I remember it well, standing around the high table with my friends outside our local pub, when one of them threw the cryptic term Bitcoin (BTC) into the conversation. “Can’t go wrong throwing a grand at it, otherwise I’ll just buy Tequila with it,” he said laughingly. We collectively gasped. Either option seemed outlandish and reckless to us, then students. He was no student, nor tech-savvy, so whether he acted on this statement or held through thick and thin is written in the stars. I went home, googled Bitcoin, understood nothing, and woke up the next day with a massive hangover. This happened sometime in the summer of 2012. Long live ignorance, am I right? Though, I couldn’t have known.
Of course, in hindsight, it’s easy to regret decisions made or dwell on missed opportunities. That’s why looking back is not good on an emotional level, but it can be rather useful to analyse data, determine facts about something, and speculate about the future (whether those are prospects or not depends on the findings from the past). I can regret not investing more time a decade ago into something, or I can accept that my life was rather great regardless and make different decisions now. For example, I’m doing a lot more sports now compared to last year, and it’s already making a difference. It’s never too late.
This article will cover some (certainly not all) key elements of why Bitcoin seems to be taking over the world of finance in recent years, the potential drawbacks it can face, and why it has the potential to revolutionize our way of living.
Briefly Explaining Bitcoin
Let’s go back to the beginning. Bitcoin was created as an open-source project in 2009 by an anonymous individual (or group) using the pseudonym “Satoshi Nakamoto.” The primary purpose of this decentralized digital currency pioneer was to revolutionize the world of finance and transactions by offering an alternative to traditional fiat currencies (such as the US Dollar, Euro, Yen, etc.), built on groundbreaking blockchain technology. One of the key elements of this innovation was the peer-to-peer framework, which provided secure transactions, bypassing the need for intermediaries like banks. Furthermore, BTC has a maximum supply of twenty-one million coins, which are mined through solving complex mathematical equations. This scarcity makes Bitcoin a difficult-to-obtain asset, adding to its long-term worth. However, there are many more benefits to the so-called “response to the shortcomings of traditional financial systems” than meet the eye.
The Benefits of Bitcoin
As briefly highlighted above, Bitcoin has a limited supply that is gradually minted through complex mathematical equations. In simple terms, this means it is scarce and can serve as a hedge against inflation, similar to gold. From an investor’s point of view, it’s a rather compelling argument, but certainly not sufficient. What sets BTC apart from all other assets is the fact that it is decentralized (therefore it cannot be controlled by a single entity or government), secured by cryptographic technology, recorded on a transparent and immutable blockchain ledger, and provides global accessibility and financial inclusion. This makes Bitcoin the first financial investment tool that can be used by any user, whether they are poor or super-rich.
Furthermore, Bitcoin provides users with the ability to maintain direct ownership of their funds at all times and engage in peer-to-peer transactions (at extremely low fees compared to traditional finance) without third-party involvement, such as banks.
Although the immutable blockchain records every transaction meticulously and is incredibly transparent due to its open-source nature, the technology provides more privacy and security than the traditional sector.
All these arguments give Bitcoin a strong stance within the financial sector, positioning it to become a major player for governments, institutional investors, and most importantly, for all retail investors who desire more control over their financial possibilities.
The Risks of Bitcoin
Even though the arguments that speak for Bitcoin are very compelling, it is to be noted that there are also drawbacks to consider. It would be too easy otherwise. Speaking of easy, the technical complexity to acquire, use, and store this (and other) crypto assets is currently a major roadblock to mass adoption. Users first have to understand what it means to set up and secure a wallet, comprehend the basic concept of private keys, and then learn how to properly execute transactions (which cannot be reverted once executed). The current key task for developers around the world is to build user-friendly platforms that are equally secure. This is not an easy task and keeps many curious individuals away due to the fear of losing access to their funds. As long as a user has access to their 24-word seed phrase to recover a specific wallet, they can destroy their laptop, phone, and whatever else they can think of smashing. However, when those 24 words (which you are advised to write down on a piece of paper and never ever share) are gone, so are the funds. That is scary. With some financial and organizational responsibility, this risk can be mitigated to a large extent, yet a viable user-friendly and secure solution will be welcomed by newcomers and veterans alike.
On the investor side of the coin, Bitcoin still faces constant regulatory uncertainty, lack of consumer protection, limited acceptance as a payment option, and of course, severe price volatility (which can be considered as a benefit too).
It can be argued that all these points are very energy-consuming and tiring for users, leading to complete disinterest. However, just like miners are making their efforts to solve the complex maths questions more energy-efficient every day, the long-term benefits (not only in value) and continuous developments seem to greatly outweigh the above-mentioned risks for early adopters.
Use-Case to Drive Adoption
Bitcoin is often referred to as digital gold. However, compared to gold, which can be used as a means of payment, a store of value, and within numerous production cycles of various products, Bitcoin is currently only dancing within the limelight of the financial industry. It’s debatable whether this makes it a niche product with limited use for retail investors or a more desirable and robust financial instrument due to its undiluted core capability.
BTC is more than just a store of value (digital gold). Thanks to smart contracts, asset tokenization, and micropayments (the divisibility of BTC tokens into smaller units called Satoshi’s), this revolutionary technology has facilitated cross-border commerce and financial inclusion. While it can be argued that Bitcoin itself might not be the most efficient medium, and Layer 1 and 2 cryptocurrencies can provide better access and operability for retail investors, its security aspect remains unbeatable. This is due to the fact that Bitcoin is highly decentralized, whereas many alternative cryptocurrencies (Altcoins) have few or only one focal point that could be vulnerable to attacks by hackers.
Furthermore, Bitcoin is censorship-resistant, giving users in areas with strict capital controls access to financial means. The blockchain technology itself has also led to an increase in education and inspired academic research into topics such as cryptography, distributed systems, and economics.
Whether Bitcoin itself will break free from its purely financial properties and venture into different sectors or use-cases remains to be seen. Many altcoins in circulation are already attempting to merge blockchain technology with traditional industries such as sports, carbon emission control, contract cataloguing, supply chain management, and many more. This supports the argument that Bitcoin does not need to become a multi-tool asset or Swiss knife to be prone to mass adoption.
Final Thoughts
Although the topic was not explicitly addressed earlier, proof-of-work (using miners to mint new tokens) is currently not the most ecological approach to operate blockchain technology. Continuous improvements are being made, and it shouldn’t be a bottleneck argument to hinder the development of our technological future.
The arguments for the technology speak for themselves. We need more transparency and market accessibility that cannot be restricted by single entities or governments for our global population. The constant power struggles and greed between individuals have often led to needless mass suffering. Although humans have a herd mentality, some things should be managed on an individual basis. Independence is not isolation, and on a financial level, this merely means that we should all be able to act in our best interests without the ability to harm the interests of our peers. Blockchain technology, with Bitcoin at the forefront, could be this long-desired solution for the perpetually shaken global financial system.
Of course, there are plenty of challenges to overcome before Bitcoin becomes a user-friendly investment instrument for mainstream adoption, but every change has to start somewhere. We are only at the beginning, and hopefully, this article will inspire you to conduct even more research and understand this technology even better.
If you have questions, comments, or simply feel like discussing crypto with like-minded people, you’re welcome to join the Fish and Chips Discord server (https://discord.gg/UZxPcHSJZ7).
