$10K Bitcoin Vs. Facebook, Place Your Bets….
By Luke L on ALTCOIN MAGAZINE
Round 1. Fight? Or are Facebook and Bitcoin on the same side? You likely saw that Facebook are releasing their own cryptocurrency next year, Libra Coin. You likely also saw that Bitcoin just broke above $10,000, a huge level psychologically. If not, now you know! Bitcoin is a heavyweight once again. This begs the question… can this new Facebook coin be a threat to the renewed might of Bitcoin?
Let’s take a look at the underlying characteristics of the two coins, Bitcoin and Libra Coin. It’s a good place to learn some fundamentals and figure out the answer.
Bitcoin was the first decentralized cryptocurrency, it’s the OG. The creator, who went under the pseudonym Satoshi Nakamoto, disappeared into thin air not long after its creation. He’s either dead or alive (clearly), very few people know. I hope one day we will find out. The point is that with him/her/them out of the picture, there is no single owner/leader of the network, it’s “decentralized”. It was essentially coded, tested, released, and then like magic, given away to the public. Given the market cap of Bitcoin (BTC) is now over $170bn, it fascinates me that the most successful startup of the last 10 years was given to the world for free, required no venture funding, had no marketing budget and has no leade
Looking under the hood, the part where the technicalities of bitcoin get complicated is when talking about miners. What actually is a miner? Well, the concept of the currency being given away to the public doesn’t work without someone actually running it on a system. The result is that many people run it on their systems and those people are called miners. Miners exist all over the world and essentially do 2 main things… 1. Use their computational power to execute transactions (e.g. moving bitcoins from one person to another) and 2. Use their computational power to make sure that the network is safe. In return for this computing power, they are rewarded over time with a small amount of bitcoin. Clearly, this can be a very profitable business and you’ll likely have seen headlines about how server farms across the world are set up for this purpose, sometimes at the expense of the environment (more on that in another blog when we look at BTC’s issues).
The key point on BTC for this post and this is very important, is that there’s a fixed limit on the number that can exist. That number is 21 million, and there can never be more Bitcoin than that. There are currently 17.7m in circulation and the balance will be given as rewards to miners over the next >100 years. Why is this important? Here’s why. Because the value in bitcoin is in its scarcity. Read that again. The value in bitcoin is in its scarcity. Simple supply/demand economics says that if there are a fixed supply and demand increases over time, the one thing that can even the equation is the price going up (and vice versa if demand decreases). This is what drives the value of Bitcoin.
Let’s move onto Facebook’s Libra Coin. You can read the white paper here, its actually a great project with great goals if you put the potential data privacy issues aside. I’ve read it so you don’t have to and here are the main differences…. First, unlike BTC, there is no finite supply, there can be an unlimited number of Libra coins produced. Second, its value does not come from scarcity, it’s physically backed by a “basket” of currencies, bonds, other financial products with an inherent value. At any given moment, the value of a Libra Coin will be equal to the value of the basket of products that make it up (vs the more complicated supply/demand dynamics of bitcoin). The result is something called a “Stable Coin”. Stable because its price is fixed to an underlying set of assets. Don’t get me wrong, it will move up and down in value, but the volatility (or rate of those up/down movements) will be much lower than bitcoin. Does this make it a better coin? In some regards it does, if I was paying for a cup of coffee or buying a new pair of shoes on Amazon, Libra Coin sound great. It’s also likely more accepted by those merchants. I would have concerns over who gets hold of my payment data, but that’s a separate topic.
Let’s piece the two together. The biggest barrier to the success of Bitcoin since inception has been adoption. Yes, it’s worth a lot of money right now but it’s still not mainstream yet, very few people I speak to actually hold it. Facebook and WhatsApp have a combined 2.6 billion users. That’s a lot of people. The fact that they are about to be introduced to cryptocurrencies can only be positive for space. The biggest barrier to entry for most people is understanding what a cryptocurrency actually is and how it works. Well, there’s a huge number of people that are about to work this out and officially convert their government-issued “fiat” currency into cryptocurrency for the first time.
Back to the original question. Is this a fight or can the two co-exist together? It makes logical sense that it’s the latter, they complement each other rather than compete. Just as Facebook and Twitter co-exist, they might be built on different models but together they increase the social media market size. If anything, the release of Libra Coin is a huge win for Bitcoin in terms of adoption. There will be no punches in round one of this fight, they’re fighting for the same corner.
Next up, I’ll talk more about how you can value a Bitcoin. It’s currently above $10,000, but why?
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Chat soon,
Luke.
