I’ve Changed My Mind on Bitcoin

When I first heard of Bitcoin in late 2017, I had one idea, this was one hundred percent a Ponzi. I was interested in investing at the time but, not in something with literally no intrinsic value. I must admit, at the time, I was largely ignorant of the technology behind Bitcoin. I had no real idea that Bitcoin was even a technological innovation. As far as I was concerned, digital money already existed — how else did I have money on my mobile banking app?

Around November 2020, before Bitcoin had reached its old all-time high, I began looking more seriously into cryptocurrency. This time I learned the truth about the technology behind Bitcoin. Firstly, the money on your mobile banking app isn’t actually digital money. The number you see represents not what you have but, what you are owed by your bank. Bitcoin is true digital money in the sense that what I see in my crypto wallet is actually the money itself — it doesn’t represent something held somewhere else. Holding my own money (crypto), also means banks can’t lend it out with zero transparency.

Bitcoin means I have total control over my wealth. The banks can’t lend it out and the government can’t debase it (as they have no control over the supply). When I learned all of this about Bitcoin, it completely changed my perspective — Bitcoin returns power back to the people. At this point I was fully convinced Bitcoin was the currency of the future.

I learned even more about Bitcoin on reading an article by Skybridge Capital (see here). In the article, Bitcoin is described as having eight metrics which make it a good store of value. These metrics are scarcity, transferability, storability, decentralisation, durability, fungibility, verifiability and divisibility. An asset must perform reasonably well in each of these metrics if it is to be considered a good store of value.

For example, sheep don’t make a good store of value for several reasons. They’re reasonably scarce however, we can continually make more if we want. They’re not easily transferable, nor storable. They certainly aren’t durable, as with all living things. They aren’t fungible, no two sheep look exactly the same. For example, some sheep may be bigger or be better at producing wool. They aren’t divisible at all, I can’t give you 1/16 of a sheep in return for my weekly groceries. However, sheep are fairly decentralised, they can be found nearly anywhere in the world; and they’re also pretty verifiable (I know sheep when I see one!).

Unlike sheep, as you can imagine, gold scores very highly in each of these metrics. Bitcoin scores even higher. In fact, when we consider these eight metrics, there is currently no better store of value than Bitcoin. Now, this is where I have changed my mind.

Unfortunately, the very reason why Bitcoin is an excellent store of value is exactly why it would make a terrible currency (see here). If Bitcoin were to become a global currency, we would likely be living in a world of grave inequality. Those who were able to get in early would have vastly more wealth than those who arrived late. For this reason, if Bitcoin succeeds, we would likely create a society with deeper divisions than the one we live in today. For this reason, the total market capitalisation of Bitcoin should not far surpass the market capitalisation of gold ($13 trillion).

This does not mean that fiat money cannot be replaced by cryptocurrency. It can, it just should not be Bitcoin. For example, something like RAI (see here) may do a much better job. RAI is a fully decentralised asset (backed by ETH) with a stable price that is not pegged to any fiat currency. Projects like RAI offer many of the same advantages of Bitcoin as a currency, without the negative side effects of being a good store of value. No, you aren’t going to make any profit buying RAI over Bitcoin. However, perhaps our future global currency should not also be an investment.

This article should not be construed as financial advice. Do your own research!

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Jacob Madden

Graduated with a BSc in marketing from Lancaster University. Interested in topics surrounding crypto, finance, economics, politics and philosophy.