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18 September 2018
Why Blockchain and Cryptocurrency Is The Future Of Money
Since its inception, the concept of blockchain which solved the digital double spend problem back in 2009 has been shrouded in mystery and controversy. To this day no one knows who or whom invented the damn thing and decided to give away the next billion dollar idea for free as an open source project. The introduction of Bitcoin as the first decentralised application to run on top of a blockchain has polarised opinions with some
As with any new innovation, there will be supporters and detractors to maintain the balance and keep one another honest. I'm personally a big advocate of cryptocurrency having first discovered it's real potential from evangelist Andreas Antonopoulos. So why is Bitcoin so much better than money? Why is it the future of money? I will attempt to explain it in this piece as simple as possible so we can all understand and engage in the debate.
Bitcoin's current network allows for around eight transactions per second, its cryptography and the amount of hashing power needed to secure a transaction makes it one of the most secure mediums in money today. That kind of peace of mind currently comes at a price, speed! This pales in comparison when we compare it to transactions done by 3rd parties like banks, their server-side centralised network can handle thousands of transactions a second when transactions are done locally in the same currency, but when it comes to international transactions, Bitcoin wins in terms of sheer speed.
At the moment all cryptocurrencies suffer from the scalability Trilemma we've really only felt the brunt of it during the surge to 20k as well as crypto kitties on the Ethereum blockchain. It is an issue that is being addressed, and Bitcoin has already looked into solutions such as SegWit which has been deployed and the lightning network which is available on the Bitcoin testnet. These upgrades should greatly improve the speed of transactions. I have no doubt concepts like side chains, modularity and sharding should help improve speed on the blockchain. While Fiat may win this round, it won't be for very long!
The cost to transfer Bitcoin depends on the value of Bitcoin on any given day at the time of writing the network fees were around 608 satoshis, roughly $0.40 US at current value. Depending on where you are in the world this is pretty cheap especially considering the fact that its the same for everyone around the world makes it even more amazing. There is no preferred vendor; everyone pays the same rate. The big argument arose when Bitcoin hit $20 000, and that same network
Fiat money and central banks with their pricing strategies and flat fees in some cases may seem like the attractive option in this case, and at the all-time high, it was. Since the drop in price, Bitcoin has become more affordable to transact with, but we know this is only a short-term fix. If we are to adopt this as a worldwide medium, it needs to remain affordable at any price, and that's what the lightning network aims to do, to increase speed and reduce transactions to the Satoshi and some say even the sub-satoshi. Fiat may win this one but not for very long!
All you need to carry Bitcoin with you is a thumb drive or a Smartphone or a Laptop even a single piece of paper. Any amount of Bitcoin can be stored on any of these methods and moved around in whichever way you feel. You could email it, send it via social media, from wallet to wallet address it really is up to you. Unlike Fiat, you don't need to have an account, any special logins, an app or visit any specific website which you may or may not access to all the time in order to transact digitally.
While physically, hmm, have you tried to walk around with a large amount of money in your bag? It's probably one of the most nerve-wracking experiences anyone will ever have to go through. Bitcoin can also be sent across borders without anyone having to give you permission or special approval or a 3-5 day wait. Bitcoin doesn't acknowledge borders, international markets, trading times or exchange rates. Bitcoin is the same value in every country, and you can send it to someone in another country within the same time frame as you would a friend standing next to you, the network doesn't understand distance. So Bitcoin wins!
Bitcoin is the first currency in human history that we know of that has the ability to be scarce to the exact digit. We know exactly how many Bitcoins will be available throughout its entire existence, 21 million to be exact, we know how many are being mined, we know how many are available, we know where they are, we know if it's being traded or not. Fiat money fails in this regard, Governments in conjunction with central banks print millions of Dollars each year constantly flooding the market with a currency that is only worth anything because of legal tender.
So ordinary fiat fails miserably in comparison. Don't believe me? Can you tell me how much money is in circulation in your country? How much is offshore? How much has been removed from circulation? I don't think so! Coming in second would be Gold which may be scarce now, but we continue to find deposits as there is no shortage of mining operations currently running. We have no idea how much Gold will be mined, we have no idea how much gold is really in circulation for all we know someone could flood the market at any second, but they don't because this keeps up the status quo that gold is valuable. Does Bitcoin win this one?
I just mentioned that there would only be 21 million Bitcoin in existence so how will 7 Billion people all get a piece of the action? It's not mathematically possible, or is it? Bitcoin is a digital currency, and that means it can be broken up into smaller bite-sized pieces we called Satoshis. One Bitcoin 1.0 Bitcoin can be broken up into 0.00000001 individual pieces and recombined in an instant so really; everyone can get in on the action. This allows for instant micropayments and opens up an entirely new application for money and efficiency.
Can you imagine instead of paying a flat fee to use your internet, you only pay up to the exact megabyte you used? Would you only pay for transport to the exact distance you travelled? How efficient would that be? How easy would it be to manage your spending? Let's see fiat or gold pull that off! How many shavings of gold would that be sir? In addition, fiat is inflationary in nature it's denominations only grow larger over time. Remember when 1 cent was still worth something? I guess we have a winner in Bitcoin!
Every Bitcoin wallet on the network, be it a cold storage, hot wallet or on an exchange will instantly recognise any Bitcoin that is legitimate and validate the transaction, these transactions cannot be faked, and until the network confirms this transaction multiple times, it won't go anywhere. The networks decentralised base means you simply cannot fool everyone all the time. Fiat currency has a huge problem when it comes to counterfeit money, and many people go to extreme lengths to create these fake bank notes and create fraudulent transactions. While gold can be mixed up with other minerals in order to dilute its value and who among us is an expert in gold, in any case, to test if it's legit? I think it's safe to say Bitcoin wins this one.
In its current state, fiat currency is systematically created out of thin air with no limit on supply and supply at this point cannot be accurately be accounted for. Fiat is willed into existence by politicians with the help of central banks who enrich themselves while they continue to reduce the buying power of the money currently in use by the public, some of you may know this as inflation.
Bitcoin, on the other hand, is a deflationary currency and continues to increase in value over time, its buying power becomes stronger, and as demand, scarcity and daily use rise it will continue to become stronger. Imagine that, as we continue to use a currency it becomes more powerful, you can buy more with it next year than you could last year? Isn't that a foreign concept to us all. Bitcoin takes this round!
Staying on the subject of buying power since Bitcoin isn't controlled by a 3rd party or a government it doesn't have a single point of failure and is more durable. It is not at the mercy of international trade agreements, the political unrest in a country or the poor management decisions by investment banks who practice poor strategy and artificially propped up by financial derivatives. Remember the market crash of 2008 driven by the housing bubble?
In fiat you are dependant on a 3rd party to ensure that your money is worth something and has
Fiat money is supported by a massive centralised 3rd party network that we have absolutely no idea what is going on in. The bank's do not tell you what they are doing with the money you provide them with, you don't know how much of it is liquid or how much is being stored, you don't know where it's being invested, you don't know how much of it is being moved into executive bonuses or taxed into government coffers.
All you can see is your bank balance, and that's it. When you own Bitcoin you own that exact piece of a digital asset no one in the world can replicate it, it is under your ownership as long as you own the private key to it and you can do with it what you will. Have you ever made a payment and wanted to know if the person received it? Have you ever had to request or send off a proof of payment? Well, with Bitcoin it allows you to track any transaction on the blockchain at any time with updates and confirmations all made in real time.
You will know exactly where the money is in the queue to be processed, how long it will take to confirm in your wallet and how much it's going to cost you for the transaction. In addition to this transparency, you can also see every transaction ever made on the Bitcoin network so if you had to track down a wallet or even a single transaction you could do so and follow the trail, making the everyone in public a forensic accountant.
I've heard this term thrown around a lot when detractors speak about cryptocurrency and I don't think there is an actual argument here. I don't think any currency has intrinsic value and the only real reason we want currency is because its valued by those around us. Paper with markings on has no value and Gold has no value; Bitcoin also has no value, we as a species decided to place value on it, the value will always be subjective.
Some will say Gold has intrinsic value to the consumer because you can use it in a variety of applications, well unless you have that ability to create value out if it, it doesn't. If I gave you a gold bar would most of us know how to turn it into anything valuable that consumers would want? I surely can say, I can't.
The current financial system is an exclusionary one, and not everyone is a bankable person, the infrastructure needed to have a fiat-based financial system also requires huge investment and certain parts of the globe are simply not profitable enough to service.
There are literally billions of people on this planet, of age and able to earn an income that has no bank account, have no interest in it and see no benefit in it. To them, the choice will be easy; Bitcoin is their first and only interaction with digital money and the barrier to entry is so low.
It requires no sign-up, no ID and no cards that expire. All you need is a cheap smartphone and access to the internet, that's it you now have financial sovereignty! How many banks can say that? None!
Ah volatility, this wouldn't be a fiat vs crypto argument without this point. How can I place my faith and hard earned money into a speculative asset that could be worth nothing at a moments notice? Well, volatility isn't an attribute tethered to Bitcoin but one it has for the moment. A global economic system was not built in a day and each year as the value rises it becomes more stable.
Six years ago Bitcoin would fluctuate at around 50% a day; now it's a big deal if it does 10% as the demand grows, use cases and adoption continue, it will provide a platform for stability. Stability is not given, it is earned in the free market. If Bitcoin is deemed worthy by the market, it will earn stability over time.
As I've mentioned before the concept of government backed fiat money isn't an ethical one and certain parties benefit more from the system than others. How do you create an environment for a prosperous free market economy when the most powerful tradable commodity is centrally planned and controlled? This to me is counter-intuitive. In all our years of central government, has trusting politician ever been a good idea?
Especially when it comes to matters of monetary status and value. Fiat currency has the ability to be censored and seized since it is a tool for the state by the state which means the people are reliant on a central power at all times, this sounds like a nanny state to me. Fiat has these constraints to trade to ensure that a countries wealth can be easily syphoned off and to keep the status quo.
Fiat is valued by government degree not value by actual merit, its a piece of paper we've all been forced to use as trade with no alternatives, until now. Since fiat can be regulated by a central party, it means the market is regulated and can be influenced in unnatural ways in order to provide competitive advantages to those with connections. While Bitcoin offers everyone a level playing field to compete on.
Bitcoin allows for self-improvement as I've mentioned before, we can add new features, new applications and new regulations to Bitcoin as long as the network provides a majority consensus on the upgrade. We've already seen this with the introduction of Segwit and the Lightning network, and I have no doubt new protocols will be released in future.
Fiat money simply cannot compete with this function, its something we've never seen before in money and will be something future economies rely on heavily with the progress we're making in spaces like AI, Machine Learning and IOT to name a few.
Single point of failure
Bitcoin is durable; all transactions are stored on a distributed ledger backed up by thousands of computers around the world which cannot be changed, forged or altered. Sure if the internet went down across the entire globe (highly impossible mind you) we would have no access to our money, but the same can be said for fiat, there would be no credit cards, no online banking, no ATM's nothing.
We would have to do everything by hand and revert to paper records being kept, and I doubt anyone will be going back to that. Having a decentralised system supported the world over allows miners to fall in and out of the network and support the network and updating of ledger entries.
This ensures no single node could bring down the entire network. Have you ever tried going to the bank when their systems are offline, and everyone at the other bank is transacting just fine? Well, that can't happen with a decentralised currency.
Optimism and youth
Bitcoin gets people excited about the money, it gives them hope, its captured the voice of a new generation and it shows the world the possibilities of what money can achieve when people are allowed to partake in peer to peer interactions without the need for anyone else. I personally do have investments in traditional financial instruments, but I have a guy for that, shout out to Dave for keeping my money safe. He gives me options; I invest in them, I don't really think about it, I just want to see my returns while he just wants his commision.
I personally have no interest in these traditional financial instruments and derivatives because the barrier to entry is too high, the investment amount is substantial, and the learning curve is too steep. These guys had to study for years and have proprietary tools they use to trade on in order to give them a competitive advantage and ensure returns. But now that these financial instruments are being replicated on the blockchain we all now have equal footing to learn, make instant trades and have complete transparency on what this investment is doing. Blockchain allows minnows and whales to compete in the free market and perform trades at any time, from any device and with any amount.
This is a concept that gets me really excited and the small corner of the internet where all the crypto enthusiasts and
Fiat must fall
The fall of fiat will not be a quick one, it will be a slow decay as capital is gradually moved into a superior system. It will start with people finding ways to augment their current fiat use and then slowly migrate as blockchain technology improves. The old guard who clings on to fiat will eventually lose influence just like the currency they worship as the younger generation look to create a more efficient economy. In the future children will go to school and come home laughing asking you about this silly paper money with pictures on it that we used to trade with. So hold on to that fiat, keep it safe, it could be worth a lot of Bitcoin one day as a collector's item.
Love to hear your thoughts
Do you believe in blockchain as the future of money? Do you think its a bubble? Do you think it's only the first iteration of something that will eventually become our next tradeable commodity? Let me know what you think in the comments!
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Disclaimer: This article should not be taken as, and is not intended to provide any investment advice and is for educational purposes only. As of the time posting the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency as all investments contain risk.