The end of 2020 is an incredibly dynamic period for the bitcoin cryptocurrency network. In many ways, it is the most dynamic month that this cryptocurrency ever saw since it began working over a decade ago. The price of the BTC token continues to grow, while a constant flow of tokens from this digital currency is leaving exchanges on a daily basis. Furthermore, new bitcoin whales or investors who buy a huge among of coins for millions of USD is becoming more and more frequent. However, beyond the same buying frenzy that is spilling over into the general population, the question remains – how does the bitcoin network actually work as a tangible entity in the real world?
The same issue quickly moves into different ideas, all related to the same core question. This includes the problem of whether or not bitcoin should be labeled as money, or is it better to label it as technology. When it comes to its storing of value, many still cannot define if it works like some sort of digital gold or does it works like e-cash concepts that are several decades old. Yet, while some circles struggle with these issues, others are putting out bold claims about the future value of a single BTC token. Even now, some are sharing estimates of figures like 400,000 USD for only one BTC token. In that confusing atmosphere, it is useful to revisit all of the fundamental concepts of this digital asset.
Basis of Bitcoin Economy
The history of the bitcoin network began 12 years ago, back in 2008. It was then that a white paper came into being made by a pseudonymous founder called Satoshi Nakamoto. In this paper, he described the intent of creating a completely new money protocol. He labeled bitcoin as a proof-of-concept tech that functions solely as a peer-to-peer alternative to electronic money, which has been in use for decades, thanks to the internet. He also described BTC tokens as a decentralized payment mechanism without any third-party intermediaries like credit unions or banks that are otherwise necessary for facilitating any kind of monetary transmission.
With bitcoin, the ability to move this digital cash around would be a feature of the very network that supports it. If this was not revolutionary enough, the white paper also presented a system that would ensure that no government agency or any external factor could affect the monetary supply inside of the closed bitcoin network. Today, financial scholars define the same system as a design that was created to oppose the government-issued paper fiat money, and the central banks that regulate and enforce its policies. That aim was secondary to most users, who caught on with the network because of the benefits it brought them.
Digital Gold Principles
With the white paper, Nakamoto also describes that the value of bitcoin should be that of gold. This metal has been long perceived globally as a store of value, starting with ancient times. The qualities that gold brings are numerous, but the most important ones are its fungibility and natural scarcity. While bitcoin as a purely digital concept does not have many of these physical factors – or any physical element, for that matter – it still managed to recreate some characteristics inside of a virtual environment.
Nakamoto explained this by saying that BTC miners who expend electricity and CPU time would mimic physical miners who dig through the earth to find gold. In return, just like real-world miners, these would attain a portion of the riches they dig up, but also enforce the transactions of the network for other users. Yet, the comparison to gold also found traction among other groups, especially those who were looking for conceptual alternatives to the present financial ecosystem. That is why free-market thinkers, schools, and movements almost unanimously support bitcoin as a part of their own ideology of freedom and lack of regulations.
Economy and Free Money
The so-called free-money economics is nothing new from a historical perspective. Two schools of thought developed it over the decades and these are the reasons why the same economical principle survived and even thrived. The first of these is the Austrian school and then the second one is the Chicago school. Both are often quoted by supporters of bitcoin as an ideological drive to create money away from government input or control. From these schools rose the theory of value, which stipulated in its basis that no service or goods hold any intrinsic value.
That approach to money allowed for a range of experiments where non-government entities created proto-money, which carried some value in a particular group. Bitcoin managed to take that to a whole new level and in a few short years transcended the experiment stage and began to actually work as a real carrier of financial value. Today, in the world of esports and many other purely digital ventures, the presence of bitcoin no longer feels like any kind of test or trial process. Instead, it is a set value in a world that is constantly online and interconnected. It is also a means of holding and distributing money that bridges any border or country’s financial regulation with ease. That is a kind of service that does not need any additional promotion for people to begin to get interested and gradually turn into active users.
Records and Future Prospect
The global COVID-19 coronavirus pandemic definitely aided the process of bitcoin’s ascendance. That can be seen in the fact that other cryptocurrency networks, like ethereum for example, are not getting anywhere near the push that BTC is attaining. Instead, ETH is at some 50 percent of its record value that the network set back in 2017. But, even that is nothing new, as previous massive and turbulent events, like the election of Donald Trump or the Brexit vote, also underlined the usefulness of bitcoin and crypto in general during times of crisis.
Because of this, the possibility of a sharp fall in value, like the one the world saw in 2018 could very well come back again in 2021. In fact, it is difficult to imagine a world where bitcoin keeps growing in value over the course of the next year, despite the fact that some see astronomic potential prices for bitcoin in the next decade. But, as the previous exposition shows, the value and the fundamentals of the network are going to be there nonetheless.