Five Key Features of Bitcoin and Why We Can’t Stop Talking About It – Eurasia Review

Bitcoin has been on a wild ride lately. The recommendations of Tesla’s Elon Musk and an IPO of Coindesk (the largest platform for exchanging cryptocurrencies) helped push the value of the cryptocurrency to new highs in the spring of 2021.

As part of IESE’s Economic Overview Series, Professor Javier Díaz Giménez presented five main points to capture the essence of cryptocurrency and addressed questions about what its future might look like.

1. Bitcoin is an idea that will stay here

Like the Pythagorean Theorem, Bitcoin is an idea that I think will stay here. We know that with some basic geometries, the Pythagorean Theorem can be proven to be true over and over again. Likewise, Bitcoin, which consists of a few thousand lines of open source code, is now part of the intellectual heritage of mankind. It works out. This idea fits incentives well and has been tested by the world’s programmers for more than 10 years. Nobody hacked it.

2. Bitcoin is (bad) money

Bitcoin is money because it is a means of payment, a store of value, a unit of account and an association like the euro or the dollar, etc.

So why is it bad money? First, besides Teslas and some houses, there aren’t many goods and services that are traded in bitcoins. You will never buy a cup of coffee with this cryptocurrency. In this context, it is an inefficient means of payment: only about four transactions are processed per second. (For comparison: Visa processes almost 1,700 transactions in the same time.) As a store of value, it is very volatile – although it has so far shown extremely high returns. (Meanwhile, returns on all government-issued currencies have been negative over time thanks to inflation.) Finally, as a club of around 25 million Bitcoin users – i.e. club members – it’s still relatively low worldwide. The Dollar Club, the Euro Club, the Renminbi Club, the Rupee Club, etc. have so many other members.

3. Bitcoin is digital gold

This is said because bitcoin, like gold, has limited availability and is expensive to mine and cannot be reproduced. It is also an asset that is not controlled by any government or agency. Like gold, it can have its place in a diversified portfolio as a store of value.

4. Bitcoin is a vehicle for speculation

As with any other asset, speculators may shift the value of Bitcoin. The price is volatile, particularly due to the limited supply. Check out the charts on Coindesk. It’s valued a lot and this looks like other bubbles. But I would say that people seem to like bubbles – from tulips to real estate to NTFs (non-fungible tokens).

5. Bitcoin is a disorder

Bitcoin is the only money that is not controlled by any government agency and can never be controlled. To get poetic for a moment, Bitcoin can be the door to currency freedom. Both of these disrupt the central banks’ monopoly on issuing funds and disrupt the payment system. This undermines the banks’ ability to charge fees for arranging currency exchange, wire transfers and other transactions. The disruption opens up a multitude of new possibilities.

About the future of Bitcoin and its core value

What is the future of bitcoin? I have no idea. But let me boast for a moment. Five years ago I bought three bitcoins for $ 600 each as an experiment and kissed that money goodbye. Now they’re worth almost 100 times more, but I’ll only sell them if they can fund my two children’s college education in the US by 2030. Who knows what’s going to happen.

If you are thinking about Bitcoin’s worth, here are some of its top boosters – i.e., factors that can help it:

  • Approaching its emission limit of 21 million bitcoins expected around the year 2140. Remember: this is the only money the flow of which cannot react to its price.
  • The acceptance increases. If more companies or individuals were to accept Bitcoin for (large) transactions, it would make them more valuable.
  • There are currency or political crises. As with gold, Bitcoin can be viewed as a haven in times of great uncertainty.

But of course there are some potential Bitcoin killers:

  • The appearance of a better bitcoin. I think it would have to be one that is also completely decentralized, without a “superuser”. (Facebook’s Libra project has never been a real threat, and even Ethereum has a problem in this regard.)
  • It gets hacked.
  • Quantum computer or any other new decryption technology that could reverse hash functions or otherwise compromise the security of Bitcoin.

Since the value of Bitcoin could go to zero, I would advise new investors to view it as a learning experience. There is a lot to learn as an idea, money and disorder.

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