Bitcoin has gone from a niche idea back in the early 2010s to a multibillion-dollar force of nature to be reckoned with, garnering daily headlines from the world's biggest news providers. The problem, however, is that Bitcoin appears to be quite polarizing; the line is blurry, but it's safe to say that many believe Bitcoin will unfold to be a huge banking/finance disruption, whilst an equally vocal group claims Bitcoin is nothing but a bubble or a Ponzi scheme.

That being said, it's at least equally safe to say that the naysayers group is shrinking. In fact, the erstwhile naysayers are gradually morphing into believers en masse, as Bitcoin's value and standing continue to climb.

In these hectic times, it's not easy to make out fact from fiction and truth from hype. So let's cut to the chase and have a closer unbiased look at what Bitcoin is and may Bitcoin become in the future.

What is Bitcoin?

Bitcoin is a cryptocurrency, a complicated-sounded name for a kind of money. Another name, slightly more mundane, is virtual currency, or even digital currency. It's called that to indicate that Bitcoin doesn't sit in its owners wallet or pocket or bank. Instead, Bitcoin is kept in computers, a network of thousands of computers called nodes. In other words, it's just like the internet: it's the network effect that makes Bitcoin so powerful.

The other thing that distinguishes Bitcoin from the kind of money we're used to, so-called fiat money, is that fiat money is centralized and Bitcoin is completely decentralized.

Let's parse this a little for clarity.

In order to use fiat money, we rely on a third party, a middleman we trust to ensure that all goes well and there's no cheating going on. A central bank prints money, issues it and then governs it, i.e. sets its interest rates and determines its liquidity. Once the money gets to us, the users, we spend it with a cheque, a credit card, a debit card or by means of PayPal. None of these transactions are peer-to-peer, go from payer to payee direct.

This is where Bitcoin excels. Any and all Bitcoin payments are done from sender direct to recipient. There's no middleman involved. Bitcoin transactions are therefore called "trustless". Obviously, with fewer steps to take, Bitcoin transactions are not only completed faster, but are cheaper too. After all, we don't need to pay any middleman for services rendered.

Let's take an example. Say you want to transfer Euro 1,000,- from Holland to Singapore by bank. Most banks take up to a week or more to complete a telegraphic transfer. The sending bank's charges can be as high as Euro 50 or more, depending on the bank. Some banks charge a flat fee in addition to a percentage of the sum to be transferred. Clearly, this can become expensive. It's worth nothing here that remittance firms, such as Western Union, tend to charge even higher.

By the way, the bank at the receiving end typically also charges a fee for the privilege of receiving the funds. And for good measure, there's the conversion from Euro to Singapore Dollars, another margin opportunity for the bank.

Sending the equivalence of Euro 1,000,- in Bitcoin should take minutes and should cost about one Euro. That's it. No conversion fee, no handling fee.

Bitcoin = Blockchain

This might be a good moment to explain how Bitcoin can manage this without there being a middleman involved. Instead of a huge banking system to support transactions and transfers, Bitcoin is governed by its Blockchain protocol. The nitty-gritty technology of Blockchain is beyond the scope of this article, but a quick rundown won't hurt.

The Blockchain is a bit like a database ledger on steroids. By this we mean that a Blockchain can do much, much more that just display numbers and relationships. Bitcoin's Blockchain, each and every single one of its transactions, for starters, is shared by the above-mentioned nodes in almost real-time.

This means that in order to corrupt this system, a swindler would need to hack not just one of the nodes but at least 51% of all the nodes on the network. This lack of one single point of failure is considered by security experts as more secure than traditional security benchmarks.

Digital Gold

But there's more to Bitcoin than the Blockchain. Bitcoin's algorithm, its program code, was designed in such a way that there will ever only be 21 million Bitcoin ever released into circulation. This renders Bitcoin disinflationary, the opposite of fiat money, which is endlessly being added to by central banks through bond-buying. Basically, central banks money-printers are churning full-on to ensure "quantitative easing" continues unabated.

Why would central banks do this? To increase liquidity, so as to keep interest rates low and encourage spending. Equally important: to reduce the ever-burgeoning debt load from buying all those bonds in the first place.

Of course, the big drawback of this continuously growing money supply is that the low interest rates/inflation landscape is undercutting people's savings, pensions, funds, all kinds of money that is not directly involved in the economy, but kept for a rainy day. Saving is effectively discouraged.

Bitcoin has no such manipulation issues, since it's wholly decentralized. As such, Bitcoin is an ideal store of value, which is why it's called Digital Gold.

But if Bitcoin is such so much better than fiat money, how come so many people dismiss and even disparage Bitcoin? For two main reasons. First, Bitcoin is a complex topic to explain and understand. It may even sound to good to be true. Instinctively, it makes more sense to wave it off than to embrace it.

But the other reason is that most naysayers are too committed to fiat money. Bankers, Finance CEOs, cllearinghouses, etc would rather eat glass rather than say anything positive about Bitcoin, because they're well aware that Bitcoin may one day be the Uber of Finance. Bitcoin may one day come and eat their lunch. Bitcoin needs to be stopped dead in its tracks. Hence the wholesale cynicism.

All that being said, Bitcoin is still very much a moving target and it still has a fair number of teething problems to resolve, scaling being a major one. In fact, Bitcoin is where the internet was at the time of dial-up. Internet back then was a little clunky and there wasn't enough bandwidth. But, clearly, it was seething with promise.

Just like Bitcoin is now.

In terms of Singapore's Smart Nation campaign, Bitcoin is likely to play an ever-more important role. And with FinTech's action radius increasing constantly, it's safe to say that Bitcoin has a very bright future ahead.

Would you like to know more about Bitcoin in Singapore? Click here for further details.