FG Trade
Thesis Summary
Bitcoin (BTC-USD) is described by many as a speculative asset with no practical use. However, there is plenty of evidence to the contrary. Bitcoin is already a currency, and it has the right ingredients to be a store of value. On top of that, there are many other ways in which Bitcoin is adding value and many more that will arise in the future, thanks to the robust ecosystem being built on the lightning network.
What many don’t seem to understand, is that Bitcoin is a living and growing system, with over 50 years of rich history. Our understanding of Bitcoin has to be dynamic, which is why it is so important to appreciate the latest developments that are happening in Bitcoin.
Bitcoin is not just a currency anymore, but an asset that gives you access to a growing ecosystem.
Bitcoin: A Rich And Unknown History
When Bitcoin first started, it was nothing but an interesting technology. Engineers and those with the necessary programming skills could easily mine this digital currency, which traded for pennies. Bitcoin was nothing but a fun novelty.
Though Bitcoin, as we know it today, came into existence in 2008, there is a rich prehistory to the cryptocurrency. Numerous papers and projects have been published since as early as the ’70s, each expanding on the prior work, in order to finally arrive at Bitcoin.
Bitcoin Prehistory (BitcoinTalk)
In 1976, “New Directions in Cryptography” laid down the foundations for the application of cryptographic keys in computers. In 1989, Digicash was founded, which essentially provided cryptographic payments, though the company went bankrupt in 1998. Other similar forms of digital currency appeared afterward like CyberCash and E-gold in 2006, Liberty Cash succeeded in popularizing a Centralized Digital Currency, but it was shut down by the US government in 2013.
Finally, in 2008, Satoshi Nakamoto published the Bitcoin Whitepaper, “A Peer-to-Peer Electronic Cash System ”. Due to its decentralized nature, Bitcoin managed to avoid bankruptcy and regulatory shutdown and succeeded where its predecessors had failed.
Bitcoin as a Means of Payment and Store of Value
As we can see, it took decades for Bitcoin and blockchain/cryptographic technology to evolve from a simple idea to an actual working currency. In the 14 years since the first Bitcoin was mined, the cryptocurrency has grown to become one of the most valuable assets in the world, with a market cap of over $400 billion as of today.
Bitcoin detractors are quick to point out that Bitcoin has no real-world use beyond speculation. This might have been true in 2008, and it was even more true in 1970, but as I write this today, the fact that Bitcoin is, at the very least, an accepted form of payment is undeniable.
The world’s premier cryptocurrency is accepted by numerous corporations, has been used by individuals to buy houses or cars, and is even recognized as the official currency of a country.
The proof is in the pudding, and the argument for Bitcoin adoption is no longer relevant. It has been adopted, and it is doing what a currency is supposed to do. People around the world know that if they can receive Bitcoin, they can then use this Bitcoin to purchase the things they want. They may need to sell the Bitcoin for fiat currency, but this can be done nearly instantly,
However, the more nuanced point behind the concerns of anti-Bitcoiners might be that, while people are happy to trade it now, it will not hold its value in the long run, making it inefficient to use in trade.
Without going into too much detail on a subject that I have covered here before, Bitcoin has all the right ingredients to act as money and a store of value. It has a limited supply,
it is not controlled by anyone, and it can withstand the passage of time. The only real obstacle to Bitcoin becoming a store of value was adoption, and that hurdle has been crossed.
At the end of the day, anything can act as money. In olden times it was precious rocks, in prisons it’s tobacco, and in El Salvador it’s Bitcoin. The real question though is, what more can Bitcoin do for us?
Bitcoin Can Be More Than Money
Now, on the other side of the spectrum, there are also those who understand the advantages and benefits of cryptocurrency but are skeptical about whether Bitcoin is the best cryptocurrency out there. These people believe the utility of BTC is limited because it was designed with the sole purpose of being a currency. However, thanks to the lightning network, Bitcoin is quickly becoming an ecosystem that can also support a wide variety of applications.
The key to unlocking the next “stage” of the BTC utility, is the full utilization of the lightning network. The lightning network is a layer 2 payment protocol working on top of the Bitcoin blockchain. It enables faster transaction speeds, by allowing Bitcoin transactions to be settled off-chain, therefore taking strain away from the Bitcoin blockchain.
The chart below shows how the lightning network’s capacity has grown in both BTC and USD terms.
BTC Lightning Network Capacity (BitcoinVisuals)
As we can see, activity in the lightning network has greatly increased in BTC terms, even as prices have been falling. The lightning network has been adopted by various exchanges and applications such as Square (SQ)’s CashApp, and it is also used in El Salvador.
There is a wide array of apps being built on the lightning network. For starters, wallets like Electrum and Phoenix enable the self-custody of various cryptocurrencies and instant transactions.
Another interesting use case that has emerged is node management. Terminal helps node operators manage liquidity. There are also apps like Bitnoder, which allow running a node-as-a-service.
There are also interesting apps being built in the sectors of gaming and entertainment. An example of this is Fountain, a podcast that allows both listeners and creators to earn Bitcoin in the process. In gaming, we have THNDR Games, which is designing various Android and iOS compatible play-to-earn games.
Overall, there are over 100 apps currently operating in the lightning network.
Bitcoin Apps (Arcane Research)
My point here is that Bitcoin is now entering the next stage of its journey. In the last 14 years, it has achieved the status of currency, gaining worldwide support and acceptance. Now, it’s Bitcoin’s turn to prove that it can indeed be much more than a currency. Thanks to blockchain technology, Bitcoin can lay the foundation for a new financial system. One that is decentralized, has no barriers to entry and is truly free and democratic.
Other Considerations
It is true that Bitcoin’s ecosystem still pales in comparison to Ethereum’s (ETH-USD) network. The latter has many more apps and developers working on it. However, ETH is a general-purpose blockchain, while BTC is more focused on payments. In the end, this will make the Bitcoin network more focused and robust, with fewer apps of better quality.
Bitcoin will always have to compete with new technologies and cryptocurrencies, but it is thanks to its strong foundation, rich history and worldwide adoption that I believe Bitcoin will be able to remain the most valuable cryptocurrency.
The other big hurdle Bitcoin faces is, of course, regulation. The control over currency gives countries a lot of power, and a system based on Bitcoin would take this away from them. This is why countries are mostly opposed to crypto and are trying to pass legislation to control or even limit its use. In the past, projects like Liberty Cash were shut down by the government. But this is why Bitcoin’s decentralized nature is such an important characteristic. Bitcoin can’t be shut down from a practical perspective because no one controls it.
Closing Remarks
When it comes to understanding cryptocurrency, the first fact we must accept is that there is no such thing as a perfect currency. Even in today’s “advanced” monetary systems, currency crashes and instability occur. Fiat currencies depend on the strength of the governments behind them, and it would be hard to deny the idea that political organizations have become more fragmented and less cohesive in recent years.
Bitcoin may not be perfect either, but it does not rely on outside forces. This, combined with its revolutionary technology, are what has allowed Bitcoin to earn a spot in today’s world as a respected and accepted form of payment.
Now, with the hurdle of adoption mostly behind us, and the power of the lightning network, we are ready to take the next step in the Bitcoin journey. We are now ready to fulfill Bitcoin’s promise of a worldwide decentralized banking system.
This is why I believe it is so important today to gain exposure to Bitcoin. Not only because of its potential price appreciation but because Bitcoin can now be used in a variety of different ways. Your Bitcoin will give you access to a whole new set of applications, and it can even be used to gain passive income by running a node or even lending it out.
The utility of Bitcoin will just keep increasing exponentially as more people realize this.
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