Why Bitcoin Won’t Be a Bubble
As Bitcoin’s reached mass market awareness, a debate has errupted as to whether Bitcoin is a bubble or a world-changing technology.
As Bitcoin’s reached mass market awareness, a debate has errupted as to whether Bitcoin is a bubble or a world-changing technology. Some people say the exchange price is a bubble but the protocol isn’t. Or that Bitcoin’s a bubble but crypto-currencies are not. I don’t buy into any of these nuances and argue that given all of the information we have today, Bitcoin is on the right path to change the world as we know it.
1. Any Successful Digital Currency Will Look Like a Bubble
The growth in price of Bitcoin seems alarming when you compare it to any asset class, except for successful startups. A new digital currency is a startup, and the growth of startups looks exactly like a bubble. I know many startups that went from $0 to multi-millions in value in the last year. The price of Bitcoin is simply determined by supply and demand, and Bitcoin’s user base is exploding. For Bitcoin to be successful, it MUST look like a bubble.
2. Speculation is Good
Speculation is what grows startups. It’s why startups hype their valuations, because eventually that hype become a self-fulfilling prophecy. Good hype allows you to hire good people, and attract good support from investors, press, and partners. Speculation is what has led to the venture capital industry to invest millions in Bitcoin startups. Hype is also the reason why, back in the day, so many developers started building on the iPhone platform. Even though the data showed the majority of iPhone apps never became profitable. There are many more examples of popular platforms that grew from hype and turned that hype into reality. All of the hype and speculation around Bitcoin will help it change the world.
3. Bitcoin Does NOT Threaten Governments
Bitcoin is both good and bad for government, but more good. It‘s bad for the value of governments’ existing currencies and for the profits and monopolies of their banking institutions, but it adds productivity to society and its public ledger ultimately makes it easier for governments to track what’s going on. Because of this, Paul Graham hypothesized that Bitcoin was created by a government. Governments can’t regulate the Bitcoin network, but they can regulate the businesses and exchanges that operate on top of Bitcoin.
4. You Can Buy Almost Anything With Bitcoin
Over 400 retailers offered deals on Bitcoin Black Friday. Over 75 Shopify stores currently accept Bitcoin. You can buy food, watches, plane tickets, t-shirts, all of your holiday gifts, cards, houses, lollipops, mustache wax, televisions, etc.. This couple even travelled the world for a year only on Bitcoins and is making a documentary on their experience.
5. Bitcoin Has Intrinsic Value
One of the biggest myths is that Bitcoin doesn’t have intrinsic value. Bitcoin isn’t just bits and bytes, it’s an incredible innovation that has two forms of intrinsic value. The first is the protocol and how it can operate with other programs. See Naval Ravikant’s post on all the innovations being built on top of this platform. The second intrinsic value is all of the computers connected to the market for mining. This network has more computer power than the world’s fastest 500 super computers combined.
6. Bitcoin’s Deflationary Nature is Good
Finance professionals love to argue the minutia of financial parameters. Because supply of Bitcoin in the future is finite, this means as demand increases, the value can only go up. Pundits argue this will lead to Bitcoin’s demise, but they’re wrong. Deflation implies people are incentivized not to spend. This is true, but who cares? It might be a great thing to see a new economy where people don’t measure their lives by the physical possessions they own. The deflationary nature means early adopters of Bitcoin will make a lot of money if it’s successful. This both incentivizes people to become adopters and spread the word about Bitcoin, essentially making Bitcoin adoption viral.
7. Bitcoin Can Change
Because Bitcoin’s decentralized it can’t be controlled, but it can be changed. What’s required is to win the approval of the economic majority to prefer a new patch to Bitcoin. Essentially, as the new functionality gains traction it divides the decentralized network (miners) into users of new Bitcoin and users of the old Bitcoin. New Bitcoin and old Bitcoin can’t trade with each other so assuming the new version is actually better, all of the miners of old Bitcoin install the patch and become miners of new Bitcoin.
8. Alternate Coins Won’t Compete
Bitcoin’s value is in the network effect of people owning it and merchants accepting it. In this sense it’s already won. The idea there may be an unpredictable, critical flaw in Bitcoin at scale also assumes that the flaw can’t be changed and an alternate coin just happens to have avoided that flaw. This is a big leap. Furthermore, there’s no reason for Bitcoin to have a “little brother” alternative like how gold has silver. There’s a significant advantage for society to move from our current analog monetary system to a digital one. There’s no advantage for everyone to move from one digital system to another that’s nearly identical, with a smaller network.
9. Virtual Currencies Aren’t New, Bitcoin is Radically Better
Many people are uncomfortable with Bitcoin because they’ve never experienced a virtual currency. Virtual currencies have been popping up for years now. For example: SecondLife has Linden Dollars, World of Warcraft has gold, and there are hundreds of others. Millions of people have used virtual currencies to buy and sell things in real life. The problem with all previous virtual currencies is that they’re owned by central authorities, someone who’s human and fallible. Bitcoin is not fallible, it’s an open-source program that will always do what it says. Want to read the entire code base? You can.
10. The Global Financial System Needs to Be Disrupted
Ultimately, Bitcoin has the potential to change society in an important way. It could replace the Federal Reserve System used by many countries, or it could reinvent it. Bitcoin is a technology network that will create incredible efficiency for governments and banks, for the modern world and the developing world. This potential is unfathomable and represents a once in a lifetime opportunity.
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