The real reason Bitcoin is so highly valued
A huge hurricane is barrelling towards Miami. It’s a category 5. Everyone in the state will be affected and the only way out is via trains that leave every 7 minutes or so. Each train has 1 million seats and ideally each seat is filled. But, nothing is perfect. So the train leaves, on average, with 963853 seats filled. The rest are empty…but at least the train leaves and the passengers get to where they are going.
But wait, there is a bigger more sinister problem. Each passenger in the train didn’t pay a reasonable fee to get a seat. In fact, to get the seat they realize the only way to get on was to pay a nice extra ‘token’.
If you look at all the passengers, they all had to pay extra to get a seat. And they are all really rich. Those passengers with more modest budgets simple never get onto the train…there are millions of panicked customers trying to get onto the train and it is always nearly full.
The next train comes again and it all happens all over again and the Cat 5 is forever looming. The only way to get to where you need to go is to pay a first-class ticket. Of course, most of us can’t afford to pay first-class and we simply can’t jump on the train.
Those familiar with the Bitcoin problem recognize this metaphorical scenario. We call it network congestion and it is the reason the value of Bitcoin is so high. Bitcoin blocks are limited to 1MB each and the average block size is around 983kBytes. Bitcoin users have the option of paying a higher fee to insure their transaction get resolved in the network and they they pay the fee in Bitcoin. Because it is difficult to gauge what a fair fee should be, most users overpay. It’s better that, than not get the BTC where it’s supposed to go. Even then confirmations can take a very long time.
So, when pundits that know nothing about Bitcoin call it a bubble…they are correct. They just don’t know why.
Actually, the bubble is the fees users are paying to guarantee a transaction. Those fees are the real reason Bitcoin valuation is so high. Bitcoin millionaries can afford to pay extra…they are a wash in Bitcoin and they do pay.
Yes, the CBOE futures markets due to open in mid December 2017 is also accelerating this frenzy . But, let’s look at another scenario.
Suppose we have the same Cat 5 storm and the same train (1 Million seats). Except, this train leaves every 1 minute, 58 secs.
Ahhh, hmph. I can see the storm. It looks really scary! But, I think I’ll be ok. Next train comes in another ~2 mins. Ho hum.
What, I’m sorry. What’s that? A discount? And every ticket to a seat costs the same and it’s dirt cheap? And I can go wherever the “panic train” goes? What’s the catch?
In this scenario there is no panic. Everyone gets onto the train because everyone can buy a ticket. This is the beauty and the sublime nature that is Litecoin. And it is also why Litecoin is not subject to the volatility the BTC experiences. LTC fees are a flat 0.001 LTC. And to extend that train metaphor we can see Litecoin blocks have been nearly boring with an average block size of 37.698 KBytes.
In fact, Litecoin has grown more than Bitcoin in the last year:
Yet, look at block size with comparing Bitcoin and Litecoin:
This is stunning. It somewhat proves that LTC is engineered to handle alot of small transactions cheaply. And Bitcoin is designed to moved huge amounts of capital. The price to pay expensive when compared to LTC. But its still dirt cheap when compared to wire transfer fees and similar tools.
Maybe you are new to crpytocurrency and are not familar with the network congestion problem. But, you know how much it sucks to have to pay extra to get a seat to go somewhere.
May I suggest looking into looking into Litecoin (https://litecoin-foundation.org) as a way to get into cryptocurrency? At least you know you can afford the ticket and can get back on whenever you like!