What Bitcoin is used for

Understanding what Bitcoin is is the first step. The question that usually comes next is: what is it for? Because a technology can sound very interesting and, in reality, add nothing useful to your life.

If you read the previous article, you will know that Bitcoin was created as a peer-to-peer electronic money system. Over the years it has also been used to transfer value between countries, receive payments, keep wealth outside a bank account and seek returns through increases in its price.

These are different uses, and it is worth understanding all of them properly to know whether Bitcoin meets any of our needs or goals.

Bitcoin as a way to send and receive money

The use closest to the original idea is sending bitcoins directly from one person to another.

To do this, the recipient does not need an account at the same bank, no institution has to approve the transfer, and the transaction does not have to match office hours. You only need both parties to have a Bitcoin wallet.

The network works internationally -supranationally, really- and is available every day, at all hours. You discover its usefulness when sender and recipient are in different countries, when traditional transfers are expensive or slow, or when someone wants to receive BTC instead of their country's currency (ask Argentinians before the corralito).

That said, keep in mind that Bitcoin is not always a better alternative to a bank transfer or Bizum, because you will pay a transfer fee, which is shared among the people who maintain the network. The amount depends on the state of the network, not on the amount transferred, so it may not be worthwhile for small amounts and yet be very cost-effective for large transfers.

In addition, confirmation can take time and a transaction sent to the wrong address cannot be cancelled. In other words, there is no room for error.

Bitcoin as a way to pay and get paid

Despite what I said about fees, for small payments there are solutions such as Lightning Network which are what are known as “layer-two networks” on top of bitcoin. They are cheaper and faster, but they add some complexity to using BTC.

It is also possible to charge for a product or service in bitcoin. The seller receives BTC and then decides whether to keep it or exchange it for euros.

The issue is that the price can change between the moment you get paid and the moment you convert it, so accepting Bitcoin adds volatility that does not exist when you are paid directly in the currency you use to cover your expenses.

Bitcoin as a form of saving or investment

Many people buy Bitcoin with no intention of spending it. They hold it for months or years because they believe its limited supply and adoption may cause it to increase in value.

The idea is based on one particular feature of Bitcoin: there will only ever be 21 million bitcoins and nobody can decide to create a single additional bitcoin to cover a one-off need, unlike what happens with central banks and fiat.

This programmed scarcity is one of the reasons some people consider it a form of long-term saving.

But limited supply does not by itself guarantee that the price will rise. For something to retain value, demand also has to exist. If interest fell, better alternatives appeared or the legal environment changed, Bitcoin could lose value even though the quantity remained exactly the same.

As an investment, moreover, it is extremely volatile. It rises quickly and falls in the same way. That makes it suitable for capital you can leave untouched for years and for people able to withstand one or several cycles of rises and falls.

There is one important thing to understand: if your goal is to expose capital to the price of BTC, you do not necessarily need to buy BTC.

You can gain exposure to its price through ETFs and other products purchased through a broker. In that case you do not own bitcoins that you can send or store in a wallet; you own an investment product.

This distinction will matter when we talk about ways to hold Bitcoin or gain exposure to it.

Advantages and disadvantages of using Bitcoin

Although you can go deeper into both topics in these articles, Advantages of Bitcoin and Disadvantages of Bitcoin, here is a summary of the main ones:

Being able to send money without asking a bank for permission provides independence, but it also means there is no institution able to cancel a transaction when you make a mistake.

Self-custody lets you control your funds without depending on a company. In return, if you lose your keys or someone steals them, the network has no procedure for restoring your access.

Likewise, issuance is predictable (its amount and issuance date), but the price is not.

With that in mind, the summary is that Bitcoin is used to transfer and preserve value under rules that differ from those of the banking system.

In some circumstances those rules are very useful, while in others a bank transfer, Bizum or a traditional financial product is much more convenient. It depends on the situation and the person.

Next steps

Below are the next articles in the series. They are designed to be read in order if you do not know much about Bitcoin, but each one stands on its own, so you can jump to whichever interests you most:

Frequently asked questions

What is Bitcoin used for?

Bitcoin is used to send and receive money, make payments, charge for products or services, keep wealth outside the banking system and gain exposure to a possible rise in its price.

Can you send money with Bitcoin to another country?

Yes. Bitcoin works internationally and allows value to be sent directly between people without both having an account at the same bank.

Do I need a bank account to use Bitcoin?

No. To send and receive BTC you need a Bitcoin wallet, not a traditional bank account.

Does Bitcoin work 24 hours a day?

Yes. The network is available every day and at all hours, without depending on banking hours.

How much does it cost to send Bitcoin?

It depends on the state of the network, not directly on the amount sent. That is why a fee may be unattractive for a small payment but reasonable for a larger transfer.

Can a Bitcoin transfer be cancelled?

No. Once it has been sent and confirmed, the transaction cannot be cancelled. If you send bitcoins to the wrong address, there is no bank that can reverse the transfer.

Is Bitcoin suitable for small payments?

Yes, although the main network can be impractical for small amounts. For these cases there are solutions such as Lightning Network, designed to make payments faster and cheaper.

Can I get paid in Bitcoin?

Yes. You can accept BTC as payment for a product or service and then decide whether to keep it in bitcoin or convert it to euros.

What is the risk of getting paid in Bitcoin?

The price can change between the time you receive payment and the time you convert it to euros. That volatility adds a risk that does not exist when you are paid directly in the currency you normally use.

Can Bitcoin be used as a form of saving?

Some people use it that way because supply is limited to 21 million bitcoins. However, having a maximum supply does not guarantee that its price will rise or hold its value.

Is Bitcoin a safe investment?

No. Bitcoin is a highly volatile asset and can experience major price rises and falls. You should therefore not assume that its scarcity guarantees a return.

Will there only ever be 21 million bitcoins?

Yes. The protocol sets a maximum supply of 21 million BTC and nobody can decide to create more to cover a one-off need.

Do I have to buy Bitcoin to invest in its price?

Not necessarily. You can also gain exposure to Bitcoin's price through ETFs or other financial products bought through a broker.

Is buying Bitcoin the same as buying a Bitcoin ETF?

No. If you buy BTC, you can send it and store it in a wallet. If you buy an ETF, you own a financial product whose value is linked to Bitcoin's price, but you do not own bitcoins directly.

Is Bitcoin better than a bank transfer or Bizum?

Not always. Bitcoin can be useful for international transfers, self-custody or certain cases where you do not want to depend on a bank, but for everyday payments a transfer or Bizum may be more convenient.

What is Bitcoin's main advantage?

It allows you to transfer and preserve value without needing a bank's permission and with issuance rules that are known in advance.

What is Bitcoin's main disadvantage?

Responsibility falls on the user. Transactions cannot be cancelled, you can lose access if you lose your keys, and its price can change sharply.