcoin-denominated utility tokens.
The world would effectively move to a "bitcoin standard" for digital transactions, similar to the global gold standard that was used for more than a century.
Government-issued fiat currencies would still exist, but the digital world would likely be dominated by this parallel currency system.
Like gold, bitcoin would become a store of value. The number of bitcoins that can be generated is fixed, and it has the same advantage as gold, in that it cannot be manipulated by governments to further political agendas.
While this may have limited appeal to stable currency countries like the U.S., it is extremely valuable in countries that routinely face hyperinflation like Argentina or demonetization like India.
Bitcoin has another obvious advantage over gold: effortless transportability. A very large percentage of the global population is only one generation removed from being under threat of having to flee their homes with whatever possessions they could carry. In those situations the ability to carry a part of their wealth as a number could be very valuable.
Bitcoin also has the potential to bank the unbanked _ with a simple phone call millions of people without access to a bank or credit cards can gain access to a digital payment system.
Certainly, many stars will need to align for bitcoin to become "digital gold." And, quite possibly, a government-issued cryptocurrency or alternative coin to bitcoin could render it obsolete. Regulations could force it into oblivion.
However, bitcoin has a formidable first-mover advantage _ a large network of exchanges and even ATMs at which it can be purchased and readily converted into different utility tokens. It can also be hedged in the futures market, is designed to be divisible to the eighth decimal place and is considered unhackable.
Bitcoin's value is not backed by the good faith of any government or physical assets, but is driven by its demand. Its advantages have already led to a skyrocketing value, from pennies to over $15,000. The ongoing promise of bitcoin is ample justification to include this speculative asset as a small part of a well-diversified portfolio.
