seekingbalance wrote:Urbandreamer has done a great job as ever of explaining many facets of what Bitcoin is, how it works, can work and some of its pros and cons.
I'll just add a few minor points if anyone is interested:
- Bitcoin is meant as a currency and a store of value, has a known maximum supply, and is very transparent. Every transaction on Bitcoin is viewable by everyone in the world if they want to see it. The owner of the accounts, not so much, though for day to day purposes this is not even true - you send some money to or from Coinbase, Binance, Crypto.com, they know who you are and they have to tell the inland revenue and/or the Police if they ask. Other Cryptos can be used as currencies but are mainly more like tokens to allow usage. Almost like Game tokens you might buy to play an online game. If you want to buy an NFT you have to pay in the native crypto of the platform, usually Etherium, and you will pay the fee to run that transaction in Etherium too. If you buy a crypto via Binance.com you pay the fee in Binance coin, and get a discount in doing so. If you want to earn big income returns for lending your money out to traders you can do that in AAVE, USTD, USC and any number of other decentralised coins or stable coins.
It might be called a currency, but in reality it's closer to a commodity. People trade currency for quantities of stuff, and effectively need to convert it back into currency for all transactions. You won't find much stuff actually priced in BTC, but you can convert BTC into cash notionally and exchange a certain number for a certain product. It's starting to have some of the features of a currency, but the main stumbling block for this is the entirely unpredictable price of the asset, which makes it wholly unsuitable for fixed pricing of products.
- there will only ever be 21 million Bitcoins. There were more US Dollars created in the last 2 years than in the entire history of the dollar before this time. Anyone who says Bitcoin does not hold its value needs to look at a chart of the value of the £ and the $ since the 1950s, or indeed the Turkish lira (down 90% against the falling £ since 2010) or the Venezuelan Bolivar - down 500 fold against a halving dollar since the '80s. £s and $s are created every day, by Central banks, but more so by plain old High Street banks who use the fractional reserve system to create money out of thin air, and I defy anyone to tell me how many £s or $s there are in the world, let alone how many were issued yesterday or how many there will be next year. Yet I could tell you precisely how many Bitcoin there are, and to a tiny percentage of error how many there will be next May, or in August 2031, or indeed any day in the past or the future - because the issuance rate is fixed, the number already "mined" is known and the number being mined every hour going forward is known, as it is mathematically stipulated.
This is entirely true, the bitcoin network has built-in scarcity. The issue is that scarcity doesn't have any automatic link to value, plus the entire network can be copied and renamed for a new token to be created with identical features. As such, the scarcity is only for a given network - an infinite number of crypto tokens could be created.
- one way to think of Bitcoin is as just another currency - you want to buy something from the States in the UK? You don't need to buy $ - you just pay on your credit card and your card company does the rest. Or Paypal, or multiple specialist providers. The transaction is essentially transparent to you, other than a commission fee and a line on your next statement. And that is aside from the many places that will actually take Bitcoin or some other cryptos as part of their native processes, using standard wallets. Yes, this is more complicated than using a credit card or Paypal or Square, but not much more so that buying Bolivianos to pay cash for a trip on your holiday to Bolivia.
I prefer to pre-load a card with the currency I intend to spend in. That way I always know what exchange rate I'm getting, which in turn allows me to fully understand the cost of something I buy to me personally.
- another way to consider it, if you can't fathom that it is a currency - its a bit like Tesco club card points. No intrinsic value, but you can obtain them and spend them in various places. Only because of the above card usage you can spend them anywhere, not just at a few chain Restaurants in the UK! You can even sell them on secondary markets (both Bitcoin and Tesco Clubcard points)
Not a bad way of thinking about it, but it does beg the question as to how a Clubcard point could ever be considered to have tens of thousands of dollars of value.
- Bitcoin is very volatile, and smaller Cryptos even more so. But that is not so different from shares. When the market is hot, look out above, when its not, look out below. Tesla is down 33% this month, but was up 1200% in the last 2 years. Fevertree is down 30% in the last two days, but still up 120% since 2020. Peloton was up 400% in 3 months in 2020, but is down 90% from its peak. Naysayers love to point out how quick Crypto falls, but neglect to mention that speculative shares are just as bad or worse much of the time, and also forget that while Bitcoin is down 50% from it's highs only a few months ago, it is still currently up 3500% over 5 years, and millions of % since inception. Alt coins even more so - Shiba Inu was up 4 MILLION% last year, albeit it is now 75% off its highs. Granted, its perhaps not ideal for a currency with which you are going to buy or sell things to be so volatile, but you have a choice - buy or sell and convert immediately to or from Bitcoin, or hold the Bitcoin in your account (for example at Crypto.com or Coinbase, or Gemini, or Blockfi for spending, or BitPay, Flexa, Paypal and more for selling goods) and take the investment risk - up to you. I recently watched a Watch channel YouTube video of some watch dealers at a sales show and they took payment in Bitcoin both by card payment and by directly receiving Bitcoin from a customer's Bitcoin wallet to their BitPay account and it was instantly converted to dollars.
The volatility makes it unsuitable as a currency, not an investment. The problem with it as an investment is that ultimately it does nothing productive, so it's a bit like trading the title deed to a piece of land on the moon of an exoplanet - to me that makes no sense at all as an investment, and I genuinely fail to see why so much value is placed on these tokens.
- Bitcoin and other cryptos are indeed a bit complicated. But its getting better, and while there is a learning curve and you definitely can pay extra for convenience, it is quite easy to send and receive crypto to your wallet, and even easier if you use something like the Coinbase wallet. Other vendors are making it easier and easier - Paypal the biggest name, but many others, and there are more and more wallets being created to make this easier - the ElSalvador experiment uses a custom wallet that makes intra country transfers very easy, and overseas payments quite easy too. (And yes, they have had some teething troubles largely of their own making because of the company they chose to set up their wallet, but it should also be remembered that while it is mandatory for businesses to accept payment in Bitcoin, it is not mandatory to the people to use it! Dollars are still their main currency).
The technology behind bitcoin and others is interesting, but I expect that we will see existing companies starting to use the technology for in-house projects that will make the current load of crypto assets obsolete. Coupled with the intense energy wastage for bitcoin, I just can't see this surviving in the long run.
- Bitcoin and other cryptos can indeed be used by crooks and vagabonds for nefarious purposes. Good job cash and mainstream currencies are never used in such a way, right? Think of how bad the world would be if you could just bundle a load of cash into a paper bag and buy drugs with it! The world would be a terrible place. Thanks God banks don't allow this. And what if you could set up a fake ID and open a bank account, then send money overseas to pay for nefarious goods or services which would never be traced back to you, or worse would be traced to some innocent person who leaked their personal details on Facebook? Oh, the things that could go on, if this was possible. The FBI are on record as saying they love Crypto as it is Waaaaay more traceable than cash or clever bank account use - this constant "Bitcoin is only any use for criminals and drug dealers" is just a lazy and hackneyed trope, parroted by those who don't know, or bandies around by people who should know better but feel they ca use it for political games (like Elizabeth Warren in the US).
I've always thought of this as something of a red herring. I don't see any real use case in reality that needs a cryptocurrency as a solution. The fact that it might be used by criminals is entirely irrelevant to me, because as you correctly say the existing cash systems can already be used for nefarious purposes.
