Bitcoin turns 12: a decade of legacy and what’s to come
October 31 of 2008 marks the day that Satoshi Nakamoto, creator of Bitcoin, released the Bitcoin whitepaper. The opening text sums of the qualities of Bitcoin’s ingenuity:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution”.
The idea of a decentralized global value transfer system without a central intermediary has since then sparked new waves of technological innovation. Twelve years since its inception, Bitcoin is still changing the way we redefine internet money and how digital value can be stored.
Beyond internet money, more technologies inspired by Bitcoin such as blockchain, smart contacts, and variants of decentralized technologies will continue to impact major industries.
Bitcoin’s global adoption
The first Bitcoin in history was “mined” or produced by Satoshi. This marked the beginning of Bitcoin’s mining system in which a Proof of Work algorithm is used to secure the peer to peer network. Simply put, “miners” or computer nodes connected to the network, confirm Bitcoin transactions in return for earning Bitcoin as reward.
Such a system eliminates the need for a single financial institution to process your transaction. Individual miners are incentivized to work together as a whole such that good actors are rewarded in BTC.
Bitcoin confirmed more than 582 million transactions to date. The network hash rate continues to consistently grow, which means that the network gets stronger and more secure. There are more than 11034 nodes distributed around the world as a result of the decentralized consensus model.
Bitcoin didn’t need any fundraising or marketing to achieve this. It naturally garnered attention as developers, early adopters and organic demand drove Bitcoin to a multi-billion market cap.
Is Bitcoin the “digital gold”?
Throughout a series of global events, Bitcoin has reacted to economic crises around the world as an alternative safe haven asset.
For example many Greeks bought BTC after the country’s debt challenge became uncontrollable in 2015, pushing the price up. In Venezuela, hyperinflation of the failing Petro currency forced people to convert their life savings into a more reliable store of value. Strong demand for Bitcoin was also seen in Argentina as the government faced challenges paying US$65 million in foreign debt.
As the new asset class garnered more attention, both as a store of value and alternative to money transfer, heavy-hitter institutions such as Square and MicroStrategy have invested US$475 million collectively.
Such institutional confidence is in one part due to the reflection of Bitcoin’s uniqueness as a hedge against traditional fiat. Bitcoin’s characteristics of scarcity, transparency and portability are the core innovations that make it to what many dub it as “digital gold”.
Scarcity: only 21 million BTC will ever exist
Only 21 million BTC will ever exist, or just 0.00241 BTC for every person on this planet. This is contrary to the current fiat system in which central banks can print money, which in general leads to higher inflation.
The current fiat system will no longer be able to sustain healthy monetary policy. It is estimated that in 2020 alone, the US Federal Reserve printed 22% of the nation’s entire dollar issued. Whether for good or worse, that’s trillions of dollars printed in a relatively short time.
No one will be able to simply “print” more than 21 million BTC. This alone indicates Bitcoin’s true value as a digital scare asset.
Transparency: no need for a central financial institution
With Bitcoin and cryptocurrencies, two parties who do not trust each other can transfer value, without relying on a central party to process the settlement.
Every Bitcoin transaction is transparent for anyone to verify on the blockchain. This means that anyone can check that double spending has not occurred. Miners are also incentivized to make sure that double spending does not occur through the Proof of Work consensus model.
Portable: Bitcoin can be transferred quick and cheap
Bitcoin combines the quality of gold’s scarcity and the portability of digital cash. You can send Bitcoin anytime to anyone for relatively inexpensive fees.
Transaction confirmation times are on average 10 minutes, so Bitcoin won’t be useful for buying coffee at the moment. However, it’s very convenient to be able to send lots of money for relatively cheap. Take for example, where someone sent 88857 BTC worth ~$1.1 billion for just $3.58 in network fees. The fee is relatively nothing compared to the amount that was sent in one single transaction.
This makes Bitcoin more liquid and practical to store or transfer value compared to traditional hard assets like gold. At the same time, it keeps the limited supply quality of real gold.
Bitcoin’s legacy runs deeper than you think
Twelve years since its inception, Bitcoin has solved many fundamental economic challenges for consumers, citizens and nations with weak currencies.
Bitcoin also gave rise to alternative cryptocurrencies, which innovated upon Bitcoin’s shortcoming. These so-called “altcoins” each serve different purposes for specific use cases in tandem to Bitcoin. What’s best is having different options for how you choose to store and send money beyond fiat currencies.
Sending money across borders will become cheaper, faster and frictionless. Besides fiat, people will now have more alternatives to meet their specific needs in financial services.
Bitcoin’s legacy will make deeper impacts across major industries as the concept of money itself is being redefined — this time completely digital.
