An unbiased look at what Bitcoin is and whether we should pay attention.
Bitcoin was the first cryptocurrency, although that term wasn’t used to describe it at the time. It was released with a whitepaper in 2008 by an anonymous person or perhaps group of people, under the alias Satoshi Nakamoto. Although active in online communities during its early years, they have since disappeared.
This obscure origin may play to its advantage if it is to succeed at its highest ambitions in years to come.
The coins associated with its founding, worth billions of dollars now, have never moved or been touched.
Bitcoin described itself as a trustless, peer-to-peer, digital cash. It invented an innovative mining model that provides a decentralized framework and was the first to solve the double spend problem.
Bitcoin is a digital currency with financial incentives built into the network protocol that facilitate its operation. It is sufficiently decentralized and distributed to where no single entity has control.
Based on cryptography, Bitcoin is inherently secure and requires no intermediaries or authorities. Its monetary policy is predetermined and does not rely on a central bank like fiat currencies issued by governments. Bitcoin is also optional, there’s no enforcing body. Rather, it’s an open network with a rules based monetary policy available to everyone across the globe.
Bitcoin records its transactions in what is known as a blockchain. This chain of blocks is immutable, providing the foundation for a trustless system and making it impossible to reverse a transaction.
The transactions recorded in these blocks are confirmed by miners. These are freely acting participants in the network that earn a reward in exchange for their computing power. This energy intensive process is what allows the network to stay running without needing intervention.
The computer code that spawned Bitcoin is also open source. This means anyone can create a copy or competing coin and there have been many attempts to do so. However, among the coins that intend to directly compete with Bitcoin, none have captured the market in any meaningful way.
Bitcoin was seemingly released as an emerging alternative to the inflationary and bubble causing policies of central banks, such as the federal reserve in the United States of America.
Economists like Milton Friedman and Friedrich Hayek have long believed the monopoly governments have with fiat currencies could come to an end. Neither suggested what such a currency would be, only that it must emerge from the free market and possess the unique quality that governments can’t stop its spread.
In the first block ever mined, the genesis block, the following quote was embedded: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.“
Bitcoin’s code provides a certain guarantee to its monetary policy, ensuring there will never be more than 21 million Bitcoins created. Every four years, the rewards that miners receive for confirming transactions in the network get halved, which reduces the rate of inflation and puts upward pressure on price.
The final Bitcoin will be mined on May 7th 2140.
This is very different to the monetary policies of modern fiat currencies like the U.S. dollar, where policy is flexible and money supply increases because governments can print more of it during times of need.
This puts strain on the citizens of the country in the form of inflation in base money and instability in markets.
Only recently have we seen the fallout of central planning come to light. Inflation has reached new highs around the globe and markets continue to suffer from seesawing, bubble-like behavior. This type of policy dictating the direction of the economy makes it hard for everyday people to invest and save for the future.
Time will tell whether a bigger need for Bitcoin will arise.
As of now, one solution governments like the Chinese Community Party have found to stop its spread is to ban it, which could have questionable results long-term. The U.S. and Europe have largely begun to embrace the new technology by imposing regulation.
The short answer is – mostly no, but sometimes yes.
There are not many genuine and lasting attempts at competing with Bitcoin. There are forks of Bitcoin such as Litecoin, Bitcoin Cash, or Ravencoin, and there are parodies of Bitcoin such as Dogecoin.
None have captured market share in any meaningful way. Bitcoin remains the biggest asset in crypto.
What most see as the biggest competitors to Bitcoin are projects like Ethereum, Cardano, or Solana.
These are crypto protocols that act as smart contract platforms designed to automate execution when predetermined conditions are met. Just like contracts in real life, they go beyond the written signature and guarantee a transaction between buyer and seller when certain agreements are met.
These protocols also enable the creation of tokens, essentially acting as a separate cryptocurrency without needing a new blockchain. This is why there are so many cryptocurrencies today.
The cryptocurrency space can be challenging to understand because Bitcoin gets muffled in the noise. The technology behind the protocols and the innovation that will come from them is difficult to predict. Much like the early days of the internet, there is potential for blockchains to play a major role in the future.
Smart contract platforms have shown to enable opportunities in DEFI, NFTs, gaming and other areas.
Much of this innovation is irrelevant to Bitcoin’s role as a hard money asset. It could be that a smart contract platform grows to temporarily have a bigger market cap than Bitcoin and this wouldn’t necessarily derail Bitcoin’s progress. Bitcoin is looking to establish itself as the store of value crypto asset, a trusted way to put money aside and save for the future. Smart contract platforms have founders, flexible monetary policies with fewer guarantees, less secure consensus, and they are less decentralized. In other words, they aren’t positioned to serve as money and earn the trust of the global population long-term. While they have money like properties and benefit from their growing network and ecosystem, they aren’t Bitcoin.
Bitcoin uses a substantial amount of energy.