Is Bitcoin really worthy of its #1 spot in the crypto market?
Plus reasons why this might actually be true.
This article is a companion of another, where I assumed a negative stance on Bitcoin.
Brief recap on Bitcoin.
Bitcoin itself is often referred to as the ‘founding father’ of cryptocurrencies, and, like any other cryptocurrency, can be sent between users on the peer-to-peer Bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.
A number of notable individuals have touted their support for Bitcoin, among the ranks of which are billionaires Elon Musk, Mike Novogratz, Michael Saylor, and the Winklevoss Twins. Is their advice grounded in fact, however?
Below are some key merits Bitcoin possesses.
It is considered to be a legitimate currency by many.
As proved by Bitcoin’s widespread adoption by individuals, companies, and countries.
Adoption by Individuals
In the span of the roughly 11 years since its creation, Bitcoin has become syynonymous with the very word ‘Cryptocurrency’.
90% of Americans, 88% of the Japanese, and 93% of Brits have heard of Bitcoin, while 66% of Europeans have heard of Bitcoin. 40% of Chinese people are interested in investing in Bitcoin in spite of recent & repeated bans.
Worldwide, there are about ~172 million Bitcoin wallets which hold more than 0 BTC, although this does not account for exchanges & individuals with more than 1 wallet.
Adoption by Companies
Perhaps the most ubiquitous is Bitpay (not sponsored), a payments processor that enables companies to spend & accept Bitcoin and other cryptocurrencies.
A number of firms accept payment via Bitpay — including mobile service provider AT&T, Amazon, DoorDash, electronics retailer Newegg, Twitch, Shopify, Microsoft, the Dallas Mavericks, and the first airline to accept Bitcoin, Latvia’s airBaltic.
Many of these companies don’t directly accept the crypto, but rather BitPay allows customers to convert their crypto into fiat gift or debit cards.
BitPay typically processes about ~70,000 transactions a month, with the total value of those transactions often surpassing $1 billion on an annualized basis. In fact, about 57% of this transaction value is Bitcoin.
Other payments companies like PayPal and Bakkt facilitate payments using Bitcoin too.
- Paypal is believed to have played a large part in starting the 2020–21 bullrun by announcing the launch of a new service enabling its customers to buy, hold and sell cryptocurrency directly from their PayPal account.
- Bakkt, however, lets users spend cryptocurrencies, rewards points from hotels and airlines, and gift cards at a variety of merchants.
Bakkt converts the customer’s Bitcoin into fiat and “then transfers the proceeds of that transaction to [the company] to facilitate the reload, and they take care of all of the logistics of the transfer,” Bakkt’s CEO Gavin Michael explains.
On another note, Tesla once accepted BTC as payment, although the option has now been removed, citing ‘energy reasons’
Adoption by Countries
El Salvador, on the 7th of September, became the first country to adopt Bitcoin as legal tender — allowing it to be used in any transaction, from buying a cup of coffee to paying taxes.
President Nayib Bukele has promoted Bitcoin’s adoption, pitching it as a way of bringing more Salvadorans, about 70 percent of whom don’t have bank accounts, into the formal economy.
On various occassions, the President has ‘bought the dip’, and El Salvadorean BTC holdings currently stand at 700 BTC, or $29.8 million USD.
The adoption program is currently going well, with 2.1 million people, or ~33% of the population, using the country’s official Bitcoin wallet within less than a month of the program being implemented.
Many people now believe that Paraguay and Venezuela will become the next countries to use BTC as legal tender, although this should be taken with a grain of salt.
Held by institutions, companies, and funds.
There are a number of companies which hold BTC, namely:
- Microstrategy (MSTR) — The analytics platform company holds the top place for a publicly traded firm owning the most Bitcoin, adding to its position time and again. Its holdings are close to $4.5 billion USD.
- Tesla (TSLA) — Tesla’s $1.5 billion initial investment in the cryptocurrency, revealed in an SEC filing on Feb. 8, sent BTC prices soaring higher. As of March 31, 2021, the company owned 42,902 bitcoins.
- Square (SQ) — Square’s founder and CEO Jack Dorsey is a long-time Bitcoin bull, and Square owns about 8,027 bitcoins.
- Other companies that owning Bitcoin include Marathon Digital (MARA), Coinbase (COIN) and Mercado Libre (MELI), among others.
Not subject to many of fiat’s problems.
Bitcoin has user autonomy
Conventional fiat currencies are subject to multiple restrictions and risks. For example, banks are vulnerable to boom and bust cycles in the economy. Sometimes, these situations can end in bank crashes, as has occurred numerous times in the past.
Theoretically, at least, Bitcoin promises user autonomy because its price is not linked to specific government policies — connoting that users and owners of the cryptocurrency are in control of their money.
Bitcoin preserves anonymity
Bitcoin transactions are pseudonymous. While this means that they are not completely anonymous, the transactions can be identified only by using a blockchain address. An individual can have multiple addresses, just as they can have multiple usernames and passwords for a single account.
Straightforward & cheap fees
Bitcoin users are not subject to the litany of traditional banking fees associated with fiat currencies. This means no account maintenance or minimum balance fees, no overdraft charges, and no returned deposit fees, among many others.
Standard wire transfers and foreign purchases typically involve fees and exchange costs. Since Bitcoin transactions have no intermediary institutions or government involvement, the costs of transacting are generally lower compared to those for bank transfers.
In fact, BTC network fees are currently about ~$2.5 per transaction, which is likely to drop to a negligible amount after the Lightning Network upgrade.
Overall, the BTC network is secure & irreversible
- Transactions using the blockchain are irreversible and cannot be amended by a third party, such as a government entity or a financial services agency. Additionally, it is impossible to file a charge-back for BTC sent to someone else.
- Bitcoin, unlike physical currencies, simply cannot be ‘stolen’ in the traditional sense of the word.
- Yes, Bitcoin could suffer a 51% attack, but this would require more than ~$5.5 billion worth of equipment and is very unlikely to succeed.
Decentralized
- Unlike fiat in most countries, where the central bank & large companies control a large percentage of the supply, Bitcoin is largely decentralized — its holders AND its miners.
- As mentioned before, Bitcoin’s holders are spread over the globe.
- Bitcoin miners are becoming more and more diverse, too.
Bitcoin stores value better than any fiat currency.
According to The Fed’s Consumer Price Index, $1 in 1913 (the year The Federal Reserve was established) would buy you roughly what would require $26.15 in 2020 — representing a 96% loss in purchasing power.
Bitcoin is the answer to this problem (and an alternative to gold) for a number of reasons:
Scarcity
There will only ever be 21 million Bitcoin in existence and after 2140, no more will ever be created. With a fixed supply, any increase in demand means the value goes up over time — making it an ideal store of value asset.
Predictable supply schedule
While gold’s mining rate changes based on demand & the technology available, Bitcoin’s supply schedule is disinflationary, meaning the amount that gets mined per block decreases by half every four years.
Durable & Fungible
- BTC lasts forever on the blockchain while gold can disintegrate or get eroded in storage, wiping out a large portion of its value.
- Additionally, each BTC is identical by its very nature, as opposed to gold, which in some cases can be counterfeit or impure.
There are many more reasons, which can be found here.
[Controversially] the most technically innovative cryptocurrency
Bitcoin was the first cryptocurrency ever to be made — and every other token simply builds on the foundations that Satoshi laid in place.
Its development team is extremely active, and have made (and are planning to make) several notable upgrades to the system. These include:
Segregated Witness (SegWit)
SegWit is a protocol upgrade proposal that went live in August 2017, and separates witness signatures from transaction-related data. Consequently, tps & transaction fees were reduced due to the reduction in the need for computational power.
Lightning Network (LN)
Lightning Network is a second-layer micropayment solution for scalability, and is already in use by a number of people. By implementing the use of payment channels, it drastically increases tps & reduces transaction fees to a fraction of a cent.
Schorr Signature
By further compressing signatures, the Schorr Signature decreases transaction fees even more.
Taproot
Taproot allows for highly specific smart contracts to be added to the Bitcoin ecosystem.
All of the reasons presented above serve as plenty of reasons as to why Bitcoin is as ubiquitious as it is, and why it will continue to stay at the top.
