Bitcoin (BTC) has remarkable fundamental characteristics that determine its behaviour and how we humans react to it. But first let's define fiat money.
Fiat money is a currency used as a medium of exchange, established as money usually by a government. Fiat monies suffer from inflationary pressures, so devalue over time. Fiat money only has value when backed by a government and / or other parties who use it and agree its value.
Bitcoin (BTC) Has Two Important Aspects Plus Many Features And Benefits
The 'character' of Bitcoin is driven by two main areas:
- Technical aspects, and
- Human interactions.
Let's explore some key features, benefits and traits of Bitcoin in comparison with other similar technologies:
- Bitcoin as an intangible asset is:
- Rare (and getting rarer).
- Easily transferable.
- Durable: mined Bitcoins do not wear out over time.
- Permission-less. The Bitcoin network is open to all. Race, gender, religion, credit-worthiness, class perceptions ... none of that matters in the Bitcoin world.
- Deflationary. The opposite to fiat monies like US dollars, Euros, UK pounds, etc, which are devalued through inflation.
- Global. And beyond, once more humans are living and working in space.
- Bitcoin doesn't need to be backed by anything other than the key drivers above.
- Bitcoin build on the blockchain is yet another of a long list of remarkable inventions that have changed our world for the better. Most great inventions tend to first be ridiculed, then accepted, then desired, then promoted and celebrated. Most of the rest of the world will catch up eventually.
- Bitcoin may now be the rarest source of digital value on Earth! More rare than gold. Why: more gold can be found on Earth and in space, however, the Bitcoin supply is fixed in its code at 21 million (less in practice). More below.
- Bitcoin is secured though robust, proven computing code and with the help of around 10,000 distributed validators (electronic nodes) situated around the world.
- Bitcoin is powered by the human desire for gain and / or idealism for a better world. Enlightened human psychology seems to be central as to why Bitcoin seems to have enduring value: to-date almost 13 years of exponential growth over the period.
- Some folks, afraid or nervous of Bitcoin, tend to use blunt, discounted analogies like Tulip manias. Yet Tulips don't last 12+ years and soak up billions or trillions of dollars. And fads are temporary.
- Recently, the Bitcoin marketplace had a market cap of over $1,000,000,000,000 - that's one trillion+ dollars. Who would invest or speculate those kinds of numbers on something that has little or no value? I certainly would not. So there is clearly value in those Bitcoins, as private investors, large companies, and institutional investors have discovered. While commerce takes place, the world computer machine that keeps Bitcoin working seems to grow every day.
- Yet so many other cryptocurrencies seem as though their own price value is tied to the price of Bitcoin. When Bitcoin's price goes up, most others may follow. Or, when Bitcoin price falls, so do many others. Ethereum is another high profile cryptocurrency, whose price may soon be determined by Ethereum itself, so not influenced by Bitcoin.
- Contrary to what some might think, Bitcoin seems tailor-made for our climate-change age. Here's why:
- Bitcoin is on a journey to become powered fully 100% by renewables. It's not there yet. Unless we accurately count and assess every single Bitcoin mine across the entire world, the plain truth is that it's impossible to accurately work out how green Bitcoin energy is. Most top research studies about Bitcoin energy use seem to miss this fundamental truth.
- We do know a growing percentage of Bitcoin mining is done by renewables (hydro, solar, wind power) - perhaps about 70% estimate at the time of writing. The goal should be 100%. That's why going forward, we expect the carbon footprint of cryptocurrency mining to become much less significant. Superb 'Fact Check' article. To become even more informed, check out Green Bitcoin: The impact and importance of energy use for PoW.
- Dirty gold. Up to now, gold has been a good store of value. However, gold mining is environmentally dirty. Please raise your hand up if you too would like cyanide in your drinking water. It's hard to envisage how gold mining filtration can avoid using toxic chemicals without increasing costs. The cyanid leeching process is brutal.
- So in contrast, will Bitcoin mining will reach 100% powered by renewables much sooner than gold mining stops being toxic to the entire world? Surely not the entire world? Yet do most land and river-sourced toxins eventually make their way into the oceans? Is that why Earth-based gold mining may have no other choice than to be forever toxic? However, the good news: Bitcoin mining can go fully green.
- Bitcoin seems to act like a digital tardigrade. In biology, a tardigrade, also called a water bear or moss piglet, is a near-microscopic animal that seems almost indestructible. Tardigrades can survive in outer space, for years. Bitcoin too seems to have uncommon resilience to shocks. Here's a rough analogy: cut one head off and it grows two more, and another two as well, though these extra two 'shadow heads' may stay invisible for a while, and then pop up when least expected. A little like Whack-a-Mole.
- Bitcoin represents a store of value survival tool. Smart, intelligent governments seem to keep an open mind about Bitcoin's story. So can support its continuing development under a light touch regulation.
- Let's hope during the coming years, the generalised banking industry too gets as clean as Bitcoin mining should eventually achieve.
- Bitcoin can also be a currency too, especially useful for economies that have high inflation of their fiat currency. Though as a currency, Bitcoin works best when used with an add-on called The Lightning Network.
- Bitcoin can be transferred from one party to another anywhere around the world that has an Internet or mobile phone connection.
- If you have the good fortune to live in an open democracy, most likely your government and / or bank allow you to buy and sell Bitcoin. Though you may receive warnings and cautions. Don't buy or sell Bitcoin until you have spent some time learning about how to do those activities safely and securely.
- For people who live under repressive regimes, or those struggling against a hyper-inflating economy, storing some of their money in Bitcoin can mean the difference between going hungry, or even staying alive. For these people, Bitcoin can literally be a lifeline.
- Bitcoin doesn't follow standard investment or speculation patterns, though Bitcoin's own patterns are becoming clearer every day. Bitcoin cuts its own path. Is that why it is so misunderstood and frustrates so many people, yet delights and bewitches others?
- The Bitcoin network is provably secure.
- In recent years, 'security issues' seem to always be traced to human behaviours, not the Bitcoin network. Specifically:
- Poor security on websites.
- Corrupt 'insiders' or third-party managers.
- Inadequate storage practices.
- A surprising unexpected benefit of Bitcoin speculation is that it helps prevent excessive consumerism. How so: when people 'invest' in Bitcoin, they're not spending money on many other wasteful things or activities. Some feel like they are saving for their future. Contrast with leaving money in a conventional 'savings' bank. If inflation is say 4%, and you don't get at least 5% interest in your bank, the value of your money is disappearing. The big problem: inflation can change faster than interest rates, so do you still lose whatever you do? Bitcoin however, is different: it 'sings to a different tune'.
- Bitcoin is a benefit to the world. Why: it is one of the first globally popular blockchains. It will eventually be fully powered by renewable energy. As a result, thousands of additional blockchains are being developed. An entirely new industry is being built. In time, blockchain engineering will transform our world for the better. Less waste, lower costs, more efficiency. Big changes take time. We can thank Bitcoin's inventor, Satoshi Nakamoto, and the millions of people involved developing and promoting Bitcoin, cryptocurrencies, and blockchain.
Owning bitcoins is one of the few asymmetric bets that people across the entire world can participate in.
– Vijay Boyapati.
More Reasons Why Bitcoin Attracts Interest
- For growing numbers of people around the world, the insatiable human desire to possess and use something of undoubted demonstrable digital value seems to be the big draw of Bitcoin.
- Bitcoin has a maximum of 21 million coins. Though in practice, some Bitcoins have been lost, probably forever, so there might only ever be about 16 - 17 million usable Bitcoins, maybe less. Relative scarcity on a global scale builds desire.
- Repeatedly, Bitcoin has a proven track record of resilience to attacks and price shocks. The longer Bitcoin exists, the stronger it seems to become.
- Bitcoin co-exists alongside fiat currencies like the US dollar, UK pound, Euro, Yen, and so on. Nevertheless, Bitcoin works in almost the completely opposite way to the way central bank digital currencies (CBDCs). How so: Bitcoin is freely driven by desire to own counterbalanced by its current price. However, CBDCs are fully controlled and tracked by individual governments.
- Bitcoins can be sold for fiat currencies and fiat currencies can be used to buy Bitcoin.
- Website business providers, writers, and others can opt to be paid in Bitcoin, alongside, or even in place of other 'standard' currencies. Though if you opt to accept payment in Bitcoin for products and services you may sell, remember, tax treatment of Bitcoin income is often still unclear and messy. So to prevent shocks later, do keep good business records and be able to show your tax authority where all and any Bitcoin gains have come from.
The Bitcoin blockchain is the new wonder of the world, with more work and human ingenuity than went into the Great Pyramids of Egypt. The biggest computation ever done. A digital monument. A verifiable artefact of digital gold — the foundation of a new digital age.
– Adam Back.
What Tempers Bitcoin?
While Bitcoin is incredibly strong and consistent, we humans are not so robust. We can be over-emotional, too erratic, nervous, lazy thinkers. So some factors temporarily affect how Bitcoin performs. For example:
- A lack of understanding of the tech behind Bitcoin.
- Irrational fears.
- Overreacting to silly stories that appear via news media sources.
- Incredulity and overconfidence. Sometimes, some folks simply can't handle their good fortune, so panic.
What Backs Fiat Currencies?
Today, at the time of writing, fiat currencies like the US dollar, UK pound, Euro, Japanese Yen, etc., all 'float' in the sense they are not backed by anything outside of government influence. Is that enough? Maybe, maybe not. Time will tell.
The economic and political state of our governments determines the confidence we have in a currency. Confidence is a form of belief or hope.
Nevertheless, when talking about money in general, some people think our money must be 'backed' by something else, like gold. Before June 5, 1953, the US dollar was indeed backed by gold.
Then, in August 1971, ravaged by the rising costs with the Vietnam war, and more, US President Richard Nixon fully broke the direct convertibility of the US dollar into gold. Since then, the US dollar value has simply 'floated' in relation to the value of other world currencies.
So in one sense, today, the US dollar isn't 'backed' by anything. Though some might argue, the US government is the backer-of-last-resort, through using its 'magic money printer' otherwise known as quantitive easing.
Governments that choose to 'print' as much digital currency as required, on demand, may solve current crises. However, with little oversight about future effects, are they playing a dangerous experiment with money? No one can know for sure what the future ramifications will be. Bitcoin appears to fix this systemic risk for its own 'currency'.
If governments lose control, inflation and hyper-inflation can take place. Bitcoin however, is a limited supply that cannot therefore inflate.
Yes, Bitcoin's value will vary, sometimes up, sometimes down, though the general trend seems to be a lot more up than down. And that's why its price, over time, has consistently risen over 12+ years to-date.
Bitcoin changes *everything* … for the better. And we will forever work to make bitcoin better.
– Jack Dorsey, CEO of Twitter Inc.
An intriguing thought: given all that we've explored here, we wonder, are perhaps currencies like Bitcoin the last honest money in existence? What do you think?
To be fair, gold too is an enduring honest form of money. Why: to create gold, at some stage, someone has had to pay for it using profits from income earned through selling goods and services.
The only problem: is gold 100% environmentally dirty? Bitcoin and cryptos are much less dirty and seem to be getting cleaner every day. Or maybe in our modern world, is gold simply 'ready for retirement after spending thousands of years occasionally popping its head above the ground?
What Sustains Bitcoin?
To some people, Bitcoin is money. To others, Bitcoin is an investment or speculative bet that may be worth more to them in the future. Still other people think Bitcoin represents hope for a better, fairer world.
We humans are complicated. Even after 12+ years of grinding its way through over 416 'death predictions' (to-date), Bitcoin BTC continues to grow and thrive.
Every day that Bitcoin 'lives', it seems to get stronger, more resilient to shocks.
While the Bitcoin technical side simply behaves like a predictable machine, its human component — us — is more confounding.
While no-one truly knows the future of Bitcoin, the Bitcoin tech world machine simply follows its code instructions and continues to keep working constantly 24 / 7 / 365.
Even so, to-date, we humans are the weakest link in the Bitcoin story. Sometimes, we misunderstand how Bitcoin works and sometimes we panic — easily it seems. The solution really is to calm down and carry on.
Even in 2021, Bitcoin still isn't yet fully understood from a human behaviour perspective. I suspect we will take at least 20 years to work out better why Bitcoin intrigues and fascinates the human psyche. What will the next 20 years bring?
Yet Bitcoin represents a kind of insurance against the worsts effects human economic stupidity. There may come a time when the world will be relieved that Bitcoin exists, that some smart cryptocurrencies survive and grow to thrive, and that blockchain works its magic all around this little mote of dust called Earth, spinning in space, and forever changing.
Important reminder: all that you may read above is for information entertainment purposes. None of what you may read above or elsewhere on this website is investment advice. You could lose any or all money you may invest in Bitcoin. Do your own research. Never invest in anything what you cannot afford to lose.