How Bitcoin Finally Made Sense to Me: the Gold Rush
It was late 2017. A cacophony of acronyms, abbreviations and foreign concepts overwhelmed me as Bitcoin became the talk of mainstream media and dominated my group chats, as well as social media timelines.
My first almost-foray into digital currencies was around 2015. Despite my experience in driving scooters (well, I say motorbikes which sounds more impressive), I did not have the required international license in time for an overseas trip which was famous for some scenic rides. I found a way to get a license on the internet, and the only way to pay was with Bitcoin. In those days, buying Bitcoin (BTC) was akin to trying to build a piece of IKEA furniture sans manual, while missing the tools needed. I eventually found a website that allowed me to buy BTC in increments of $200USD. The license was $30, so wasting that extra $170 was not something I could accept; having no understanding or belief in digital currencies at the time. That $170 balance would be worth $30,000 USD today.
Anecdotes and money-making eulogies aside, I spent the next few years ignoring digital currencies. The idea that a currency ‘mined’ via graphics cards was not something that made any sense to me. Money must be issued by the government, otherwise why would it have any value?
Fast forward again to 2017 and with Bitcoin surging to $20,000, the FOMO kicked in and after doing a lot of research, I bit the bullet and made the choice to invest. At that point it may not have been the wisest decision, yet looking at my portfolio now makes me smile, as I held through the ‘bear market’. So, as a seasoned skeptic what made me invest in Bitcoin (as well as some other digital currency assets)?
Firstly, I stopped thinking of Bitcoin as ‘money’. There are a number of elements that create economic value: supply and demand driven by scarcity and the attribution of value by the masses (consensus).
Generations ago, goods and services used barter as an exchange method; eventually barter progressed to more standardised types of value: such as sea shells, or metals/minerals. Why would a chicken be worth 50 sea shells? No reason other than the psychological attribution of humans towards shells at the time.
The Gold Rush is a more recent example: gold does not have more utility than many other chemicals, minerals or metals, yet because of its scarcity, the need for miners to work to obtain it, and the feverous demand at the time, the value rapidly increased. Bitcoin operates via the same principles: we have ‘miners’, a limited supply, and mass market hysteria. Rationally speaking, the utility of Bitcoin pales compared to gold which can be used for all manners of applications, yet a similar phenomenon occurred with gold, whereby it became a store of value, and a symbol of status or wealth.
When it comes to physical money, who is to say that $100 is worth $100? We exchange pieces of paper or plastic and the value only comes from consensus, and governmental affirmation.
While many may ‘crypto loyalists’ may disagree with me, I still can’t perceive Bitcoin as anything more than an excellent store of value and a speculative unit.
Bitcoin, Ethereum and other blockchains paved their way to Stable coins. Stable coins peg their value to real-world assets, such as to fiat currencies. Stable coins are ‘money’ to me: there is a consensus as to how much they are worth and digitising currency proxies will pave way to their use case for payments. I will happily accept a Stable coin payment for goods I sell or services I render as there is a universal consensus as to their value. I would accept Bitcoin, Ethereum or other such currencies if I’m feeling particularly speculative.
My introspective opens up a very obvious insight: perceived value is driven by consensus, even more so than supply and demand. We have lived through times of hyperinflation where the perception of a unit of a national currency has completely transformed in moments.
While Bitcoin may not ever become my go-to currency for purchases, I will continue holding my coins: if there’s one thing I learned after throwing my collection of Pokemon cards from my childhood: scarcity increases value.
Written by Stas: Vice President — Marketing at WadzPay.
Not financial advice.