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Guide: Why is Bitcoin (BTC) valuable?

In January 2009, the first version of the Bitcoin network was launched, and the very first Bitcoin was mined. Encoded in the Bitcoin genesis block read a message from its creator, Satoshi Nakamoto:

 “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” 

Satoshi placed a UK newspaper headline that referred to the ongoing financial crisis directly into the Bitcoin ledger’s permanent record. One of the reasons behind Bitcoin’s creation was the excessive printing of cash from central banks, as well as a lack of accountability.

By embedding this cryptic message, Satoshi speculated that his proposed system offered a potential solution to the flawed traditional banking system.

 

The best performing asset of the decade

On 23 May 2021, Charlie Bilello (Founder and CEO of Compound Capital Advisors) posted a tweet highlighting the returns of different asset classes in the last decade. The table in the tweet shows Bitcoin as number one with a cumulative return of ~11182964% and annualised returns of 206.1%. 

 

Verifiable scarcity & store of value

Bitcoin’s creator, Satoshi Nakamoto decided that only 21 million BTC would ever exist. When the last BTC is released, 21 million coins will circulate in the market, and this number will never increase. 

This verifiable scarcity is central to Bitcoin’s value proposition. It explains why many see it as a store of value and refer to it as ‘digital gold.’ 

Money can always be printed, but Bitcoin has a fixed supply. And similar to gold, less supply = more demand and better value over time. Even the likes of Goldman Sachs have deemed it a “store of value” to compete with gold.

 

What is halving? 

New bitcoins are issued as part of a block reward process. Every time a Bitcoin miner “discovers” a block, they receive new coins as compensation. When Bitcoin first launched, the reward stood at 50 BTC per block. According to Bitcoin’s rules, this reward is cut by 50% every 4 years. This process is known as halving

Halving ensures Bitcoin issues new coins at a steady rate until the maximum supply is finally reached. This contrasts with fiat currencies, where governments and central banks can print more money at their discretion (as we’ve seen). 

As there will only ever be 21 million bitcoins, there will only ever be 32 halving events. Once the 32nd halving event is complete, Bitcoin’s maximum supply of 21 million coins will have been reached. At the next halving, in 2024, the number of bitcoins released per block will drop to around 3.125. 

After every halving, it is likely that the value of mined coins will rise (decreased supply = increased demand). 

 

Decentralised, trustless & censorship-resistant

Unlike traditional fiat currencies, such as the British Pound, United States Dollar, and Euro, the Bitcoin network is decentralised and runs on thousands of computers worldwide.

The network is permissionless and censorship-resistant, and users can make transactions at any time, from anywhere in the world. It offers a new, easier way to store and control one’s own assets, and there is a lot of demand for an easily accessible store of value. 

Every Bitcoin transaction has its own record on the blockchain, is stored on a network of millions of computers and is not interfered with, creating authenticity and legitimacy.

A few weeks after Bitcoin was launched, Satoshi provided a little more detail on his motivations for the project, highlighting the instability of traditional financial systems: 

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”

As Satoshi stated in its whitepaper, Bitcoin is  ‘a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.’

In other words, Bitcoin removes the need to rely on a ‘trusted’ third party.  

 

The future?

Is the current international monetary system on the edge of an overhaul? How will Bitcoin and cryptocurrency change the fate of the traditional monetary system?

We’re already seeing major changes, here are just a few significant examples…

SEC chairman Gary Gensler believes BTC should be classified as a commodity. If BTC is deemed a (regulated) commodity, its value will increase (digital gold).

Goldman Sachs (the most prestigious investment bank in the world) now accepts BTC as collateral for loans.

And in El Salvador, BTC is used as a medium of payment alongside the dollar.

 

For Cryptonary’s transparent opinion on BTC, check out the Cryptocurrency Ratings Guide here.

 

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.

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Nicola Rainsford

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