Original article Bitcoin: Inefficient Transactions.Efficient Store Of Value.“It’s an extremely inefficient way of conducting transactions” ~Janet Yellen (US Treasury Secretary)
Bitcoin was created with the purpose of being a peer-to-peer electronic cash system, without a third party intermediate.This concept and purpose have evolved, as new challenges arose, and new concepts were born, bringing new paths and opportunities to the world of cryptocurrencies.
Currently, due to some immutable factors of its protocol such as the maximum Bitcoins supply of up to 21 million units and the halving effect, which consists of the programmed event that every 4 years the Bitcoin miners’ reward gets reduced by half (making this asset deflationary until the last mined portion in ~2140, when the rate inflation will become zero), the predominant narrative is that Bitcoin could the best store of value in existence.
In 2017, not all network developers were in agreement with the value proposition delivered by Bitcoin, and following the leadership of Roger Ver (an early Bitcoin investor), a hard fork of Bitcoin was made, thus creating Bitcoin Cash (BCH), with the excuse that this was to remain in line with Satoshi Nakamoto’s initial proposal to be a “peer-to-peer electronic cash system”.With this hard fork, they changed the Bitcoin block from ~1MB to ~4MB, so that it was possible to carry out a greater number of transactions at a greater speed.
The problem with this change is that it would negatively impact the decentralization of Bitcoin , one of its greatest attributes, since it would be an impediment for anyone to run a node at home to support the network (currently, more than 10,000 nodes, and it is by far the most decentralized network in comparison to other cryptocurrencies), leaving the mining process, security and network consensus mainly in the hands of large miners, and less in the hands of ordinary citizens who wanted to participate actively in the network.
Bitcoin Cash has been a failure since then, as it couldn’t steal Bitcoin’s credibility (on the contrary, it only gave it more strength) and it partially solved the problem of scalability at the expense of one of Bitcoin’s greatest attribute values.
The scalability problem still persists for Bitcoin, but there are already better solutions than creating a ‘’new Bitcoin’’.
The most well-known and supported is the Lighting Network (LN), which creates a network of payment channels outside the Bitcoin blockchain, using autonomous contracts to ensure that the network operates in a decentralized manner without any risk.“Bitcoin is a bank in cyberspace, run by incorruptible software, offering a global, affordable, simple, & secure savings account to billions of people that don’t have the option or desire to run their own hedge fund.” ~ Michael J.Saylor, MicroStrategy CEO, at hope.com
Anyway, as mentioned in the introduction to this article, the Bitcoin narrative itself nowadays is more towards a store of value than of a currency capable of making large-scale instantaneous transactions.For that, there are a multitude of other projects being developed, and each one has its native token to be used in its network, and so on.
Ethereum, for example, is the largest platform for the development of smart contracts and the network that has the most developers today (even more than Bitcoin itself).
The overwhelming majority of DeFi (decentralized finance) projects are being developed on the Ethereum platform.In addition to Ethereum, there are several other decentralized smart contract platforms in progress, such as Cardano, Polkadot, Solana, Elrond, Tezos, Neo, etc.
Therefore, Bitcoin does not need to be as efficient and scalable as currency to have value, as was commented this week by Janet Yellen, US Treasury Secretary, who said that Bitcoin is “an extremely inefficient way of conducting transactions”.
And on top of it, she said that it only serves for illicit transactions and money laundering, without bringing any data supporting these claims (in fact, only 0.34% of Bitcoin’s network transactions have been mapped as being suspicious / illicit by the company Chainalysis — analysis of transactions in blockchains — against 2% to 5% of the global gross domestic product, which would be around $ 800B to $ 2T dollars, according to a United Nations report ).“Give me a break.
Does she (Janet Yellen) think printing trillions of fake dollars is efficient? Does she not know the more fake dollars she prints the more efficient and valuable bitcoin becomes? God bless her.” ~Robert Kiyosaki, Rich Dad Poor Dad author
Bitcoin only needs to serve as a store of value (for now) to have its value growing exponentially and take on / share the place with gold, which by the way, loses to Bitcoin in the vast majority of the attributes that make this metal relevant for the store of value purpose.Below is a comparison of Bitcoin VS.
Gold VS.Fiat currencies : Source: built myself based on several online sources.
There is still a recurring argument against whether Bitcoin may or may not be a store of value.This argument is this: high volatility .Below there’s an image of Bitcoin’s volatility graph, showing that as its market capitalization has been growing, the less volatile this asset has become.
Fonte: https://www.buybitcoinworldwide.com/volatility-index/
Gold itself is volatile even in certain extreme circumstances, but it is far less volatile than Bitcoin, obviously, because in addition to being less speculative, gold has a market capitalization of $ 10–12 trillion dollars VS.just under $ 1 trillion dollars from Bitcoin (as of the date this article is being written).
As such, it is likely to be a matter of time for Bitcoin’s volatility to drop further and further, as its adoption increases year after year.It is worth mentioning that, with the decreasing issuance of new Bitcoins (due to the halving effect) and increasingly adoption, during the last 10 of the 12 years this crypto asset performed above 100%, with the average annual return to date (initial date: 07/17/2010, the oldest available date that I got) was ~ 365% (in USD).The volatility argument doesn’t look that harmful anymore, right?
Below is a graph showing the evolution of the Bitcoin price in USD and some price prediction based on the halving events and the subsequent supply shock: Source: Stock-to-flow Cross Asset Model by PlanB (Twitter: @100trillionUSD) .
Relates Bitcoin’s programmable increased scarcity due to halving events (halving miners’ payoff) every 4 years to the speculative bubbles that have followed.
In the image, the price began at $ 0.06 USD in August 2010 until the most recent updated value of ~$ 57,000.00 USD on February 21, 2021.Total gains of this whole period was ~95,000%.The color variation represents the number of days until the next halving event.
Final Thoughts
There are currently over 8,500 cryptocurrencies in circulation (yes, a lot of crap out there).No project has the legitimacy that Bitcoin has, nor the support of more than 10,000 nodes bringing decentralization and security to the network, making it more secure than any computer or network in the world .
No other project will need (and is unlikely to succeed) to take Bitcoin’s place as a potential store of value.Other projects will be used for different situations, different places, to buy / sell different things.
We have a long way to go, and misinformation, whether intentional fake news or not, will only confuse the ‘’average Joe’’, delay the adoption of those who do not question themselves and trust 100% in what is said out there by those who do not understand (or pretend not to) the disruptive tsunami of the entire existing financial market that has been growing for over 12 years, operating 24 hours a day, 7 days a week, with increasingly adoption year after year, and with no central point as a potential failure.
Bitcoin is, and needs to be decentralized, have more and more people actively participating in the network, and be available to every person on the planet.
It needs to be run by people and for people.A peer-to-peer electronic cash system.
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Twitter: @TheBitcoinizer
Bitcoin: Inefficient Transactions.Efficient Store Of Value was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.Feed:.
