"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
I've been dealing with Bitcoin since around 2013. One of my businesses offers payment processing with Bitcoin, Ethereum, Litecoin, etc. I'm in the crypto space every day and I've been following it closely for 4 years. I'd like to give my take on the current state of Bitcoin and where I see it heading in the future.
Let's state something important: it's not about Bitcoin, it's about blockchain. There's $100 billion in the crypto currency market right now. That's not going away. It's only going to grow. It may not stay in Bitcoin. It may not stay in Ethereum. But it won't go away. It can't. A decentralized, open blockchain has proven to be a superior technology for commerce.
So while $50 billion is currently in Bitcoin while the other $50 billion is in all the rest of the alt-coins it doesn't mean it will stay this way. Bitcoin is obviously the leader, but nothing is written that it has to come out on top. But taking Bitcoin out is going to require much more than a few improvements here or there. Bitcoin has a lot of infrastructure behind it at this point and that's not going to go away overnight.
Regardless, the important part of all this isn't a certain coin or brand.
The important part of this entire industry is using an open blockchain to allow for decentralized, encrypted value exchange.
Now keep in mind I said open blockchain, not closed blockchain. It's crazy I even have to qualify the word this way but these days the term blockchain has been so abused it's essential.
These days it is becoming increasingly popular for people to throw around the word blockchain without even understanding the important part of this technology. At this stage blockchain is just another buzz word used to entice non-technical people into thinking something is revolutionary. It's no different than terms like big data or encryption or app or whatever else. It's not the technicals of the blockchain I'm talking about. It's not the fact that you store data on a chain that's important. It's the fact that you can exchange value in a decentralized way without any 3rd party to oversee it. The fact that there is no external governance body keeping the trust of the blockchain in tact is the important piece. Instead math and decentralization acts as the mediator between what is true. I wrote about this years ago and people still don't get it.
The point of Bitcoin and the blockchain isn't to create a better financial system mousetrap. It isn't to find a way to cut down costs on transactions in JP Morgan or Citibank. It's to completely replace that industry with something better. And these people know it. They're not stupid. That's why they're trying to hijack the blockchain and create a private, closed blockchain that they use internally. The problem is when you take away the decentralized aspect of blockchain you're no longer left with a blockchain. You've removed the key component of it. You've taken away the value. It's not the data aspect that's improtant -- it's the decentralized encrypted aspect that's important. And you can't both be a financial business and have a decentralized blockchain at the same time.
With this understanding it is important to understand that this technology is not going away and it is here to stay. This technology has still yet to be dialed in to the scale that the Internet has been dialed in to. We're still trying to figure out the best way to do a blockchain and the best way to scale it. There are infinite ways to do it and the best way or ways will start to show over time. We're still so early and there is still a lot that needs to happen in order for this technology to truly shine like the Internet.
As this happens coins will come and go, the same way websites came and went during the dot com bubble. We shouldn't become loyal to Bitcoin but instead to this idea of an open, decentralized blockchain. This is the part that matters most and will continue to survive and grow, with or without the brand of Bitcoin. It just so appears that the Bitcoin brand continues to follow this vision very closely.
It's not only about technology. Litecoin is faster than Bitcoin. In some ways Litecoin is better than Bitcoin. In many ways other coins are superior to Bitcoin as well, at least from a technical perspective. But that doesn't matter. Why? Because bitcoin has all the infrastructure and branding behind it. Bitcoin was first and has many first mover advantages and network effects. Bitcoin also represents extreme decentralization without even having a known creator behind it which many people love.
Bitcoin is so decentralized we don't even know who the hell created it!
One of the best inventions ever created in the history of humanity isn't even credited to any person or group. It's crazy.
I look at it like this: Bitcoin is like 99% perfect. That 1% of stuff that may need some work (transaction fees, block size, etc.) doesn't negate the 99% of value and complete disruption Bitcoin causes to the traditional fiat banking sector. Sure some other coin may be 99.5% perfect, but that doesn't matter. Who cares about going for complete perfection to create a better banking mechanism when we already are 99% there?
Here's the important point: as I said earlier, it is about an open blockchain. The reason this is important is because it replaces the traditional banking industry. This 99% that Bitcoin has right is everything necessary to start to replace the traditional banking industry. As this open blockchain is more easily adopted and used it makes traditional banking institutions less and less of a necessity. We are seeing the decentralization of the financial industry happen. We've already seen it with many other industries.
Look at the news industry. It used to be controlled by a few large news organizations like CNN, ABC, CBS and FOX. Now what is happening? This whole industry is flattening as places like Youtube, Twitter and other social media sites are taking over. Rather than having a few people at the top controlling our news, it has now flattened to where everyday people like you and me are the news. This industry is becoming decentralized and as this happens our quality of news increases. As our choice for news increases so too does our quality.
The same thing happened with education. We used to need to go to schools to learn about certain topics and industries. Now we just fire up Google and Youtube and you have access to any information you want. Education has been decentralized again. College is increasingly less important these days because college doesn't sell you an education it sells you a degree. And these are two very different things.
This exact same thing is happening with banking now. Look, fiat banking is far inferior to an open blockchain. Rather than trying to get Bitcoin 100% perfect, let's instead just focus on replacing fiat banking with crypto banking first.
All the small little details don't matter as much as the giant elephant in our living room: the fiat banking sector controls almost every aspect of our lives.
All the hardcore Bitcoin people know this.
This is why Bitcoin is still so popular even if it has some minor technical flaws -- it has some major technical advancements. And Bitcion, out of all the cryptocurrencies, has the vast majority of energy and capital backing it which is why it is the important movement. This is the true value of Bitcoin and the open blockchain it runs on. Small little technical advantages other coins may have are fairly trivial when looking at the big picture of the scope of what is going on here. The details will be worked out with time.
Moreover, lots of coins perform well at a small level, however, once they start to reach the throughput of Bitcoin they will face the same challenges of not just scale but also politics. Everyone knows small business and small ventures are nimble and can move quick. Once you increase in size it becomes harder and slower to reach consensus and to steer the ship. Bitcoin faces this problem more than any other coin. And that's healthy. And it's healthy for other coins to innovate and evolve the entire cryptocurrency space as well. We want to try everything possible. But we also want to remember the focus. We want to build a better financial industry.
Another obvious part of any business is providing value. For any business to do well it must provide some type of unique value that is useful to the consumer. This is the same for altcoins.
Anytime a new industry emerges there are immediately hundreds and thousands of copycat knockoffs who try to make some quick money before the industry becomes saturated. Some have value, the vast majority do not. We've seen this time and time again in every new industry.
As many people have seen over the past few years, altcoins come and go. Just a few years ago Dogecoin was all the talk. And before that we had Peercoin and Namecoin. Now we see Dash, Monero and of course the new heavyweight Ethereum. Will they stay, will they last? That depends on the value that they provide. If they serve a need that is necessary for people then they will stay. If they don't serve a need they will go.
Most of the altcoins of the past were simply Bitcoin forks that only changed a few variables and then rebranded themselves as a new coin.
Because of this the vast majority of altcoins have fallen away. They didn't have any unique difference to Bitcoin.
That's all Litecoin is, however, since Litecoin was one of the first it is still around and doing well. Litecoin offers like 3 differences to Bitcoin and it is now a unique coin. Bitcoin and Litecoin are 99.9% the same from a technology standpoint. And even though they are similar Litecoin still does offer some unique advantages that give it some value relative to Bitcoin.
When Bitcoin transaction volume spikes it is useful to use Litecoin to send transactions rather than Bitcoin. A Litecoin transaction can complete in a few minutes when Bitcoin transactions are taking multiple hours. Just the fact that Litecoin is on a separate blockchain to Bitcoin is a large advantage to it in many ways. So there are pros and cons to all of this.
What I'm saying is you have to provide value. Altcoins have to be unique. That's why Ethereum is doing so well right. That's also why Ripple is doing well. I don't even like Ripple, but I get what it's doing and I get its role. Ethereum and Ripple are not Bitcoin forks. They are completely new thought out blockchains that differ from Bitcoin much more than the other altcoins. And as such it is no accident that they are the 2nd and 3rd most popular coins by market cap.
Ethereum takes the idea of Bitcoin and says, okay let's open the blockchain up and use it as a value API that anybody can do with it what they want. Let's use a blockchain for more than just currency. Let's use it for anything you can come up with. This is something that people see as valuable. And Ethereum is still really early. People haven't even fully wrapped their heads around a blockchain for currency, so a blockchain as an API is way down the road. But it has unique value and that is why it is so popular.
Ripple takes a turn to the dark side, so to speak. Ripple goes more the closed blockchain route. Ripple is like a bridge between Bitcoin and the current fiat financial sector. I'm not a fan of this type of movement, but I do see the value in people working on this type of project. It's obviously providing some type of value as it is currently the 3rd most popular altcoin. Sometimes the best value is simply not being a 99.9% knockoff of Bitcoin. At least Ripple is doing things their own way.
When looking at a coin and the future of Bitcoin we have to look at the utility. What is the use? Does it fulfill a need? Does it make our lives better? When looking at Bitcoin the answer is still a resounding yes. Bitcoin provides so much value that the traditional banking sector doesn't. And because of this Bitcoin and the open blockchain it exists on will continue to grow.
Many people are loyal to bitcoin because it's their crypto-gold. People use bitcoin as their savings account because they know it is the most stable and safest cryptocurrency. This is a big reason on why Bitcoin continues to grow.
Bitcoin is the gold of the crypto world.
While Bitcoin is still highly unstable, relative to all the other cryptocurrencies it is the most stable. You stash your funds in Bitcoin and you at least know it's not going to hit 0 the next day like lots of the other coins may.
Because of this people have a hard time getting away from the brand of Bitcoin. If there is something fundamentally wrong with Bitcoin people aren't going to want to walk away and dump their savings into another coin because it is less secure and more risky. If a better version of Bitcoin comes around people are going to be hesitant to jump ship because of the current safety they have with Bitcoin. And it's going to take a lot to get people to abandon Bitcoin in this way.
In this way Bitcoin holds a similar position to gold in the precious metals market. Bitcoin has the longest history and it has been the safest cryptocurrency. It continues to grow each year. In order for this to change there is going to need to be another coin that can replace this role and that is a huge undertaking. It's possible, but only if Bitcoin royally screws up.
This brings us to the latest fork on Bitcoin which happened on August 1, 2017. A new coin split off of Bitcoin on August 1 called Bitcoin Cash, or Bcash, BCH, BCC. This alternative version of Bitcoin brought with it a few changes that some people found useful while other people did not. The interesting story with this is not so much the technicals but how the network effects of Bitcoin played into all this.
Bitcoin Cash started out around a $5 - $10 billion market cap. To somebody not in this space this probably doesn't mean much. The entire cryptocurrency market is around a $100 billion market cap. Bitcoin controls about 50% of the entire crypto space at around a $50 billion market cap.
Bitcoin cash started out around 10 - 20% the size of Bitcoin.
How can this make any sense? Bitcoin spent over 8 years building trust, loyalty and capital behind it and now some fly-by-night fork comes along and is equal to close to 20% of that value? It just doesn't make any sense to me. You have to pay your dues just like Bitcoin and all the other coins have done and start at the bottom. You don't start out 1/5 the size of Bitcoin overnight. You start out at 0 and work your way up.
What other new alt coin starts out this high? Every coin worth anything has had to grow slowly as adoption grows. Ripple didn't start here. Ethereum didn't start here. And Bitcoin most certain didn't start here. They all started at 0 and worked their way up.
You can't create value out of nowhere. Simply forking Bitcoin doesn't create value. If we fork Bitcoin 100 times you're not going to create 100 times the value of Bitcoin Cash. There is only so much value to go around and doing a copy/paste like many of the altcoins do doesn't create magical value. That's not how it works. Or if it is that value has to deplete the value somewhere else.
If Bitcoin Cash really is better than Bitcoin then it will show over time. But we have to remember many of the advantages that Bitcoin Cash is supposed to bring already exist under other coins. And many of the technical advantages don't mean much if we're talking about being 1% better when the 99% is what is carrying the weight for Bitcoin. Again, the small technicals don't matter that much. I know engineers and nerds like to get into that kind of stuff (being one I would know), but the entrepreneur side of me knows it doesn't matter that much. You have to look at the big picture.
Now don't get me wrong, I think it's great to see competition and I think hard forks are great. I'm in no way opposed to any of this. Freaking test every angle you can, throw as much dirt as possible at Bitcoin, do everything you can to break it, all this does is make it more antifragile. We need to keep testing all possibilities to arrive at the best final product. But in doing so we're going to always need to revisit reality and the fundamentals of what is going on. We're going to need to look at where the value is and what the value is. We're going to need to look at who's using what and why.
The Bitcoin Cash fork created a unique scenario that the Bitcoin world had never seen before. It was almost like the early days of Bitcoin where people didn't fully know what to expect and there was lots of emotion going around on both sides. Because of the way the fork worked on Bitcoin Cash it gave everyone this currency as soon as it started. Rather than people starting with balances at 0 like most cryptocurrencies, this one had people starting at some amount because it used all previous Bitcoin funds. In this way everyone who held Bitcoin prior to the fork also held that same amount in Bitcoin Cash. So if you held 1 BTC word around $2700 prior to the fork you still held that 1 BTC worth $2700 after the fork + you also held 1 BCH worth ~$400 after the fork. You basically got value for doing nothing.
Now I don't know about you, but most people have a very high time preference, even in the crytocurrency world. Most people would rather have something now than more of something later. Most people want instant gratification.
And when you give people the opportunity to make like 10 - 20% on their money instantly with very little downside they are going to take it.
And that's exactly what happened and will continue to happen with Bitcoin Cash.
Most people who follow Bitcoin closely knew that Bitcoin would remain safe and stable and that even if Bitcoin Cash recovered it made sense to dump it while it was overvalued. BCH/BCC may be a viable currency into the future, but that remains to be seen and will take a lot of time and use to get there. You can't get there overnight and people know it. This is why so many people sold off. If you're comfortable with your holdings in BTC then why not move your BCH there also and take a nice little 10 - 20% bump on the way?
It's no coincidence that BTC reached an all time high the same time BCH was tanking. Everybody sold BCH for BTC -- at least all the people who controlled their Bitcoin and who had a little bit of technical knowledge on how to trade it. The next wave of selloffs still hasn't fully hit, however. Many of the big exchanges still don't accept deposits in BCH and many people still haven't claimed their BCH.
Coinbase has announced that by 2018 they will give everyone access to their BCH coins. At this point do you think people are going to sit by and take the risk of BCH going up in the future or do you think they are going to realize their free money immediately? Even if the price is $100 or even $10 USD, people are still going to say that's better than nothing. And it may be. So we will see another wave of selling happen with BCH once more people have access to the ability to do it.
And it's kind of a sad reality that this is the nature of the fork. When you start with everyone having value and a valuation at 10 - 20% that of BTC you can only expect this. If the value of BCH started at 0 you wouldn't see the sell off that you saw and it may actually be able to grow in a more natural and organic way. But with every BTC owner instantly owning BCH it was and is just too enticing to pass up the opportunity to make a quick buck.
So what does this mean for the future of Bitcoin? Well it means lots of great things. Even with this recent fork the price of Bitcoin has only continued to increase to a new all time high. Bitcoin truly is the honey badger of money -- the more crap you throw at it the better it does. And this is what you would expect. When you have an open source software project that faces stress factors from all angles on a daily basis it is only going to increase in strength, not decrease. Bitcoin has a long road ahead and will continue to face many twists and turns. But so far every challenge for Bitcoin has only made it that much stronger.
I'm also saying the main focus shouldn't solely be Bitcoin, at least Bitcoin the coin. The focus should be Bitcoin the idea. And that idea is a decentralized, open blockchain that allows for value exchange. Whether this takes place under the coin of Bitcoin or something else ultimately is inconsequential. As long as the project remains open source and decentralized it will grow into something beautiful. And that my friend is the true value. When most people who understand Bitcoin talk about Bitcoin they are really talking about this open blockchain. It's not about where Bitcoin goes -- it's where this blockchain goes. And that may or may not be with Bitcoin.Filed under: Internet / Tech, Bitcoin, Good Ideas, To The Moon, But what is a hash?, I use coinbase for that