What's the truth about Bitcoin? Critics couldn't be clearer: it's a fad that can’t decide whether it’s a currency or a speculative investment. 'You’re betting, essentially, on being the last person holding the bomb before it goes off,' wrote Sam Leith on Coffee House. Many others agree. But Bitcoin's critics are wrong: there's nothing faddish about it. Bitcoin is a monetary revolution and is here to stay.
Perhaps it's no surprise that Bitcoin has attracted its sceptics. Understanding what it's about isn't easy. In short, Bitcoin is a monetary network, an incorruptible ledger, with the money supply fixed by code (there will only ever be 21 million Bitcoin). It allows anyone with an internet connection to engage in a transaction that cannot be altered or stopped, with currency that cannot be seized, all without requiring a middleman such as a bank. The good news is that this means it can't be manipulated by governments or central banks.
The typical journey for someone describing themselves as a ‘Bitcoiner’ is that they 'came for the price action, but stayed for the revolution’. After this, defending Bitcoin becomes akin to defending the invention of the wheel. When they understand the benefits of sound money it shifts their outlook on capital accumulation and protection.
The best evidence that Bitcoin captures people's imaginations can be seen in how widely it's been adopted. Around 1.5 per cent of the world's population are estimated to own some amount of Bitcoin, and a lot of those people have held (referred to as ‘hodled’) Bitcoin for a good period of time. The result is that this asset, which was worthless 12 years ago, has a current market cap in excess of $1.2 trillion (£900 billion). Bitcoin is currently jockeying for position as the 13th biggest currency behind the Swiss Franc, which has long been considered to be the most stable currency in the global economy. Who knows where it will rank in the future.
But either way, Bitcoin has become harder and harder to dismiss. This is because it ticks more boxes than any other previous asset. As a store of value it has all the attributes of traditional physical assets like gold: it is scarce, durable, and fungible. However, it also improves on gold: it is divisible, portable, and can't be confiscated. This means that Bitcoin attracts those looking for protection: whether it’s people worried about hyperinflation or authoritarian policies, or large institutions looking to hedge against inflation. Even countries that are pegged to the US dollar, and subject to its loose monetary policy, can see the upside.
Bitcoin is more than just an online asset though; it is designed to be used in much the same way as 'real money'. Bitcoin enables secure real-time payment from anywhere to anywhere. Transactions typically settle in ten minutes, and, with new tools like the lightning network, users can send and receive Bitcoin almost instantly and at little cost. Already retailers are catching on: in El Salvador which recently passed its Bitcoin law, it is being accepted in well-known businesses such as McDonalds, Starbucks and Pizza Hut.
So why are some still so keen to trash Bitcoin? Politicians and regulators say crypto facilitates criminality. Its environmental credentials have been widely condemned. Traditional economists state it is too volatile and has no intrinsic value. The truth is that some of its critics feel threatened by a currency they can’t control.
The inability to print new Bitcoin demonetises the political class by allowing the electorate to choose an alternative currency to store their wealth; while Bitcoin’s proof of work consensus mechanism empowers the productive class. This is what better money does, it takes out the people who are just rent-seeking in our political structure, replacing them with leaders promoting sound economic policy. We are seeing this in the US where government debt is spiralling out of control and a new class of congressmen is making Bitcoin part of their agenda.
In a time of rampant inflation and a widening wealth gap, Bitcoin has become the lifeboat for many. Where Richard Nixon took the US off the gold standard in 1971 to print money to finance the Vietnam war, an army of Bitcoiners is creating a new standard, a Bitcoin standard, as Nic Carter called it 'a most peaceful revolution'.