Disclaimer: This is not intended as financial advice.
Hi there. This might be a bit of a controversial topic, and I understand why. So, first of all, I might say, I do not hate Bitcoin. These are merely my observations and the conclusions I’ve come to over time, and I’m certainly liable to change my mind.
Everybody knows what Bitcoin is. It has been (and looks to remain) the leading cryptocurrency for over a decade. It is a digital payment system that also doubles as a decentralized currency, and it was created by an anonymous individual or group of people, known by the pseudonym Satoshi Nakamoto in 2009. While Bitcoin wasn’t the first cryptocurrency, it was the first to be widely adopted.
In his/their whitepaper, Satoshi Nakamoto foresaw a future where payments could be made wirelessly and anonymously. That future has become our present, believe it or not. And it all started with Bitcoin.
History of Bitcoin
It was 9th January 2009 when the person or group known as Satoshi Nakamoto added the first block of code, the genesis block, to the blockchain. In the aforementioned whitepaper, Nakamoto outlined a new means of payment, referred to as a peer-to-peer version of electronic cash. The idea behind Bitcoin was that it would be a currency that could be used without banks or intermediaries, making transactions less expensive and more secure.
Consensus and security would be achieved through the proof-and-work system where miners (as they are called) have to solve math puzzles using computing, in a process that both creates new bitcoin and accepts previous transactions.
To maintain scarcity and keep inflation in check, Bitcoin is created in batches at predictable rates by the nodes (the computers running the software). The number of bitcoins is limited to 21 million and the reward for mining Bitcoin is halved every four years.
The Early Days
On January 12, 2009, Hal Finney received 10 BTC from Nakamoto for mining a block, the first-ever block reward, and the world changed forever.
Satoshi Nakamoto first discussed his new invention on his cryptography mailing list. This mailing list included names that have become legendary, such as Laszlo Hanyecz, Hal Finney, and Gavin Andresen. Initially, this groundbreaking technology was only discussed in cryptography circles. In this part of its history, Bitcoin was some kind of obscure joke that only a certain clique of nerds could get or at least, pretended to get.
The friends we made along the way
This was the golden age of Bitcoin, as far as I am concerned. Sure, there was limited adoption but there were also no artificial price hikes or shady exchanges. No one harbored any secret notions of making a killing from Bitcoin. It was a group of people having fun and playing around with exciting technology.
Bitcoin was working. It was serving its intended use, but it still needed widespread adoption. That was where crypto evangelists came in. They spread the gospel of Bitcoin to their friends, families, and complete strangers on the internet, either for the promise of personal gain or because they really believed in the technology.
Platforms like Twitter and Reddit became home to Bitcoin communities. Exchanges like Bitcoin Market and Mt. Gox opened up. The infamous Silk Road marketplace was founded in 2011 in the dark corners of the Web and operated until 2013 when it was shut down by the FBI. Regardless, Bitcoin was becoming more accessible and acceptable in the real world.
What changed?
After the financial crisis of 2008, Bitcoin received a boost in public recognition as people lost faith in the traditional financial system. More people were willing to take a gamble on the new technology. Bitcoin’s value went through certain ups and downs and then in December 2017, it surged to a peak of about $20,000 although it would later fall to about 14,000.
We now know that this sudden hike was mostly the result of direct price manipulation by a finance professor at the University of Texas, John Griffin, and an assistant professor at the Ohio State University, Professor Amin Shams. Tether was used to purchase BTC during critical moments to maintain artificial stability and keep the price up.
However, this rise wasn't entirely the work of bad actors. Traditional investors had taken an interest in the cryptocurrency. A futures market was created for Bitcoin, allowing investors to buy and sell bitcoin at a set price in the future. Banks, governments, universities, and corporations were reported to be looking for ways to work with Bitcoin. This marked a dramatic shift for Bitcoin from a medium of transactions to an investment class that was “going to make everybody rich.”
Unfortunately, Bitcoin was never designed with volatility in mind. It was never intended as a store of value. It was created to facilitate fast, anonymous transactions. But, that didn’t matter to the vast majority of people interested in crypto. They were being pushed to HODL through a combination of fear of missing out and influencer marketing from parties that stand to gain a lot.
Bitcoin would have worked better if it was a financial system intended for a conclave of mindless machines. Unfortunately, it was created by humans and it is in our nature to eff things up. There are several forks that made several promises to be better than the original but none of them have exactly picked up steam. A lot of people are still attached to the numero uno, Bitcoin.
What is Bitcoin useful for?
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Decentralization: This is more of an attribute than a use case, but it is worth mentioning. Bitcoin has always been and will be decentralized, i.e no government or agency can shut down the network. You don't need to trust anyone to use Bitcoin, and that in itself is amazing.
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High-risk speculative investments: This is Bitcoin’s main use case, as of today, because that’s what most people see it as, a high-risk, high-reward gamble. It is ironic because what a lot of people came onboard the crypto train for is exactly what makes Bitcoin unusable for normal transactions.
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Remittances: You can carry out local and international remittances using Bitcoin, for much less than traditional options. However, it is important that you keep volatility and exchange fees in mind. This is, as far as I’m concerned, the single most practical application of Bitcoin, especially in countries (like mine) where MTOs are either not present or are simply too expensive. It is worth noting that stablecoins may be better for this purpose though.
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Innovation: Bitcoin introduced the blockchain, the digital ledger that ushered in a new age of finance. It established the foundation for a trustless, digital economy and it paved the way for the hundreds of cryptocurrencies that followed.
What is Bitcoin not useful for?
- Buying Pizza: That's not exactly true. You can use Bitcoin to pay for pizza. It's just not worth it, with the high fees and slow speeds associated with Bitcoin transactions. You’ll end up spending more on transaction fees than the pizza itself. You may want to look into a cryptocurrency like Litecoin for making payments or opt for Layer-2 scaling solutions.
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Legal tender: The El Salvador experiment has ended and regardless of what some crypto enthusiasts will tell you, it ended badly. If you ask me, it was more of a popularity stunt than a well-thought-out fiscal policy. Bitcoin is ill-suited to serve as legal tender, due to (but not solely because) of its volatility.
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Anonymous transactions: Bitcoin transactions are no longer as untraceable as they used to be. Centralized exchanges and KYC stipulations have made it possible to trace Bitcoin transactions. It is even possible to find out the IP addresses of active nodes by observing network activity. So, Bitcoin is not all that secure, especially compared to tokens like Monero.
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A hedge against inflation: This is a supposed advantage of Bitcoin but it doesn’t hold true under close examination. Bitcoin is too volatile to provide a hedge against inflation. It has dropped more than 52% of its price this year alone. Not even currencies of third-world countries like Nigeria experience such drastic drops in value.
Conclusion
Bitcoin has become that decentralized, digital currency that grew up and left the hood. It has become slow, clunky, and expensive to use. It is not useful as a store of value. It is not very useful for day-to-day transactions.
Bitcoin is, however, not a failed experiment. It has opened the way for other better cryptocurrencies with more utility and stability, such as Ethereum, Ripple, Monero, Steller Lumens, and Binance USD. So, the new age of cryptocurrency owes a lot to Satoshi and their invention, but it may be time to let the old dog die.
What do you think? Are there other use cases of Bitcoin I have not considered? Do you still hold out hope for the cryptocurrency? Do let me know in the comments.