Search for information about Bitcoin, and you may come across explanations such as "Bitcoin is a digital currency that has no authority or backing." Despite this, many people fail to understand the significance of Bitcoin's decentralization, as little attention is paid to the centralization of the currency. For most of us, the money issued is what we know.
As the saying goes, "Never invest in something you don't understand." Since you're here, you're probably thinking about Bitcoin's investment potential.
This article aims to give you a comprehensive understanding of Bitcoin and avoid too much technical jargon. It delves into why Bitcoin, which was originally thought to be the "internet currency" of pizza transactions, evolved into a $60,000 asset in 2021.
In addition, it also supports Bitcoin while others are skeptical, allowing you to form your own opinion on the viability of its investment. However, it avoids complicated technical details, as this requires a separate article.
In 2008, the global financial crisis paralyzed not only investment banks, but entire countries. It was in the wake of this economic turmoil that a mysterious individual entity named Satoshi Nakamoto introduced Bitcoin to the world in early 2009 through a technical article.
Whether Satoshi Nakamoto intends to share his creations in due course, or if it is just an accident, is unknown. However, the birth of Bitcoin couldn't have been more timely. When the bailout intervened to save the bank, many were outraged because the influx of bailout funds jeopardized the savings of ordinary people.
In response to the fundamental problem of traditional currencies, Satoshi Nakamoto said at a programmer forum, "It must be believed that ** banks do not devalue currencies, but the history of fiat currencies is replete with the destruction of this trust."
The currency is devalued by an increase** without a corresponding increase in goods and services, leading to inflation. Inflation poses challenges for working professionals, especially for those with a regular income.
Economists such as Friedrich Hayek have long recognized the problems associated with the physical or issued currency. "I don't believe we'll ever have a good sum of money again until we take things out of the hands of the **," Hayek said.
Through an innovation known as "blockchain", Satoshi Nakamoto designed a form of money that did not require ** management, thus eliminating centralized control and issuance. Transactions are recorded on a public ledger and can be verified by anyone.
Some argue that Bitcoin is not a "new" form of money, but rather what money was originally like – a powerful commodity that is not monopolized by any one party.
A key aspect of Bitcoin's design is its cap of 21 million Bitcoins. This key point assures investors that it will not depreciate by creating additional bitcoins.
Similar to the profound impact of the internet on modern society, the debate surrounding Bitcoin extends to a variety of sectors, from economics and finance to environmental, technical, and commercial issues.
Key narratives and arguments from both sides are outlined here, providing a more nuanced understanding of Bitcoin's potential.
Mainstream economists often oppose an economy based on a fixed amount of money. They argue that the fixed amount limits the ability to print more money to stimulate the economy.
Bitcoin proponents counter that a healthy economy relies on real-world resources such as labor, raw materials, land, and energy, rather than just a piece of paper. They questioned the effectiveness of flooding the market with free money to stimulate the economy.
In addition, critics argue that a deflationary system created by a fixed amount of money** can lead to an increase in value over time, encouraging hoarding and reducing economic activity. Bitcoin advocates assert that the deflationary system promotes prudent spending, saving, and investment, contributing to real long-term economic growth.
Critics often highlight Bitcoin's extreme value volatility, claiming that it lacks stability as a reliable medium of exchange or store of value.
Bitcoin is currently primarily considered a store of value, and it is moving towards wider acceptance as a medium of exchange. Proponents argue that this evolution has gone through several stages, from stores of value to medium of exchange, units of account, fiat currency, currency reserves, and possibly global currency status.
Some critics have described Bitcoin as slow and stale, merely as a means of transferring value. Bitcoin's deliberately low transaction processing speed (TPS), which is around 24,000 to 7 compared to Visa's 10 TPS, is what proponents argue is necessary for decentralization and security.
Bitcoin enthusiasts use the Lightning Network as a scaling solution that enables faster and cheaper microtransactions while reducing the load on Bitcoin's main blockchain. This shows Bitcoin's adaptability and continuous improvement to meet growing adoption and demand.
Bitcoin's security relies on Proof-of-Work (PoW), which involves energy-consuming mining activities. Critics argue that Bitcoin's energy consumption, which is largely non-renewable, is harmful to the environment.
However, studies have shown that more than 50% of Bitcoin mining relies on renewable energy. Proponents argue that focusing solely on Bitcoin's energy consumption ignores the broader environmental impact of the traditional financial system, including banking and fiat money production.
In the crypto community, two main ideologies clash – Bitcoin extremism and a stance that values blockchain technology over Bitcoin.
Bitcoin extremists are staunchly supportive of Bitcoin as the only valuable cryptocurrency, arguing that other cryptocurrencies are inferior. On the other hand, proponents of blockchain rather than Bitcoin appreciate the technology but believe that Bitcoin is outdated.
This ideological clash has led to the existence of more than 10,000 cryptocurrencies, each vying for an advantage.
Due to its finiteness, Bitcoin is often compared to a digital — a hedge against inflation and economic uncertainty. Its decentralized nature and cryptographic security make it comparable to ** as a store of value.
Proponents argue that Bitcoin outperformed the best of the United States** with an annualized gain of over 200% between 2011 and 2020. However, critics believe that Bitcoin's appreciation is the result of the "Big Fool Theory".
Considering Bitcoin's volatility, investors must weigh Bitcoin's potential. Bitcoin's growth from $60,000 in 2021 to under $20,000 in 2022 has only increased by just over 75% in 2023 to over $30,000.
Bitcoin as a currency:Real-world use cases and adoption.
The application of Bitcoin goes beyond investment speculation. It touches on real-world use cases and adoption in various sectors.
Send moneyand cross-border payments:
Bitcoin offers a cost-effective alternative to traditional methods of sending money. Transaction costs are greatly reduced, facilitating foreign workers to send remittances domestically.
Financial Inclusion and the Unbanked:
Decentralization allows Bitcoin to provide financial services to the unbanked. With a smartphone and an internet connection, anyone can access the Bitcoin network, promoting financial inclusion.
Payment:
Bitcoin is increasingly being used for transactions, especially in e-commerce. Its decentralized nature and low transaction fees make it attractive for international purchases.
E-commerce & Retail:
Although it is not yet widely accepted, the adoption of Bitcoin in business transactions is likely to grow as awareness increases.
Countries have different views on Bitcoin, with some expressing skepticism because of the perceived risks to financial stability and investor protection. Recent developments, such as the U.S. Exchange Commission's classification of Bitcoin as a commodity, bode well for a more optimistic regulatory environment.
Some politicians advocate Bitcoin as a solution to the cyclical economic model that the existing monetary system has caused.
There's no denying that Bitcoin has revolutionized the financial landscape, challenging traditional systems and offering a greater vision of financial sovereignty. As the world embraces digital transformation, Bitcoin's decentralized nature continues to gain popularity, value, and adoption.
Its existence provokes a critical reflection on the nature of money. As awareness of the benefits of a decentralized, deflationary monetary system grows, Bitcoin's relevance and adoption will continue to grow.