“Bitcoin has no unique value at all. It’s a delusion, basically.” Stepping into cryptocurrencies for the first time and seeing quotes like this, it’s logical to feel confused. How can one person completely dismiss Bitcoin, while others seem to immediately see its uniqueness? As a beginner, when you’re met with both extremes of the Bitcoin debate, it’s natural to ask questions like: is Bitcoin, in fact, a scam? What about other cryptocurrencies?
How can I reliably sift through the noise when some reports indicate that over 400,000 cryptocurrency scams surfaced over the past years? Truthfully, it all starts with understanding the fundamentals. In Bitcoin’s case, that means breaking it down to the single, absolute basic element that makes it worthwhile, which is what we’re here to do.
To understand why Bitcoin isn’t a scam, it’s important to start with what it improves upon. Before Bitcoin, all money and all assets, worldwide, were centralized. That means: controlled by governments, stock exchanges, companies, and other organizations, allowing for the manipulation of their supply at almost any time.
If you’re wondering right now why that matters to you, it’s simple.
In the traditional financial system, you never own your money. With Bitcoin, you do.
It all comes down to self-custody.
When you buy any amount of Bitcoin, you have the option to hold it in a “cold-storage” wallet, which is a USB-device that acts as a bank account for you, run by you. Any time that you hold your crypto there, it’s offline and can’t be moved by anyone except you.
You actually own it, contrary to the funds in your traditional bank account, which a bank can move.
Self-custody is a powerful value driver for all cryptocurrencies, but it’s not the only one. If you’re still not convinced that Bitcoin and by extension, the crypto space have value, keep reading!
Alongside self-custody, there’s the value of each and every decentralized network, like Bitcoin. Because a horde of users all over the world expend computing resources to secure the Bitcoin blockchain(a database run by all miners), the network itself has value.
Think about Facebook for a moment.
How did it reach a $104 billion valuation at the date of its initial public offering?
It all comes down to users.
Just as the people who make profiles and share information on Facebook make it valuable, those who store data, run transactions, and secure Bitcoin make it valuable. In a sense, you can think of both as platforms, though the latter isn’t owned by any single person or entity.
Instead, its growth occurs solely through collective usage. Consequently, platform economics apply. The more users Bitcoin retains, the more valuable a Bitcoin is over the long-term.
Consider the fact that Bitcoin has gained users every year since it launched, while maintaining a yearly average return-on-investment of 154% since 2012. Now consider the fact that most researchers agree that Bitcoin users still make up far less than 10% of the world’s population(including 17% of the USA’s population) and it’s still sitting at above a $600 billion market cap.
With those numbers in mind, together with the framework of platform economics(users=network value=coin value), it’s hard to write-off Bitcoin as a scam.
Won’t Bitcoin just fail when new users stop buying it? Is it really backed by anything? Since 2009, Bitcoin’s critics have been repeating these same ideas over and over, including today and the answers to both questions have always been the same.
No and Yes.
Bitcoin isn’t a Ponzi scheme because it doesn’t pay old investors with the money that new investors put in, plain and simple. Bitcoin gains value chiefly due to its decentralization, its network growth(as mentioned above), its security(measured through hash power), and the “digital gold” narrative.
Just as Gold is a scarce, valuable commodity, Bitcoin fills the same mold with the added elements of decentralized, self-custody, and endless portability. Unlike gold, which is a heavy metal, Bitcoin exists only digitally, therefore it can be sent anywhere, any time, to anyone, in a matter of moments with ease.
Above all of this, however, the term “digital gold,” serves as a reminder that Bitcoin is a store of value that has so far encompassed gold and all other assets in terms of its’ consistently high, long-term ROI. Last year, in the midst of falling interest rates and an uncertain global climate, gold gained 25.6%, while Bitcoin posted an ROI of over 300%. Whether or not that will continue at such a rate when the world rights itself remains to be seen. Even so, through zooming out to a multi-year timeline, it becomes instantly clear that Bitcoin has consistently followed the narrative of a better store of value.
It all comes down to a lack of understanding plus powerful volatility and the occasional well-known investor or investment firm that feels as if their holdings are threatened by Bitcoin’s rise.
To show the world why Bitcoin matters, it’s important that crypto firms dedicate themselves to educating investors of all levels, especially newcomers. Just as with the rise of the internet, critics will remain for years to come and they will be loud. The only way to answer them effectively is with facts and understandable comparisons as we’ve done here and do in all of our content.
In the end, not everyone will believe in Bitcoin and the crypto industry. Those that do will be willing to step outside of what they’ve always known and consider a new way of looking at time-tested systems.
This text is intended to inform and is not an investment recommendation.
