“The root problem with conventional currency is all the trust that’s required to make it work. “
Satoshi Nakamoto, anonymous creator of Bitcoin
A brief history
Bitcoin was launched in 2009, during the midst of the great financial crisis by the pseudonymous Satoshi Nakamoto. Satoshi was an active participant in the early bitcoin community, but has not communicated publicly since 2013. There is speculation on whether Satoshi is a single anonymous individual or a secretive group. The concept of bitcoin is explained in the whitepaper, and was originally shared in a cryptography newsletter.
What is bitcoin?
Bitcoin is an electronic, secure, non-inflationary currency which is not controlled by any centralized entity. Some users describe it as “digital gold” – a scarce asset which can serve as a store of value, or a hard currency which cannot be inflated through an unlimited printing of paper money.
Why is Bitcoin scarce – Can’t you just make more?
The maximum supply of bitcoin is 21 million, which are generated through a process called mining. There will never be more than 21 million bitcoins because the total supply is programmed into the network and cannot be altered. Mining involves computation of complex math problems, which secures the network and processes financial transactions. The rate at which new bitcoins are generated decreases by 50% every few years. This is called a “halving”, since mining rewards are cut in half. Halvings are popularly believed to result in price increases based on the mechanics of supply in demand, ie. a drop in supply with a steady or increasing demand creates higher prices.
Can’t the Government just shut it down?
No. Because the bitcoin network is decentralized and has no owner, governments are not able to shut down the bitcoin network. Anyone with a computer and internet connection can independently run a node and process transactions to support the network. In theory, shutting down the internet worldwide could stop bitcoin. It would also devastate nearly all other industries, so it’s not a practical way to sabotage bitcoin. In 2018, China attempted to ban bitcoin and cryptocurrency ownership. The ban was largely unsuccessful, and China has since pivoted toward crypto and blockchain friendly policies to capitalize on the emerging sector. If the Chinese government changed its mind on a crackdown, it’s probably because it wasn’t working.
Quickfacts
Use Cases: Store of value, direct peer to peer transactions
Consensus Algorithm: Proof of work
Language: C++
Development Stage: Fully operational. Upgrades are in development to enhance speed and security
Coin: Bitcoin (BTC)
Current supply: 18 million bitcoin (Max supply is 21 million)
Transactions per second: 7
The Bullish Investment Case
Bitcoin was the first cryptocurrency, which has been running without interruption for 11 consecutive years. It has the advantage of name recognition and enjoys frequent press coverage as a result. The network is highly secure. There has been zero down time. It has never been hacked (although exchanges with substandard security practices have been). There is no owner or entity which can single-handedly ruin the network. Bitcoin cannot be confiscated by oppressive governments in the way money stored in traditional banks sometimes is. There is no inflation. There is no central bank or central authority which can artificially “create” new dollars and spend them to the detriment of all other currency holders. There are 21 million total, and will never be more. Each coin is divisible into one hundred million smaller units, which mitigates concern of a small currency supply amidst a growing population.
If we’re honest, the transaction speed of 7 per second is awful. It simply cannot be widely used for payments without significant upgrades or creative solutions outside of the bitcoin blockchain. On the other hand, it’s still MUCH faster than traditional banks for transferring money to different accounts, or sending it internationally. Costs are lower too. A slow transaction speed does not prevent bitcoin from serving as a reserve currency or store of value similar to gold. After all, what is the transaction speed of physically handing someone a gold coin? Or sending several bars through an insured delivery service?
Bitcoin might be slow, but it’s also extremely secure with a very durable network. Security and durability creates trust, which ultimately determines the true market value of any currency.
Speculation
Eleven years in the making, crypto has built a core audience and established several use cases. As a whole, crypto is here to stay. I think bitcoin is too, simply because of trust and stability in the network. While I’m not convinced that bitcoin will be the only crypto that succeeds, I do believe it has value. Essentially, value is determined by a combination of trust and the network effect of its users, investors, and developers. Development is slow, but the benefit is reliability. And in crypto, reliability is tough to find.
Irresponsible Price Prediction: $253,000 by 2023.
This is pure speculation based on fibonacci ratios and an Elliott Wave model. During the previous bull market, bitcoin rocketed 117X from a low in 2015 to the peak in 2017. Assuming that was the strongest advance in the current crypto market cycle, a subsequent advance may achieve 0.618 times that. 117 x 0.618 = 72.3. The most recent bear market low was around 3700.
72.3 X 3700 = 253,071. Sounds crazy…. but so was every other advance. This is also close to the estimation of Plan B’s stock to flow model, which predicts a rise to 6 figure prices between 2021-2023.
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BTC
Bitcoin is the original trust-less, decentralized peer-to-peer cryptocurrency. 1 Bitcoin (BTC) is divisible into 100,000,000 satoshis.
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