By Ryan S. ’22
For all of the polarized misinformation surrounding the coronavirus pandemic, the lies and misconceptions around Bitcoin are perhaps even greater. The leading cryptocurrency has been gaining an alarming amount of traction in 2021, now surpassing $45,000 for a single Bitcoin. However, the perpetual volatility over Bitcoin’s twelve year run has raised immense concern in the stock trading realm. Bitcoin has been known to fluctuate up to twenty percent of its total value in a day. This is a terrifying statistic for investors, who are used to a generally stable economy in which the market will grow about seven percent each year. The stakes have notably been raised with Elon Musk’s announcement that Tesla would buy 1.5 billion dollars in Bitcoin, the start of big companies pouring in money.
Bitcoin officially was launched in 2009 by an unknown group of people in Japan using the name Satoshi Nakamoto. It acts as a decentralized digital currency because no group of people or banks are in control of storing it. Instead, user transactions are stored in blockchain technology, and the critical advantage of Bitcoin is that all transactions completed within the blockchain are recorded on a public ledger for anyone to view. Obviously, being a cryptocurrency, Bitcoin has to be mined, which can be done by solving complex algorithms. Every block or algorithm that is solved releases coins and rewards proportionally to the systems that did the work in solving it. Consequently, there have been rapid advancements in computer technology throughout the past decade and current mining facilities dedicated to Bitcoin have created massive revenue. Some people or companies dedicate entire warehouses filled with endless rows of expensive computers in order to mine, which raises the criticism of excess electricity usage. A key feature made by Bitcoin, to combat the craze for technological advancement in order to mine is that for every 2,016 blocks that are solved, the difficulty of solving the algorithms increases. This feature was put in place to prevent a scenario in which a super computer is invented that is able to solve the algorithms at an unjust and prolific rate. Furthermore, Bitcoin was designed to be a deflationary asset, meaning less are introduced every year. Specifically, the number of Bitcoin that is unlocked by miners is halved every four years, which puts it on pace for the last one to be mined around 2140.
Bitcoin has many distinct advantages over other currencies in the world, which could be the reason it takes over as the world’s sole currency. To start, Bitcoin’s deflationary identity makes it more stable than most other currencies used in the world, which have been inflating over time. Scarcity is a key trait for currencies, as exhibited by historical examples of hyperinflation and de-valuation in Weimar Germany, Zimbabwe, and Venezuela. Even the U.S. Dollar, which many consider to be the most dominant world currency, has lost tremendous value in the coronavirus pandemic, as trillions of dollars have been printed. Along with its appropriate scarcity, Bitcoin is a very secure and durable currency, something that many uninformed people try to dispel. It is virtually impossible to hack into the blockchain technology and existing Bitcoins cannot be destroyed, something that cannot be said about gold or any paper currency. An added benefit of a virtual currency is that a single Bitcoin is divisible up to 100 million times, into individual units called Satoshis, giving it precision. Although certain governments would like to ban Bitcoin altogether, this just is not realistic, as where one country fails to integrate Bitcoin, another will seize the opportunity.
With Bitcoin’s price skyrocketing in early 2021 potential investors are scrambling to find the best time to buy Bitcoin. Although Bitcoin is currently not cheap by any means, it seems to be very early in its development. It is currently in the “hoddle stage,” which means that owners are recommended to not be too hasty to sell during Bitcoin’s volatile years, as some people predict one could be worth over a million dollars in a few decades. However, for muggles (people not currently owning Bitcoin), such an expensive buy-in might seem very risky. If these people want to get in on Bitcoin, it might be advisable to wait for a few months for the currency to decrease a small portion after its record-setting performance happening now. The smartest play for people who want to get involved would be dollar cost averaging Bitcoin in small amounts for the foreseeable future, as it drastically decreases the risk and still ensures gaining capital in the long run.