Does Bitcoin Really Fix that?

On October 31st 2008, under the pseudonym Satoshi Nakamoto, a white paper was released on the cryptography mailing list, metzdowd.com, under a simple title: “Bitcoin: A Peer-to-Peer Electronic Cash System.” In it, an ambitious vision was laid out to allow a “peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution”. Without a doubt the break through was revolutionary; a distributed ledger network was now possible that would allow the accounting of value to occur on transfer without the need for an intermediary. When you compare this to email, for instance, if I have a PDF file and email it to you, you can print out as many copies as needed or send it to all your friends while I still remain with the same file. Now with a PDF this is not an issue but replace with Dollars and you can see how this can become a problem. What Bitcoin for the first time allowed was for me to electronically send you an amount of value in the form of a specified allotment of Bitcoin and in doing so, the deduction in my wallet and credit to yours would occur automatically.

Unfortunately, for a list of reasons that we won’t dive into today, Bitcoin never succeeded in its mission to be a true peer-to-peer electronic version of cash and over the following years we witnessed the story line evolve into Bitcoin the “store of value”. With its decentralized structure and limited supply, the argument for Bitcoin, “the store of value”, has strong footing. The Fed has been printing dollars at dangerously record highs and by all statistical measures the global economy is cratering. As institutional investment flowed into Bitcoin, the market cap at one point jumped over $1Trillion and we saw the price skyrocket to $60,000 USD. Many used this as proof that Bitcoin was the answer to all our problems…but is it?

I love Bitcoin and agree that it has outperformed every possible investment option in the world, but at the end of the day it’s main function is as an investment. Now some will tell you that Bitcoin will be the standard currency of the world one day but I would counter that this is highly speculative at best. The dream of a true decentralized Utopia where there’s no government to interfere and we all get along peacefully is a world I would love more then any one. Sadly the reality is that there’s a difference between money and power and while bitcoin itself can balloon to any outrageous number you can imagine, it in self is not a form of power, which is still in the hands of world leaders and the Central Banks. If, for example, we lived in a reality where governments today were using Gold (GLD) as an underlying asset for currencies we could say that perhaps there was an historical precedent but sadly there’s not. Paper fiat has been in existence in most developed countries for centuries and in the 1970s the US decided to decouple from the Gold standard themselves. For reasons that we won’t dive into here its clear that limited supply and decentralization weren’t deciding factors on why the Dollar is the global currency. So we’re back to Bitcoin being an investment-perhaps the greatest investment opportunity of a lifetime-but once again it doesn’t fix everything.

Blockchain has opened up a world of abundance that can really change the way we interact with value. Business mogul and billionaire Shawn “Jay Z” Carter recently shared a Twitter Space with Twitter founder Jack Dorsey and in it he shared a story about a painting by famous artist Jean-Michel Basquiat. He describes how a painting, “Unititled” in his series “In this Case”,originally sold in 1982 for $4,000. A few years later in 1984 it was auctioned at Christie’s to the Spiegels for $20,900. However it was in May of 2017 that Basquiat, just 21 when he painted “Untitled”, became the youngest artist to eclipse the $100 million mark when “Untitled”sold for $110.5 million at Sotheby’; Basquiat’s estate through all this received no financial benefit. This story is one of many examples of how beyond Bitcoin, blockchain protocols like Ethereum, through smart contracts and NFTs can provide solutions.

While investing should be core to everyones strategy a recent report showed that 40% of Americans would struggle to come up with $400 for an unexpected expense. Today millions are still unemployed in a labor force participation environment equaling back to the late 1970s. Bitcoin can’t fix this however blockchains like Stellar could have ensured that stimulus payments not only would have been received instantaneously but programmed in a way to ensure that funds went where needed. We may never know the magnitude of spending waste occurred during the pandemic. For instance the rental crisis debacle could have been avoided by labeling specific quantities of capital programmatically so that landlords were guaranteed to receive the rent due. Millions were sent out to tenants that never reached the landlords that they were intended to reach thus a year later despite funds spent in unemployment and rental assistance the upcoming eviction docket is the worse we’ve seen in recordable history. In addressing unemployment, Bitcoin doesn’t make it any easier for businesses to start and expand.

I say all this to say that while I love Bitcoin it wasn’t designed-and doesn’t have to-solve everything. The value and adoption of Bitcoin will only increase as more and more people find value in using blockchain…for whatever use case that fits them best. The emphasis on maximalism only stunts the growth. As more people use and build businesses on top of blockchains there’ll be even more people looking for a “store of value” and will most likely see BTC as the digital GLD.