Bitcoin is here to stay as a medium of International currency, writes EstateBaron.com founder Moresh Kokane – which means its price rally is only just getting started.
Bitcoin has been scaling new heights. Every day brings a new frenzied headline, $8000, $9000, $10,000 ! There are a few hiccups but the upward climb is relentless and accelerating. Old salts are ringing up memories of Tulip bulbs and the dot com era. But as the numbers keep climbing, even more heads are turning and the warnings of a spectacular crash are becoming more dire than ever.
But what if we are on the verge of something that has never been seen before? What if this represents a tectonic plate movement in how finance is done? What if this was not a bubble and was actually the real deal?
Let’s go down the rabbit hole!
While I have an issue with the spike and frenzy surrounding Bitcoin prices, lets take a step back to understand what value does Bitcoin actually have. Typical government issued fiat currencies are no longer tied to any assets like Gold. The US dollar broke its link with gold in the early 70s.
So what is the US Dollar worth? And is it worth anything because now it is not backed by anything? So why do we continue to use it, and other government issued fiat currencies?
Well the answer is, it is worth something because we all believe it is worth something. We have “faith”. And it continues to hold value because we all continue to believe that everyone in the network (in this case the country) will accept that currency as a medium of exchange.
The minute this belief is lost we have a Weimar republic or Zimbabwe situation. Its our belief that upholds the currencies value (a bit like belief in God, but that is a whole another topic).
Extending that same logic to bitcoin, the wider its number of participants becomes the more valuable the coin should be. Utility and acceptance by merchants will eventually follow. So I would pay close attention to the bitcoin userbase. And as the media attention keeps coming expect more people to jump on, which means this rally is only getting started.
Bitcoin has value because the participants in its networks believe it has value. More the participants, more is the value, as it represents more participants in a future bitcoin enabled economy. And as opposed to fiat currencies bitcoin has a predefined rate at which it will be created and cannot be tampered with by a central authority looking to print money.
Unlike tulip bulbs, the Mississippi company, or the dot com era, bitcoin is supposed to be a medium of exchange and not an investment by itself (although a lot of people use it as an investment). As the number of bitcoin holders grow, merchants will be incentivized to accept bitcoin as a payment mechanism. New applications will be built on top of bitcoin as it will have a ready clientele of interested customers.
This is going to lead to a virtuous cycle last seen in the Apple App store. More eyeballs means more offerings, which in turn drives more eyeballs. Bitcoin is here to stay and despite temporary setbacks, expect its price to keep going higher.
There are other challenges with bitcoin which threaten to devour it from the inside, I will write about it in the next article.