| Is Bitcoin “legit?” Does it have any purpose or value? I think it does, and here are several lenses through which to see cryptocurrencies, that explain why: As an investment: The world is already comfortable with “hot potato” investments that derive their value from the fact someone else will buy it later (ie non-dividend, non-voting stock). As long as a critical mass of investors continues to see it as legitimate, it will be. As a way to avoid hyperinflation: Central banks can print money seemingly arbitrarily, diluting buying power. Cryptocurrencies present an alternative, where growth of money supply is constrained by known and predictable rules. What is inflation in the US, really? Is the stock market going up because real world wealth is increasing, or is it just printed money flooding into assets classes instead of “basket of goods” used to measure inflation? As an alternative currency not tied to any particular central bank: The value of a currency is ultimately derived from the real-world value controlled by the individuals who believe in and use that currency. Most currencies have their basis in communities defined by countries and borders — with cryptocurrency, you introduce a new community, where the value of it is ultimately derived from the real-world value controlled by all the individuals who are willing to conduct business in that cryptocurrency. As a check against authority in future with no cash: In a cashless future, there is great potential for abuse of power if all transactions must go through a central authority: 100% visibility and power to interfere with all private transactions of the population. Do you want to give someone power to see every little transaction you make, with power to stop it if they don’t like what you are doing? In this cashless future, trust-less peer to peer digital currency is essential. As a way to diversify away from assets based in your own country’s currency: cryptocurrencies offer a relatively accessible and easy way to diversify away from holding all your wealth in one currency. To hold a certain currency is to bet in that country relative to world. For America, there’s a bet on how the USD will track against other currencies in decades to come. Is china gonna unpeg the yuan further and further and make a gun for the number 1 spot? Has America invested in the infrastructure, education, large scale coordination, and energy capabilities to stay on top not just in terms of dollars on paper, but real world value that underlies real wealth? Crypto is just one way to place a bet based on a thesis around this. All this is based on the fundamental question: what is money?
Money can essentially be seen as a “share” of the entirety of the worlds resources. These “shares” give you authority to allocate resources, such as food, materials, and other people. We all need a base level of “shares” to allocate the food and shelter we need to survive. Most big businesses use their “shares” to pursue one thing: getting more “shares”. And, your “share’s” constantly get diluted. No matter how many shares exist, in the end they only act as a distribution mechanism for the actual resources that exist. In this light, crypto is just as real as anything else; its just another made-up concept we use to coordinate society, just like traditional money. What worries me most about cryptocurrency right now, is the underlying cryptography, and how long that will last. Will there be fork to new method in time? |