WHY BITCOIN’S INTRINSIC VALUE IS MORE THAN SKIN DEEP

CH. 9

Why Bitcoin

Bitcoin is a game changer in the financial world, particularly in parts of the world where the traditional banking system is ineffective. In poorer communities, banks are usually unwilling to cater to the needs of the people due to the high costs of compliance imposed by regulations. As a result, a significant proportion of the population is left without access to essential financial services. Additionally, cross-border remittances into countries like El Salvador are not only expensive but also time-consuming. The fees associated with these transactions and the delay in processing times can be devastating for those who rely on these funds for their daily needs. Moreover, people in unbanked/underbanked communities are unable to access investments or assets to protect against inflation. Bitcoin provides a solution that addresses the immediate needs of these communities. It enables the transfer of funds quickly and efficiently without the need for intermediaries and at a fraction of the cost. Furthermore, it offers a way for people in unbanked/underbanked communities to store value and protect it against inflation.

The Future is Bitcoin

"Hyperbitcoinization" is a theoretical future where Bitcoin becomes the dominant global currency. This would mean that bitcoin would be used by everyone, everywhere, and for everything, from buying coffee to paying bills and even buying a house.

The growing interest in Bitcoin by billionaires, countries, and governments highlights the potential impact of its widespread adoption on the economy and society. Here are some of the benefits of a hyper-bitcoinized world:

A Revolution in the Remittance Market: The remittance market involves the transfer of funds from one party to another, often across international borders. Despite declining costs, remittances remain relatively expensive compared to domestic bank transfers, especially for smaller amounts. Bitcoin has the potential to revolutionize the remittance market by reducing costs to near-zero through its Lightning Network layer 2 protocol. The Lightning Network offers fast and low-cost transactions, making it well-suited for the remittance market and addressing the high costs and other challenges associated with remittances, such as slow settlement times and restrictions on business hours.

A Self-Sovereign Future: A self-sovereign future is one where individuals have full control over their own digital identity and assets. It can lead to increased financial inclusion, privacy, and security and increase the value placed on privacy in transactions.

Changes in Monetary Policies: If Bitcoin were to become widely adopted, it could challenge the ability of governments to control the money supply through traditional monetary policy tools, leading to changes in monetary policy management and implementation. It could also increase financial inclusion, equalities, and opportunities as well as reduce the ability of governments and financial institutions to manipulate the economy.

A Reliable Store of Value: Bitcoin’s digital scarcity makes it a reliable store of value, which could encourage more people to use it as a means of saving for the future.

Enhanced Transparency and Traceability: The tamper-proof and immutable record of all transactions on the blockchain could increase transparency and accountability in various industries and sectors.

Improved Cybersecurity: The decentralized structure of Bitcoin makes it less vulnerable to hacking and data breaches, improving overall security.

Reducing Carbon Footprint and Promoting Renewable Energy: By making the process of mining for Bitcoin more sustainable and environmentally friendly, miners can help to reduce its carbon footprint and promote the use of renewable energy sources. This aligns with important environmental, social, and governance (ESG) considerations.

THE PROS

One of the key reasons for Bitcoin’s longevity and continued use is its decentralized nature. This means that it operates as a secure and transparent financial system without the need for intermediaries, making it appealing to individuals who value financial privacy and control. In addition, Bitcoin’s ability to operate as a secure store of value has also contributed to its growing popularity and acceptance.

Another factor that contributes to Bitcoin’s longevity is its resistance to change and competition. Changes to the network consensus rules require the majority of users to agree to the update, making it difficult to achieve consensus and leading to only updates that the overwhelming majority of network participants agree upon being implemented. Additionally, despite the existence of many competing cryptocurrencies, none have yet been able to match Bitcoin’s longevity or achieve the same level of network effects.

Bitcoin’s hash rate has been increasing exponentially over the years, and the distribution of mining is also becoming more widespread. The number of users joining the Bitcoin Network has also increased at an exponential rate, with an estimated 140-190 million users now a part of it. These factors, combined with its continued popularity and usefulness, suggest that Bitcoin is likely to continue being used and trusted into the future.

Bitcoin’s Lightning Network has made faster and more secure financial payments possible; for example, atomic swaps enable people to exchange one cryptocurrency for another without the need for an intermediary. RSK, a platform built on top of the Bitcoin blockchain, also allows for the creation of smart contracts and decentralized apps, which opens up new possibilities for what can be built on top of Bitcoin. As these technologies continue to be developed and improved, exciting things are expected to come in the future.

THE CHALLENGES AND RISKS

Bitcoin Core, a widely-used implementation of the Bitcoin protocol, faces several challenges that warrant improvement:

Scalability: As user and transaction numbers increase, node data processing burdens grow, slowing transaction validation and impeding new user onboarding.

Privacy: While transactions are pseudonymous, the blockchain's public accessibility enables third-party fund tracking and user identification, necessitating solutions like coin mixing and stealth addresses.

Usability: Setting up and using a full node can be complex for average users, hindering adoption. Streamlining user experiences could enhance accessibility and increase adoption rates.

Decentralization: Bitcoin's Proof-of-Work consensus algorithm allows large mining farms to dominate, posing centralization threats and compromising system security.

Security: Despite its open-source nature, Bitcoin Core remains susceptible to bugs or vulnerabilities, necessitating ongoing security audits and improvements to safeguard against potential attacks.

Understanding Bitcoin's energy usage is crucial:

Bitcoin mining consumes 79 terawatt-hours annually. While significant, it leverages unused energy capacities, often sourced from renewable hydroelectric, solar, wind, or geothermal sources. Moreover, energy usage is determined by miner competition, not transaction volume, and Bitcoin's energy usage, while high, is comparatively lower than traditional financial or gold mining industries. Increasing miner reliance on renewable energies further mitigates environmental impacts, spurring innovation in clean energy production.