For the last few years there have been people on the fringes of both the investment world and the tech world peering in, asking themselves (and anybody around them) ‘what is Bitcoin, and is it worth it?’ And then they get annoyed because they expect an answer that doesn’t necessitate me writing a whole article about it.
The very first thing that people need to understand about Bitcoin, before they reach into their wallet – before they even consider it actually, is that Bitcoin isn’t an investment fund. It isn’t a stock, you aren’t buying shares in anything here. What Bitcoin is, is a currency.
We can equate the purchasing of Bitcoin to the likes of buying up foreign currency, that’s the same level of risk and reward we are talking about with Bitcoin, except Bitcoin isn’t localized currency, its global.
You also have to consider that Bitcoin isn’t tied to a central gold reserve or a countries individual wealth – it’s entirely based upon the interest and prescribed value of the users in the product itself. What I’m trying to say (in a lot of words) is that Bitcoin has no actual value – it just has hype.
So let’s travel way back to 2009, when Bitcoin was first invented. If you were blessed enough with either the foresight or the sheer dumb luck to buy Bitcoin back then, and hold onto it until present day then sure – you have actually made a sound ‘investment’ (for lack of a better word) and you will see a return on your initial investment that is enough to make me froth at the mouth, it’s true.
Now, apply that same logic to modern-day. We are much closer to the end of the Bitcoin mining process, as the amount of Bitcoin in the world is capped, and every day (every minute) more is discovered and different variables are applied to the cost of Bitcoin itself – more on that later, but right now let’s focus on the fact that there is a capped number of Bitcoin and that the price is already sky-high.
When the mining rigs turn off, and the world energy suppliers let out a howl of desperation that they are no longer going to be reaping huge energy bills off of Bitcoin miner, you are going to be left sitting with your initial investment, and for the sake of this article, that’s one Bitcoin. How much is it worth? I don’t know, it could have totally collapsed.
What do you do with it? Again, I don’t know – market interest could have shifted away from Bitcoin entirely, meaning that you are left with a wallet full of files as useful as that wheelbarrows of money you see in photos documenting the hyperinflation of Germany during the Weimar Republic.
My point is this. Like I mentioned before, Bitcoin is a currency, and is meant to be used as such. Right now there are plenty of places online (and in more populated and modernized city centers) that are happy to accept Bitcoin in exchange for goods and services.
And, right now, you don’t need to pay attention to them, because there is a healthy market of buyers who are ready to snatch up and sit on their Bitcoin until its final mining day in hope of massive gains and financial wins – but that isn’t going to help anyone.
The crux of a currency is that it can be used. If it isn’t spent, then its as useful as a piece of paper – or in this case, me making 1000 individual files and prescribing a value to them that I hope other people will pay for. It’s a false economy born from the hopes of a real economy, and that’s the real danger that Bitcoin is in – that its users have missed the point, and think that the Bitcoin mine is lade with gold all the way down.
I’ve ran through some of the issues when it comes to buying and then sitting on Bitcoin reserves, but let’s talk for a minute about the people out there interested in mining Bitcoin.
The process of mining is a complex one – I’ve written about it here for a better explanation, but suffice to say that right now there is a race between people all over the world with access to the software or hardware to mine so that they can get a bigger share of the overall bounties paid out in exchange for completion on various segments of the blockchain.
The thing is though, that bounty is decreasing exponentially. As the miners get closer and closer to ‘discovering’ all of the available Bitcoin, the total amount of reward handed out to those mining the Bitcoin is reduced, meaning that the profits of mining might one day be smaller than the actual cost of the mining process.
That’s already a worry; Between the upfront cost of mining and the day to day power consumption fees etc, depending on how much you mine, the bounty awarded and the daily influx of the Bitcoin price you might not even end up better off than when you started mining in the first place./
And, the later you leave it, the less you are going to get. Like I said, as we get closer to the total number of Bitcoin being discovered, the bounties get smaller and the rewards are less, so realistically there is going to be less interest and less drive to invest in the cryptocurrency.
All of this is a little bit doom and gloom – for plenty of miners out there, there will be payoffs and digital wallets stacked with enough Bitcoin for a decent payout. And oftentimes, that’s enough for these people – they expect like so many others that they can sit on Bitcoin and ride that wave all the way to a mansion.
Except that’s not how this works. They aren’t investing in a company, there is no product to be made, no service to be done – only consumer interest driving its rates, as I mentioned. And I’ve been talking about that for a while, so what would I do with Bitcoin?
I’m going to kick this paragraph off by saying that I’m not a financial expert, all of this is conjecture and that we aren’t responsible for any gains or losses you might experience following any investment or financial pursuits.
That being said, I have made a pretty big point out of Bitcoin being a currency during this article and making the worrying claim that one day there could be an ‘oh’ moment, where everyone realizes what they are hodling onto is actually worthless if nobody wants to buy it.
So, if I had a big wallet of Bitcoin right now, here is what I would do. First I would wait a reasonable amount of time so that I can generally recoup or grow on my initial investment to a reasonable degree. This is entirely luck-based, but it’s not unreasonable to expect Bitcoin’s price to grow.
I wouldn’t wait too long though.
Then, I would consider two options. The first would be to disseminate my Bitcoin into retailers and other vendors that accept the coins as payment. This has two advantages. One: I’m buying things for myself. Not a pizza, like that one guy, but long-lasting products or potential real estate depending on what’s available – bankable items that I can make money on in the future, but the second value is much more altruistic: that it gives credit and credence to the use of a coin as a currency.
No matter how big or how small the spend is, using Bitcoin as it was designed to be used is going to spark market interest and trust in Bitcoin as a currency solution. You can’t expect the value of a coin to grow if nobody is using it, and a decentralized, anonymous method of payment is too good a potential thing to screw over in a selfish bid to get rich off of market interest.
Yes, this might lead to losses, but hopefully, any rise in the price of Bitcoin could cover them, and you can repeat the cycle. It’s all about circulation and validation of Bitcoin in a market that’s still skeptical.
My other option is just to sell it all to other users interested in the coins, and reap the rewards. Selfish, but more reliable in terms of value and it will allow me to make other investments that could hold weight for longer.
I came off negative throughout this article, and I think that some people might interpret that as me being pessimistic towards Bitcoin – that isn’t the case at all. In fact, I think that it’s a great idea to have an economy entirely dependent on itself and its use – I think its an interesting experiment. My issue comes in with the humans using it, and their capacity to be greedy.
I’m guilty of it too- I would be lying if I said that there wasn’t a part of me that wants to buy up Bitcoin and hold onto it for dear life – but there is a much bigger part of me that says that isn’t what a currency is made for, and if that becomes the prevailing mindset then any Bitcoin gains can turn to dust before your eyes.
So, to answer my original question: Is Bitcoin still worth the hype?
Sure it is, for now, and tomorrow. Make hay whilst the sun shines and all that, but the real value of the coin is going to be found out once the mining stops, and the users determine how it should be used, how much they want it, and what its really worth.