Earlier this week, Bitcoin soared past the $6,000 mark before pulling back. The general response to Bitcoin’s surge has been mixed, as the cryptocurrency has remained an object of contention, particularly since it became the most capitalized currency among its digital competitors. Now, that contentiousness seems only to be increasing as investor capital continues to pour in. Despite the negative discourse surrounding Bitcoin, that is, despite this dismal backdrop of “expert” naysayer opinion, Bitcoin’s upward momentum seems unabated.
Interestingly, Bitcoin’s “price” is not the only thing exhibiting extreme fluctuations. Professional opinion on Bitcoin’s “legitimacy,” as a store of value or medium of exchange, seems to be fluctuating as well; mirroring the kind of volatility characteristic of the currency’s price action.
Overall, it seems difficult to assess the fundamentals of an object whose potential, short of any real historical comparison, is driven by an ambiguous mix of free-market “principle,” practical experimentation, and speculative fervor.
Is Bitcoin in a bubble? Perhaps. But that’s a reasonable short-term guess. Will Bitcoin (or cryptocurrency in general) be the future of money? I think that’s what all of us are in the process of discovering, whether actively as a participant or passively as an observer.
Steve Wozniak, who sees in Bitcoin an asset superior to both gold and the U.S. dollar, bases his belief on “scarcity”—an important characteristic of money–and the smooth deceleration of its mathematical coin-mining process. Superior to gold because Bitcoin’s hard limit (21 million coins) and its mining deceleration are both known and observable. The gold extraction process, on the other hand, may increase as mining technology improves: “Gold gets mined and mined and mined,” Wozniak states. “Maybe there’s a finite amount of gold in the world, but Bitcoin is even more mathematical and regulated and nobody can change mathematics.”
Bitcoin’s superiority to the dollar, according to Wozniak, is based on the very fact that Bitcoin can neither be manipulated not diluted; this making Bitcoin it “more genuine and real” than the dollar, which he considers “kind of phony.”
Wozniak also sees great potential in blockchain technology; the digital ledger that facilitates Bitcoin’s (and other cryptocurrencies’) function. Aside from its transactional usage, blockchain technology can engender a diverse range of other technological applications (such as “smart contracts”) across multiple industries.
Peter Thiel, though skeptical of most other cryptocurrencies, sees Bitcoin’s potential as a reserve: “It’s like a reserve form of money, it’s like gold, and it’s just a store of value. You don’t need to use it to make payments.” He continues, “If bitcoin ends up being the cyber equivalent of gold it has a great potential left.”
Like Wozniak, Thiel notes the increasing difficulty of the mining process: “Bitcoin is mineable like gold, it’s hard to mine, it’s actually harder to mine than gold. And so in that sense it’s more constrained,” he said.
In contrast to the expert naysayers, many of whom have solid arguments against the use of cryptocurrency as money—namely, that a digital currency has no intrinsic “commodity” value as compared with tangible assets such as gold and silver—both sides, those who are for and against, can at least agree that Bitcoin’s scarcity, privacy, and transactional efficiency makes it a reasonably formidable contender to the US dollar or any other non-backed fiat currency.
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