Bitcoin — A Cryptocurrency or a Cryptoasset?
Is bitcoin really a cryptocurrency as people say it is?
Originally designed to be a cryptocurrency (a virtual currency using blockchain technology to be used to buy goods and services, an alternative to the real currency), Bitcoin is having a hard time acting like one.
Because of its limited supply, as the demand for bitcoin rises its price also increases in turn. As a result of which it has rarely be used as a currency.
A bitcoin developer back in 2010, paid someone 10,000 bitcoins just to deliver him a couple of Papa Johns’ Pizzas. Putting it in today’s worth of one bitcoin for $37,000, he could’ve easily made a whopping $370 million. It may seem like a terrible idea today, but it is precisely how it was meant to be used.
In 2008, Satoshi Nakamoto (the pseudonymous creator of bitcoin) defined bitcoin as “a purely peer-to-peer version of electronic cash (which) would allow online payments to be sent directly from one party to another without going through a financial institution.”
But is that really how bitcoin is functioning?
Why bitcoin isn’t a Cryptocurrency?
Bitcoin was initially created to challenge the supremacy of the so-called real currencies out there. Unlike the dollar which is controlled by the government, bitcoin uses blockchain technology that can be accessed by anyone. Making it a currency of the public, for the public. But that is not how the dice is rolling.
Due to the blockchain scalability problem, the rate of bitcoin transactions is low as compared to the standard credit card transaction rate. On average, only 6 to 7 bitcoin transactions can take place, compared to the 5000 credit card transactions in a second.
Moreover, there is an additional fee to pay for every transaction you make. Back in 2017 (the last bitcoin boom), a fee of $55 was to be paid at every transaction. Though it was reduced to $6 in last May. Making it impractical for day-to-day usage.
Critics have described it as a bubble ready to burst at any time. In the last bitcoin bubble pop back in 2018, bitcoin lost nearly 80% of its value. It fell from $19000 in December 2017, to $5500 in November 2018. Making it the larger burst than the Dotcom bubble burst in 2001.
Bitcoin is an extremely volatile currency (if considered), the most recent 15% to 20% drop overnight makes it even harder for people to accept it as an actual currency.
Bitcoin has been serving as a counterpart of gold for the past few years. Just like gold, bitcoin is as much value as people think it to be. That’s why most people are pouring their money to buy bitcoins with the thought of making profits after selling them in the future.
Could Bitcoin be a valuable Cryptoasset?
Bitcoin is performing a lot better as an asset than a currency. With an astonishing 6,000,000% increase in its value during the past decade, Bitcoin has surpassed every other profitable asset out there. And as of January 2021, bitcoin has a market capitalization of roughly 600 billion U.S dollars.
We’ve seen a booming increase in its price during the past few months. According to Chamath Palihapitiya, founder, and CEO of Social Capital “It’s probably going to $100,000, then $150,000, then $200,000. In what period? I don’t know. (Maybe) five or 10 years, but it’s going there.”
Considering the recent and current scenarios, the bitcoin market is booming and is providing far greater ROI (return on investment) compared to any other investment field.
Still, bitcoin is a speculative asset owing to its immense volatility (one minute up, another minute down). It has no intrinsic value and cannot be determined either. Statistical channels are great, and providing thorough overviews but they still differ from each other in predicting future trends.
Just like any other currency, most bitcoins are also owned by a small portion of people. As Bloomberg likes to call them the “Bitcoin Whales”. According to a Bloomberg report, almost 95% of all the bitcoin is controlled by only 2% of the total accounts.
It is exactly why it is advised to invest only 10% of your total net worth. Following a simple rule of investment, invest only as much money as you can afford to lose.
