Bitcoin represents one of the greatest tulip stories in modern history. In fact, in terms of the multiples of starting price, Bitcoin has surpassed tulips themselves. The10-year returns are still phenomenal, and for that matter, two-year returns are impressive, Bitcoin has conceivably entered into an irreparable downward spiral. Bitcoin’s return for 2018 is over-200%.
I don’t possess the temerity and arrogance to pronounce the end of Bitcoin, but it’s lost its place in my portfolio. The appeal of Bitcoin is decentralization. A banker and the government don’t have the capacity to determine the wealth of anyone who holds or earns Bitcoins in the same way they do with someone who holds and earns fiat currency, the currency under their control.
While seniors find the value of their life’s savings deteriorated with inflation, the most potent question to ask is where that value went? To the bankers and to the government, all too eager to print money for their own gain while the rest of us suffer the consequences.
Decentralization is still a reality, but it doesn’t appear to be manifesting with Bitcoin. It suffers from an immense setback in terms of migrating to it as a currency – the number of transactions it can do per second and the duration of a transaction.
A series of ledgers, debits, and credits, is recorded in a block (a blockchain is a series of blocks). The block creation period is about 10 minutes, and given that it’s unlikely someone will wait 10 minutes after they’ve filled up their car at the gas pump, Bitcoin as a mainstream currency doesn’t appear to be happening any time soon.
Other currencies have attempted to solve this issue. The coders of Litecoin used a simpler script, and so they can create blocks much faster. It’s still at 2.5 minutes per transaction, which isn’t feasible for most businesses.
The other issue is that of transactions per second. Bitcoin was only able to process 7 transactions per second (although a recent upgrade improved this somewhat). Litecoin is able to process 28 transactions per second. Ethereum can process 30. Bitcoin Cash can process 228. Meanwhile, Mastercard can process 24,000.
Ripple appears to have made some gains in this area. They can close a ledger in less than 4 seconds. They can now process 50,000 transactions per second. They have landed numerous mobile payment contracts. In terms of migration, Bitcoin was first to market, but they’ve been outperformed by Ripple.
Further, the technology that’s being developed by these blockchains is going beyond Bitcoin. Austria is using Ethereum to issue $1.35 billion in bonds. A U.K. bank used the technology to reduce the cost of bond issuing from £30,000 to £50. Tron recently handled Fifa’s betting contract. Smart contracts are cost-effective, quick, and easy to use.
Privacy was another issue. One of the initial appeals was that you could operate with a wallet number rather than a name. The investigation into the U.S. Russian hacking revealed anonymity wasn’t available with Bitcoin. Other privacy-based coins, such as Monero, Dash, and Zcash, have solved these issues for now.
Bitcoin represented one of the greatest leap forward in human history. Predatory banking causing frustration goes back to Christ Himself. Banking has been used to finance unjust wars. It’s used to rob people of their life savings so that the rich can get richer. Though one might have an emotional attachment to it, sometimes it’s necessary to sell the first home you buy because greater things are on the horizon. There are other cryptocurrencies that are set to take over where Bitcoin left off.
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