Previously we discussed what Bitcoin is, how you use it, and how some Bitcoin investors have used the currency to buy homes. Some offices have even begun allowing tenants to pay rent in cryptocurrencies. Now let’s look at some reasons why you may want to hold off on utilizing Bitcoin for real estate purchases.

 

Not Backed or Insured

Unlike our “regular” currency, Bitcoin is a cryptocurrency which utilizes blockchain technology. On the one hand, it lends itself more easily to secure, anonymous purchases as well as international purchases because it transcends the limits of national currencies. On the other hand, Bitcoin is not backed by anything. The US dollar is backed by the US government [side note: our currency used to be backed by gold and or silver, meaning that you could exchange your dollar for its equivalent in gold bars at a bank or Treasury office, but that changed with the 1934 amendment to the Federal Reserve Act]. The government supports the dollar, and many banking institutions and transactions are FDIC insured.

 

This is not the case with Bitcoin. It is not liable to any one government and therefore isn’t backed or insured by a government or banking institution. Transactions can’t be reversed, insured, or even guaranteed. Bitcoin is inherently risky, not only because it isn’t a backed currency, but also because its value fluctuates so widely.

 

Bitcoin Bubble

Bitcoin also seems to be undergoing a bubble at the moment. The price of one Bitcoin in US dollars as of January 31, 2018, was $9,939.01 and had experienced a dramatic spike in the summer of 2017 as its popularity exploded. Its value skyrocketed as more people bought into the system. Prices have begun to fall, and likely will continue to fall. While you may buy into the system now, buying a home with Bitcoin in ten years may not be feasible because the currency’s value doesn’t have consistency. Granted, the value of the dollar changes as well – but the kind of inflation that Bitcoin experienced is unlikely, unusual, and catastrophic for a real-world economy, and so is more likely to be balanced out by other measures.

 

Does Bitcoin Have Value?

Yes! While it has flaws, there are some ways in which Bitcoin has been incredibly valuable, especially to the real estate world. For one, it shows how blockchain technology works on a larger scale, and this technology could make its way into the real estate industry to ensure more secure transactions. For another, Bitcoin is a large-scale experiment in cryptocurrency and may pave the way for future cryptocurrencies. Bitcoin may last for a decade or two, or it may fizzle out next year – it’s difficult to say what might happen. But as younger generations grow up with technology more easily and readily available than ever before, we will likely see more cryptocurrencies emerge and one of them may have fewer flaws and may gain wider traction.