The adoption of Bitcoin has soared. In this feature
Michael Hudson, CEO of Bitstocks, says the best is
yet to come.
WITH AN IMPRESSIVE 300% GROWTH IN THE last 12 months, Bitcoin has been the subject matter of many a headline recently. Each time it surges, breaking through previous all-time highs, each time it corrects, giving the naysayers an opportunity to push their “I told you so’s”, a media frenzy takes place. It is unsurprising then that many who may
not previously been aware of Bitcoin, or perhaps had heard about this ‘digital gold’ but remained somewhat sceptical, are now wondering whether they have missed the boat for Bitcoin investment. It is a question we field on a nearly daily basis at Bitstocks. “Am I too late?” Our response is always a confident “no”. No, it is not too late – let us explain why.
Bitcoin is Not a Currency
Fiat currency is not backed by anything other than the buying power bestowed upon it by the government in question. When a government decides to expand the supply, the new money (or more correctly the 000’s simply entered onto an accounting sheet somewhere!) sucks value from the existing money supply. This is commonly known as inflation, and one of the most insidious ‘taxes’ we, as citizens, are subjected to. We are forced to accept that what we can buy with
£1,000 today will cost significantly more in the future. This is the nature of inflation; it erodes the buying power of currency. Money, on the other hand, holds intrinsic value. If you hold a pair of 18ct gold cufflinks in your hand, you instinctively know, or understand, that they are valuable. As a mineral, gold is limited. Once the world’s supply is mined, we cannot simply create more. Your gold cufflinks hold value because they are made from a precious commodity. Their price is determined by the free market and what someone is willing to pay for hem at that point in time. And thanks to inflation, you are assured that the price they fetch today is lower than what they will in the future.
Bitcoin has these same attributes. It is deflationary by design. There will only ever be 21 million bitcoins in circulation, controlled and regulated by mathematical algorithms. It does this by introducing new coins at a predetermined rate of issuance, which halves approximately every 4 years. This predictable, capped supply ensures a scarce resource and gives Bitcoin the qualities of money. However, it goes beyond that, in that it is programmable money. Bitcoin’s true value lies in its utility.
The Power of Bitcoin is Yet to be Seen As a mariner, you will appreciate that what you see of an iceberg belies its enormity below the surface. Bitcoin is similar. It is commonplace to mistake the price of a bitcoin, which is simply the token of the network, and in this case the tip of the iceberg, with the tremendous value of its underlying technology and protocol. An element of this is called the blockchain and serves as a transparent, immutable record of all transactions on the Bitcoin network. This is distributed across thousands of independent computers across the globe, called nodes, each having a full copy of the blockchain in order to confirm the data. Incidentally, this also means that
should some catastrophic event occur where the Internet is shut down completely, a single computer could singlehandedly reinstate the entire Bitcoin blockchain and all transactions and balances, wholly preserved. This is because once a transaction is confirmed and inscribed on the blockchain it is permanent and duplicated across all network participants. Blocks cannot be moved or amended unless a majority of the network agree, providing an impenetrable, verified global database of data ransfer. This is critical to the largely untapped potential of Bitcoin, in that the blockchain lends itself to use in industries that depend on time sensitive, ratified information.
Consider legal contracts, proof of ownership of digital or physical assets, or the rights to intellectual property. We have seen instances where blockchain technology has been used by artists to validate their artwork, ensuring they receive due royalties. The recent elections in both the UK and France highlighted scope for the blockchain to be utilised for voting purposes, where results are 100% confirmed. Another massive opportunity, as a result of the programmable nature of the protocol, is smart contracts. These are essentially agreements loaded onto the blockchain in escrow, which have self-executing functionality based on if or when a certain condition is met. The application is ultimately
limitless, from a simple bet on the horses at the local track, to an international trade agreement.
How about a yacht purchase? The sale agreement and payment could take place on the Bitcoin blockchain, negating the exorbitant fees involved in forex transfer, cutting the processing time by days, and mitigating risk, as trust can be placed in the mathematics of technology not human nature! The cryptographic protocol of the blockchain
opens the door to thousands, if not millions, of use cases that to date have been largely undeveloped, or require the Bitcoin network to scale in order to be implemented effectively.
Currently, the block size is limited to 1MB of data, restricting application deployment, as the network is congested and transactions have become less than instant, with fees edging upwards. This, however, brings me to the next point.
A Scalable Solution As Bitcoin adoption has soared, so too have the demands on the legacy framework. With more and
more transactions taking place than ever before, Bitcoin must scale up in order to cater for the existing growth, and anticipated burgeon from development by prolific Bitcoin-based businesses.
For some time, the Bitcoin community has been at an impasse on the way forward for Bitcoin, as proposals of solutions have not satisfied the needs of the majority consensus required to initiate remedial action. Sadly, this is an example of how one of Bitcoin’s invaluable facets – that of decentralisation has also presented its greatest challenge. The
deadlock has led to a hindrance in technological advancement, broader application and full-fledged mainstream adoption to date. Fortunately, a change is imminent. In May 2017 at the annual Consensus conference held in New York, an agreement was signed by most stakeholders that set out a plan for a compromise on two viable scaling solutions, which address both the short and long-term needs of the network. This includes the fixing of a technical issue that enables the creation of, amongst others, smart contracts and direct peer-to-peer payment channels. Another component will bring about a larger block size in due course, allowing processing speeds to increase as more transactions are able to be added to a single block. This progress brings me to conclusion.
Development Drives Value
Bitcoin’s price is correlated to its perceived value; the value of utility. Despite its incredible success to date, with exponential increase in price and being recognised as a globally accepted form of payment,
free from political persuasion, immune to economic instability, and ultimately the most liberating tool of financial sovereignty of our time, it is my opinion that the true value and potential of Bitcoin is far from being realised.
It is the innovative developers, the disruptors, the Googles, Facebooks, and Ubers of tomorrow that are the driving forces behind Bitcoin, bringing to life its ground-breaking and unparalleled capabilities. With a scaling solution on the horizon, there is no doubt in my mind that we are going to see Bitcoin soar to new heights – in terms of development, and ergo, in terms of value and price.
The fact that Bitcoin is programmable money, scarce and has boundless applications being built for the technology as I write this, means that any investment in Bitcoin remains a perfectly valid – and wise – decision.
So no, it is not too late to invest in Bitcoin; the time to get on-board is now!
For more information about Bitstocks or investing in bitcoin, you can visit our website – www.bitstocks.com
or give us a call on +44 203 743 9177.