Worried about the next bear market? This is why my BTC is always worth more than yours
Yes. You read it correctly. Its not a typo. My 1 BTC is worth more than 1 BTC of yours. Its because I got it from a guy named Satoshi69 online.
Jokes aside, whenever I hear a discussion about crypto, its usually about, “Which coin should I buy now?”, “How do I get into NFTs”, “Should I buy the dip?” I cant help but to wonder why some coins/NFTs are worth millions while some are out right worthless.
At the point of writing this, BTC is around **,***. For something that you cannot see physically or touch, it’s sure cost a lot.
Is there anything special to it? Why does it cost so much when compared to the other coins, coins which has more utility than BTC?
For stocks, there is this concept called the intrinsic value. Financial models (fundamental / technical analysis) are used to estimate the value of a stock. Whenever there is a difference between the stock price and the intrinsic value, it would signal that potential investing opportunities are present.
General speaking, the models would be taking the cash flow, assets of the company for valuation, something which BTC does not have.
If we were to define,
- Intrinsic value = an underlying worth of an asset
- Extrinsic value = worth of asset determined by external factors
It would be easy to see that BTC, like fiat, doesn't have any intrinsic value (other than the cost to producing it?) to it while having a lot of extrinsic value due to what we can do with it.
So then where does BTC derive its value from???
Us.
Its value is coming from us. Like many other things, we are the ones who sees the value and in return assigns a value to it.
A bottle of water would be valued differently by 2 people. 1 in the desert and the other shopping comfortably in a mall.
For famous art pieces like The “Starry” Night, 😆 there is a value attached to it. If we strip away the cost of the raw materials needed to create it, how do we quantify the other factors into the valuation of the art piece? The fame of the artist? The time spent working on it? The skill level and the technique used to create the masterpiece?
GOLD VS BTC VS FIAT
I’m a simple man, I see a lot of green, I buy. (lol, pls no) I don’t quite agree with the fungible part. To me, all 3 should be considered fungible since your 1$ would be the same 1$ as mine even though they are using different currencies for comparison.
Looking at the chart above, its easy to conclude that BTC is the “superior” choice compared to the other 2. So should we abandon fiat & gold and just switch over?
Hold your horses, its not that simple as BTC is not without it flaws. Why is it that till today BTC has not made it as a form of currency where we use it to transact on a daily basis?
We will explore some of the attributes (good/bad) of BTC which I find to be helpful in understanding where its value might be being derived from.
- Maximum supply
Unlike fiat which can be printed to increase its supply, BTC has only 21 mil coins as the total supply. This is coded into BTC so there will only be a total of 21mil coins out there (or is it…)
Technically, its actually possible to change the overall supply but in the spirit of BTC, there are some changes which are considered to be prohibited since changing it would means the resulting coin cannot be considered as BTC any more.
It also doesn’t make sense to increase the supply since it would dilute your holdings and if more coins are required, the divisibility can be increased - Deflationary
Adding on to Pt1, BTC goes through this event called halving roughly every 4 years where the block rewards will be halved. (inflation get reduced at each halving)
50, 25, 12.5, 6.25, 3.125 and so on till the last coin has been mined out at around year 2140. Its not surprising that some BTC got sent to the wrong address (burnt) or private keys being lost/forgotten which would make BTC deflationary much earlier than year 2140. - Secure
BTC uses the 256 SHA encryption (designed by NSA)as it offers a high level of security. It is secure because it creates a one way hash, where you get a 256bit output but cannot work backwards to get the original input.
In relation to mining, the miner would be trying to solve a computationally difficult puzzle by repeatedly changing the nonce value till it can get an output (hash value) which is lower than the current value set by the difficulty level. - First mover advantage (popularity)
Being the first widely popularized cryptocurrency, it has a strategic dominance in the crypto market. Though this dominance has already dropped below 50%. A random stranger down the road would have heard of bitcoin but not coins like “Stacks”, “Quant” - “Decentralized”
It depends on how this is defined. To me, as long its not possible for 1 participant (single or multiple nodes under 1 entity) to have power over the rest and make changes which threatens the legitimacy of the network then it would be decentralized.
But is it really enough? The more the number of individual nodes securing the network, the higher the level of decentralization. Jack Dorsey said that “Bitcoin mining should be as easy as plugging a rig into a power source.”. Which I agree, If they manage to successfully do that and any average person is able to participate, then that would greatly boost the level of decentralization.
- Scalability
Due to the nature of BTC, its just not possible to use BTC (on its own) to reach the level of adoption where people use it as a form of payment. For comparison, VISA handles more than 24,000 TPS while BTC can only handle 5 TPS.
No one would want to spend time waiting in queue just get their transaction approved. - Computational intensive
Due to the nature of proof of work, a lot of computational power is being used just to keep the network secure. Said resources could be diverted to other applications. (research, solving other problems)
Energy usage and carbon emission seem to be another fav point people like to touch on. Although I believe all these will get better since the miners are profit driven.
As long cheaper and cleaner sources of energy are available, they can make the switch to reduce their operating costs. - Volatility (store of value)
Given the price movements of BTC, it might not be the best asset to use when it comes to preserving value. Usually the other asset that comes to mind would be precious metals, like gold. - Unregulated
The wild west of the crypto space where funds transferred wrongly or scams taking place are common. Usually regulatory bodies will not be able to help you recover or claw back those lost funds. - 51% attack / Sybil attack
Check out the heat map to see where the hashrate is being concentrated at. It is possible for the network to be attacked, rendering it useless.
As long as an entity or a group of malicious actors manage to accumulate over 51% of the hash rate, they would be able to dictate which block get to be added to the blockchain. (double spending / blocking specific transactions). - Mining
In the event where the price of BTC falls dramatically, to a point where its no longer profitable for miners to continue their operations.
This poses as a huge risk as there will be lesser nodes securing it the network.
The birth of BTC has been disruptive to the many industries. But regardless of the reasons why an individual / organization is holding it is still to make a profit from it at the end. (even for those who supports it but don’t adopt it, through marketing they could still be making $ off from it)
A quick google search will bring you a lot of different views on the subject, whether its a scam, a Ponzi, a get rich quick scheme, digital gold, inflation counter or even a long term investment.
Although this post might make me sound like I’m a BTC maxi, I don’t think I am. Given what BTC is right now, I don’t believe it can be the only digital currency we need in the future and also not a store of value. Its more likely that it will co-exist with fiat, giving us a choice to choose from.
There is no actual difference between your BTC and mine (fungible). But due to how we perceive the value of things differently, I see it as a undervalued, speculative and highly risky asset even with its shortcomings. There is still much more the blockchain tech and BTC can do. (not financial advice).
That is why my 1 BTC is worth more than your 1 BTC.
If you enjoy reading the article, do leave a comment on a topic of interest you would like to see in this space
Thanks! 👍
Join Coinmonks Telegram Channel and Youtube Channel learn about crypto trading and investing
