Bitcoin was supposed to be different
What is Bitcoin? What is the point of Bitcoin? And other curiosities I tried to answer...
A couple of weeks ago, my interest in Bitcoin got piqued again.
A writer I follow sent out a newsletter. I don’t follow him for financial advice or tech specifically, but he writes about them sometimes. This time, he was talking about moves he’s making to avoid going broke as the recession gets worse.
The newsletter was about investing less money into Bitcoin and other crypto. Less, not zero. Which means that despite everything Bitcoin has been through, it’s still worth something.
If you were online in November 2021, you heard about it even if you don’t follow tech or finance news. Bitcoin was making headlines everywhere. Its value was surging. At one point, it hit over $68,000.
If a nebulous thing costing that much didn’t enter your radar, you might need to get your radar checked.
What is bitcoin?
Cryptocurrencies, or crypto, are digital currencies processed through cryptography. That’s where the name comes from.
As of now, there are tens of thousands of different cryptocurrencies available. Not all of them will succeed. More will be created. More will fail. Some will go to the moon.
Bitcoin is one of many cryptocurrencies now in circulation. It was created during the 2008 global financial crisis by someone (or something) called Satoshi Nakamoto. It started as a whitepaper published on October 31, 2008. The software was implemented in January 2009.
The premise was simple: build a new payment system that lets people transact without going through a financial institution. Money would move directly between peers.
As a concept, not exactly new. But this was the first time it was implemented at a level where transactions could actually be made.
Or that’s what it was supposed to be.
What bitcoin is now
Today, Bitcoin is still a form of currency. You can pay for things with Bitcoin if you find merchants willing to accept it.
But unlike regular fiat currency that has a stable value you can trust, Bitcoin’s value is incredibly volatile.
If you bought anything with Bitcoin today, you could be depressed tomorrow by how much you threw away. The coin could be worth 10 or even 100 times more than when you let it go.
Same for other cryptocurrencies. Their value generally follows Bitcoin’s trend. When Bitcoin goes down, everything else goes down. When Bitcoin goes up, everything else goes up.
So I couldn’t help but ask: Could cryptocurrencies actually ever become like regular currency?
For now, it doesn’t look like it.
People aren’t holding Bitcoin to pay for goods and services. They hold it as part of their portfolio. As the writer I follow put it, Bitcoin is now a form of tech stock.
Some experts describe the entire situation as an economic bubble. They say Bitcoin’s value is inflated compared to what it’s actually worth.
Others predict Bitcoin could surge to $100,000 in the 2023-2024 period. Some predictions go even wider. Some say Bitcoin could go into the millions.
With that much volatility, it doesn’t make sense to use it like regular currency.
So, what’s the point?
It’s a tech stock. People hold Bitcoin like they hold other assets. They trade it in the markets and profit off it.
Where does Bitcoin get its value?
From the people.
Bitcoin is valuable because people believe it’s valuable.
Like gold and diamonds and other precious metals and rocks. They cost plenty because people believe they should cost plenty.
That’s oversimplifying it, of course.
Blockchain, the technology Bitcoin stands on, has many other applications. It has potential to change how things work traditionally. Whether that potential becomes anything more is still to be seen.
As for Bitcoin itself...
Well, as they say...
To the moon!
(Possibly.)
Sources:
Bitcoin Price History: 2009 to 2022, https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-price-history/
Disclaimer: This article is not to be taken as financial advice. I am not an economic expert, nor a finance expert, and I do not claim to be either. This article was written to answer some of my curiosities about Bitcoin and all crypto.