With Bitcoin prices back up high, people are again variously hyping or disparaging cryptocurrency. I don’t often see moderate takes on the technology, probably because it’s extremism that gets attention, but I thought I’d share my take.

Should Bitcoin Be Valuable?

I agree with the many skeptics that Bitcoin cannot be a currency. The value has always fluctuated greatly and had long periods both inflation and deflation. Denominating prices or contracts in Bitcoin injects a lot of risk into a transaction due to this volatity. For now, this is a non-starter.

But, Bitcoin can replace gold as an asset. Yes, gold has industrial uses that Bitcoin mostly does not (setting aside timestamping value of the blockchain), but Bitcoin, assuming the protocol and code is secure, offers an asset that is definitely finite: there are at most 21 million Bitcoins. This provable scarcity alone has some value. Since Bitcoin is more convenient to hold and transfer than gold, it could take over much of the role gold and other metals play in investment. At the end of 2019 there was about 198k tonnes of gold mined, about 77k tonnes in investments and holdings, which could be valued at about 5 trillion USD. If Bitcoin gets 10% of this market, you would expect a Bitcoin to be worth about 24k USD (close to current values). …

About

P. Oscar Boykin

Machine learning, Programming, Hadoop, Scala.

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