Bitcoin’s Relevance
In continuation of our last thought piece titled ‘The Advent of Digital Currencies’, this brief highlights the specifics around Bitcoin.
The realm of cryptocurrencies, Blockchain, Web 3.0 etcetera kick-started when Satoshi sent the first 10 Bitcoins to Hal Finney in 2009.
Bitcoin — The Standard
We identify money as the local currency accepted at a Starbucks for the morning coffee. The same money helps the Starbucks buy coffee beans. It’s the network of individuals and businesses who trust this medium of exchange. Bitcoin has developed, though still in early stages, similar trust network. The difference is that the current form of money is printed and managed by Central Banks and Bitcoin is 1s and 0s in the form of code secured by mathematics. The utopian viewpoint wants to dethrone the central banks and make Bitcoin the global currency managed in a decentralized manner with a predictable printing schedule (21 Million by May 2140). Bitcoin’s narrative has changed multiple times [1] in the last 9–10 years from e-cash peer-to-peer medium of exchange to an uncorrelated financial asset aligned to the evolving capabilities of the underlying protocol. This has led to a flurry of new Bitcoin based businesses varying from payments solution providers in Africa to Bitcoin funds seeking uncorrelated financial gains. The adoption of Segwit and advancements in Lightning network can give cypherpunks’ their first functional e-cash. In parallel, Bitcoin’s core community is keeping its head down to solve for privacy and scalability.
Bitcoin can be considered one of the most powerful inventions of this digital era. For the very first time, one gets to control her or his money, that cannot be stolen when stored securely. One can cross geographies and carry large sums around accessible via a set of private keys. Not to forget, its the first deflationary currency with one of the most resilient networks [2].
Unstoppable yet crippled adoption
It is not about drinking the Kool-Aid. From a contrarian perspective, what would happen in case Governments ban mining companies, or declare bitcoin transactions illegal, or put sanctions against crypto exchanges? Of these, certain scenarios are possible that might delay the adoption further out in the future, but few others are unconstitutional. Given the decentralized nature of the network, Governments cannot stop or destroy Bitcoin. The network has seen 100% uptime since the launch. The reality is that the adoption path will be bumpy, however, with limited to no impact on the protocol development roadmap.
Price volatility is scary and has kept the global adoption at bay. Any asset class or financial instrument that has ever existed gets dominated and haunted by speculators in its initial years [3]. For this reason, Bitcoin is frequently compared with financial bubbles and ponzi schemes such as the Tulip mania and why not, Bitcoin on its path from 10 cents to $6,400 has fallen 80% five separate times [4]. However, the core community laughs at Tulip’s analogy by saying that Tulips were not durable, not scarce, not programmable, not verifiable, not divisible, and hard to transfer [5].
Conclusion
Bitcoin discussions and debates are never-ending but, long story short, as tech entrepreneurs, we believe that this tech, especially Bitcoin, is here to stay. Bitcoin has solved for the store of value use case [6], however, scalability (transactions per second throughput) enhancements can catapult the adoption many fold.
Sources:
[1] Visions of Bitcoin by Nic Carter
[3] Devil take the hindmost: A History of Financial Speculation by Edward Chancellor
[4] Ari Paul, CIO, BlockTower, CNN Interview
[5] Naval Ravikant on Twitter
[6] The Bitcoin Standard by Saifedean Ammous
Further Reading:
[1] https://lopp.net/bitcoin.html
[3] https://medium.com/@ianedws/roadmap-to-bitcoin-developments-f7af59b6d122
