Ten Years In, Why Bitcoin (Still) Matters
Part I: Organic Growth
The ten year anniversary of Satoshi Nakomoto’s White Paper was grossly underwhelming, to put it mildly, for the vast majority of people in my social circles. I suppose it’s safe to say it was also a non-event for 99% of the uninformed global population. But even if crypto isn’t on your radar the anniversary marked a truly significant milestone in Bitcoin’s brief history: Its survival for nearly ten years is remarkable in its own right, but what’s more impressive is that the fundamentals behind it — even in a bear market — are undeniably healthy, and getting stronger.
Bitcoin has experienced a ton of growth since its inception both in terms of user adoption and value. At the time of publication, its market cap is holding steady at approximately $110 billion, its trade price is hovering around $6,450, and more than 22 million wallets have been generated — not too shabby considering it all started with an anonymous founder, open-source code, an initial user base of two, a near zero market value price, and no VC-backed funds for marketing. Sure, you could argue those numbers are still relatively insignificant, but that’s missing the point.
Bitcoin is an alternative currency and payment system that lives on the Internet. It’s designed to be trustless, yet mainstream users have to trust that it works, and that’s a tough sell when we’re talking about hard-earned dollars being converted into thin air. While we’re still a long way from mass adoption, we now have ten years of empirical evidence showing that Bitcoin’s value proposition is unequivocally gaining traction. Here are a few of the indicators I’m following:
Technical
Hash power — this important metric that gives us an indication of the Bitcoin network’s strength and health. It’s positively correlated with the number of miners who are competing to validate transactions and protect the integrity of the Bitcoin’s blockchain (a cryptographically secure and immutable public database that records every transaction ever made). But here’s what non-technical people need to know: the number of miners has been increasing steadily ever since the first bitcoins were transacted, and we’ve witnessed explosive growth over the past year, even as price declined. In addition to being highly decentralized and capped at 21 million, Bitcoin issuance is anchored in real-world costs (energy consumption and computing power), so growth in the mining sector tells us that these folks are putting their money where their mouth is.
Financial
Institutional Interest — this year, in particular, has been replete with stories about Wall Street professionals taking up new posts in crypto funds, VC firms pouring money into crypto projects, and large financial institutions gearing up for entry into the crypto space. Massive investment banks have already announced or initiated plans to invest in crypto, open trading desks, provide custody solutions and offer a range of new crypto-based financial products and services. Fidelity, BlackRock, Goldman Sachs, the Intercontinental Exchange (ICE) and the CBOE are all on board. Yale’s endowment fund is too. These institutions have prudently embraced what some would consider to be their fiduciary duty to offer mainstream investors an on-ramp to the best performing asset class of the last ten years.
Political
Regulatory debate — large financial institutions preparing to enter the fray means governments have to respond. And they’re no longer thinking about how to mute Bitcoin — those days are long gone. Today’s debate is about regulating the crypto space. Politicians and government officials are as busy figuring out how to protect retail investors and prevent money laundering as they are with what can be done to contain Bitcoin and mitigate the threat it poses to banks and centralized control over fiat money supply. The silver lining, at least in America, is that many of these politicians and regulators have children who grew up in the digital age and are now studying at elite universities where they’re learning about blockchain. I have little doubt that their exposure to Bitcoin, and its potential to provide a more secure, more stable and freer financial future, will be net positive for the ecosystem. But in the near term, their enthusiasm will also help inform the views and opinions of their parents. Regulatory clarity on crypto is coming, for better or worse, but what’s already clear is that Bitcoin cannot be regulated out of existence.
For the speculators out there, these three trends clearly suggest upward price movement in the future. But Bitcoin has many layers and there’s a lot more to the narrative than the metrics listed above. My next post will explore a few of Bitcoin’s other equally compelling accomplishments over the last ten years. In the meantime, check out this fantastic interview with Murad Mahmudov for some extremely well-articulated views and insights on why Bitcoin matters.
Part II of this article (Reputation Building) is available here.
