- Bitcoin —Why it’s worth $50,000 (and will soon be worth much, much more).
Just now·4 min read
When “Satoshi Nakamoto” released the bitcoin whitepaper near the sunset of 2009, the use case he described was one of digital, peer to peer currency, that was not issued by a government, but rather, by a mathematical process referred to as “mining” that rewarded computer owners with newly minted bitcoin rewards to pay them for the use of their hardware, electricity and technical skill needed to setup and run a bitcoin “node.” A lot has changed since then.
Bitcoin is no longer considered digital currency to be transferred peer to peer. Why? Because it has become too valuable — a victim of its own “success,” in a sense — and transaction fees that pay the miners have become so expensive, it is impractical and stupid to use bitcoin to pay for small transactions. For example, to pay $5 for a Starbucks cup of coffee would cost about $50 in bitcoin transaction fees just to transfer the bitcoin!
So what is bitcoin good for? Being a digital asset. Bitcoin benefits from what is referred to as the “network effect.” Network effect simply means, the value of something increases as more people adopt and use a new technology. To understand it, let’s use the telephone as an example.
When the telephone was first released, the only way to communicate was in person or by letter. The telephone was brand new technology that made communication virtually instant … but only with other people who also had a telephone! Initially, the number of people who had telephones was very, veery small, so the value of owning a telephone was also very, very small, but as more and more people bought telephones, it became a better, more practical way to communicate, until eventually everyone saw the value of owning a phone and it could be used to reach virtually everyone.
As bitcoin matures into its new use case, as an asset described as “digital gold,” the network of users willing to accept it also continues to grow, to the point where Microstrategy, Tesla, and other corporations are adding it to their balance sheets and are beginning to accepting bitcoin to pay for their products and services, this increases the network effect and the value to owning bitcoin. Local governments are starting to accept bitcoin to pay for taxes and fees. One day, countries could use bitcoin as a reserve asset to give value to their own currency.
For the common man (or woman), the financial opportunities of bitcoin have, for the most part, already passed us bye. Bitcoin’s use case is on its way to only benefiting the 1%. Make sure you “Like,” “Share” and “Follow” this article and it’s author so you’re one of the first to read “Part 2” in which you’ll learn about a brand new “hybrid cryptocurrency” that shares much of bitcoin’s attributes but is designed to be the “bitcoin for the people.”
So what gives bitcoin its value?
- It has a limited supply of only 21,000,000 units. (No one knows how much gold is left in the ground to be dug up.)
Every bitcoin can be divided up to 8 decimal places, making 1 bitcoin worth 100,000,000 Satoshi’s. (Physical gold can also be divided but it’s difficult to get accurate, specific measurements, and certainly can’t be done as quickly and easily as with bitcoin.)
Bitcoin cannot be counterfeited. While there have been different bitcoin “forks” in the past, these are essentially new coins that share bitcoin’s transaction history up until the fork when bitcoin continues adding transactions to it’s ledger, and the forked coin begins doing the same. Bitcoin has a unique contract number that only authentic bitcoin share. Forked coins do not dilute the supply of original bitcoin anymore than a poster dilutes the supply of an original oil painting.
Bitcoin cannot be stolen or confiscated because it isn’t physical. The only way to steal someone else’s bitcoin, is by knowing its “private key,” which is a string of upper and lower case letters and numbers that acts as a password and is required to access the bitcoin wallet (the digital account) in which it’s stored. In short, no one can steal your bitcoin if they don’t have it’s private key.
Physical gold, paper money, etc. is subject to governmental capital controls. In the United States, the supposed “land of the free,” US citizens are not allowed to leave the country with more than $10,000 in cash, gold, etc. Because bitcoin exists on hundreds of thousands of computers throughout the world and can be accessed anywhere using a computer or mobile phone, you always have access to your bitcoin no matter where you are. In fact, if you can remember 12 words, known as a “seed phrase” you can restore your bitcoin wallet and regain access to your bitcoin wallet from anywhere in the world.
The network effect (previously discussed). The more people, businesses, and eventually governments, who want and accept bitcoin, the more value it will continue to have.
One continuing downside to bitcoin is the cost to perform transactions. Transferring bitcoin from one party to another is expensive, currently about $50 per transaction (regardless of the size). When bitcoin gets to $1,000,000 it could cost $1,000 per transaction (regardless of the size). This is an issue of “scalability” that, so far, has not been able to be solved.
Please “like,” “share,” and “follow” so you’re notified when “Part Two” is released in which a brand new, hybrid cryptocurrency is revealed, that solves many of the issues plaguing bitcoin.
- Date of publication:
- Tue, 02/23/2021 - 14:58
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