Bitcoin continues to trade close to its all-time-high reached this month. Its price is at the time of writing article is around US$34000 & up about 77% over the past month & 305% over the past year.
First launched in 2009 as a digital currency, Bitcoin was for a short-time used as digital money on the fringes of the economy.
It had since become mainstream. Today, it’s used almost exclusively as a sort of ‘digital gold‘. That’s to mention, a scarce digital asset.
In response to the danger of economic collapse because of COVID, governments around the world have flooded global markets with money created by Central Banks, so as to spending & help save the economy.
But increasing the supply of cash erodes its value & leads-people to look for inflation resistant assets to hold. In this climate, Bitcoin has become a hedge against looming inflation & poor returns on other sorts of assets.
What is Bitcoin?
Bitcoin, the world’s largest cryptocurrency by market capitalization, features a current-circulating supply of 18,590,300 bitcoins & a maximum supply of 21,000,000.
This limit is hard coded into the Bitcoin protocol & cannot be changed. It creates artificial scarcity, that ensures the digital money increases in value over time.
Whereas government-issued currencies like Australian dollar can have their supply increased at will by Central Banks. Bitcoin features a fixed-supply that cannot be inflated by political decisions.
Bitcoin is predominantly-traded on online cryptocurrency exchanges, but also can be sent, received & stored in “digital wallets“ on particular hardware or smartphone applications.
But perhaps the most ground-breaking aspect of the Bitcoin network is that it draws on the work of the cryptographers and the computer scientists to exist as a blockchain-based digital currency.
A public blockchain is an immutable database that means the record of transaction history cannot be changed.
A functional & decentralized digital currency
Bitcoin is ‘decentralised‘. In other words, it functions through a dispersed peer-to-peer network, instead of through a central authority like a Central Bank.
And it does this through the participation of Bitcoin ‘miners‘. This is often anyone who chooses to run software to-validate Bitcoin transactions on the blockchain. Typically, these people are actively-engaged with cryptocurrency.
They are rewarded with bitcoins, more of which are created every 10 minutes. But the reward paid to miners halves every 4 years.
This gradual reduction was encoded-into the network by creator Satoshi Nakamoto, who designed it this manner to mimic the process of extracting gold, easier at first, but harder with time.
Bitcoin miners today-earn 6.25 bitcoins for each block mined, down from 50 bitcoins in the early years. This creates an incentive to be involved early as scarcity increases with time.
Because of this, the worth(price) expected to rise to satisfy demand. But because future scarcity is known in advance (predictable at 4 year intervals), the halving events tend to already be priced in.
Therefore, massive surges & falls in price typically reflect changing-demand conditions like growing number of new institutional investors. More & more public companies are now investing in bitcoin.
But what function does Bitcoin provide for society that people invested?
Why does Bitcoin matter?
There are a couple of possible explanations on why Bitcoin is now deemed significant by numerous people.
• It’s a safe asset
In the face of global uncertainty, buying-bitcoins is a way for people to diversify their assets. Its market value can be compared thereto of another go-to-asset that shines in times of trouble: gold.
Amid the turmoil of a global pandemic, an unconventional US presidential handover & geopolitical power shifts the world over, it’s possible more people view gold and Bitcoin is a better alternative to dollars.
• It ties into privacy-oriented ideologies
Bitcoin (cryptocurrency, in general) isn’t politically & ideologically neutral. It had been born of the internet era, one plagued with grave concerns for privacy.
Bitcoin’s intellectual & ideological origins are in the cypherpunk movement of the 1990s & early 2000s.
Records-of online forums show it had been advocated for as an anonymous digital currency that allowed people to interact online without being tracked by governments or corporations, offering an alternate for anyone who distrusts the federal central banking industry.
Perhaps the overt rise of digital surveillance in response to the COVID pandemic, has further stoked fears about online privacy & security, again piquing the public’s interest in Bitcoin’s potential.
Why is Bitcoin booming?
Bitcoin’s recent boom in value comes down due to a combination of 3 factors: ideology, social sentiment & hope.
But although, these are variable factors, this does not discredit the importance of the digital economy, interest in the technology because it matures & the influence of institutional investors in cryptocurrency, including Bitcoin.
Bitcoin is in an upward market trend also referred to as bull market territory.
It was designed to increase in value over-time through the rules Nakamoto wrote into its software code, which Bitcoin’s most outspoken advocates, referred to as maximalists, vehemently defend.
Imagining new futures
From a bigger frame of reference, decentralized cryptocurrencies allow new ways to coordinate without the necessity for a central arbiter.
And decentralized blockchain-based networks do not just enable digital money. Almost like ordinary smartphone apps, software developers around the world, are building decentralized applications (DApps) on top of Bitcoin & other blockchain protocols.
They introduced other cryptocurrencies like Ethereum that also are open platforms for the public.
Other DApps include decentralised financial (DeFi) tools for prediction markets, cryptocurrency borrowing & lending, investing & crowd-funding.
Nakamoto’s audacious experiment in digital currency is functioning as intended. And what really deserves attention now’s what this suggests for our digital, physical & social futures.
