Bitcoin as the ultimate asset
This invention is much more transformative than a mere payment network for the Internet age.
This is the last of a five-part series. Read here the first, second, third, and fourth parts.
Using Bitcoin today as a common currency is nonoptimal because transaction costs are too high. Price remains erratic, liquidity is insufficient, and, in many cases, throughput, confirmation times, and fees result in significant obstacles.
Technology will address usability by allowing for greater capacity and improved user experience. But, volatility can only recede with increased adoption, which requires Bitcoin to be desired, to be demanded as cash balances, and to be held. This is accomplished if we manage to evolve Bitcoin into a good SoV.
Contrary to critics’ claim, this notion is validated by sound economics. The willingness to hold money imbues its value (i.e., purchasing power). Being able to spend it, then, is a consequence of money’s value, and not its cause.
Satoshi Nakamoto’s writings are not sacrosanct. However, one thing he did get right was economics, and for non-state produced money to have value, you need to get your economics right. Bitcoin can be a good SoV and a medium for wealth transfer as well as eventually becoming a common currency that is not only sound but also stable. In fact, it is poised to be the hardest money ever, scarcer than gold itself, by featuring a predictable, limited, and mathematically provable asset supply.
Uncensorable digital sound money is the foundation on top of which all other applications can be built. Payment networks, exponential capacity, off-chain asset issuance, distributed markets, smart contracts, and decentralized applications offer endless possibilities. But, they all depend on a sound currency.
There are many reasons setting Bitcoin apart from the rest of the cryptocurrency market. Two are relevant to the arguments here, and they reinforce one other. First, Bitcoin has the obvious first-mover advantage. Network effects constitute an enormous barrier, although they are not insurmountable. Yet, it is not only about its broader network of users and the consequential Metcalfe’s Law.
Secondly, only Bitcoin is developed with a focus on strengthening and preserving its utility as a SoV. Only in Bitcoin is there an unyielding attitude towards security and value preservation. No other cryptocurrency has even realized that overthrowing Bitcoin means defeating it as a SoV. Since being a SoV is a confidence game of time and maintaining a pristine track-record, Bitcoin is way ahead as well as alone in the competition.
Moreover, the understanding of Bitcoin as the leading contender is economical and technological in nature. Monetary theory demonstrates there exists an inevitable tendency for one money to reign. From a technological perspective, there is also a coinciding tendency for one protocol to remain as a single standard. Because this is also a money protocol, then one reinforces the other. Therefore, for Bitcoin, network effects are a monetary and technological phenomenon.
Notwithstanding the discussions of this thesis, it is not investment advice, and I do not claim every cryptocurrency other than Bitcoin will zero out soon. The fact that many now have value does not invalidate the hypothesis. We are in the midst of an experimental phase, and the market has yet to distinguish long-term potential from mere short-term bets.
To conclude, I offer a final thought experiment.
Gold is a millenary commodity universally recognized as useful. Its attributes are well-known and understood by all. It is a chemical element with the atomic number 79 and considered the most malleable of all metals. It remains scarce and to this day irreproducible by alchemists.
Now, what if chemists could “fork” gold by changing its appearance while retaining all other properties? Instead of reddish-yellow with a density of 19.3 g/cm³, it becomes electronic and immaterial. In place of immense physical vaults with armored guards for secure storage or trucks and ships for transportation, digital unfalsifiable cryptographic signatures could be used for both requirements. These technological features make it far costlier to attempt breaking into a digital vault than defending it against intruders, while enabling it to travel at the speed of light anywhere in the world.
Given this unmatched security and utility at a fraction of the cost, wouldn’t this forked gold be deemed more valuable? Wouldn’t it be considered a superior version of the original?
If the precious metal was freely chosen by diverse societies via a gradual and competitive market process throughout centuries, then wouldn’t it be reasonable to envision the very same outcome could happen to a technologically enhanced version that delivers true monetary sovereignty?
Bitcoin forked gold. Yet, in terms of monetary maturity, it is probably where gold was around 3,000 B.C. However, this incarnation is growing exponentially. Sufficient time, solid protocol development, and socially unalterable rules can make it be appreciated as the precious metal’s replacement.
We are experiencing a marathon, and not a sprint. We are designing and building a parallel monetary and financial system for the digital age. This is monumental. It is historical. And it implies a tremendous level of responsibility for those involved in making it a reality.
Bitcoin wants to dethrone gold as a reserve asset and as the world’s unifying money. It is larger than fiat currencies, and it goes beyond a mere payment network for the Internet age.
Just as gold once accomplished, Bitcoin is now competing to become the ultimate asset.
