If you browse the internet or spend any amount of time on social media, chances are you’ve heard the term “Bitcoin” at one point or another. If you haven’t, don’t feel bad, there’s still plenty of people who either aren’t familiar or simply don’t know exactly what this new phenomenon truly is.
What is Bitcoin?
Bitcoin is the world’s first cryptocurrency and is referred to by many as ‘digital gold.’ Cryptocurrency by definition is a digital asset Enoch purpose is to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in the form of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.
A History of Bitcoin:
Bitcoin is a decentralized entity where one can send cash to another person without a middleman and is in fact a digital currency that was birthed as a direct product of the 2009 housing market crash. The stock market crashed in 2008 because too many people had taken on loans they couldn’t afford. Lenders relaxed their strict lending standards to extend credit to people who were less than qualified. This drove up housing prices to levels that many could not otherwise afford.
After the market crash began, a financial crisis ensued. Americans yearned for a new system of money that would not have the shortcomings of regular currencies —. Something that was out of the control of the government and banks. Enter Bitcoin. Following the market crash, banks lost people’s money and, as a result, their trust in banks at all. To resolve this distrust the Government printed more money, which, in turn, reduced the value of money already in circulation in the country. Since there was no maximum limit placed on the amount of money that could be printed by the Government, there was always some unpredictability and uncertainty regarding the decrease in the value of people’s money.
Bitcoin solved this problem by fixing the maximum number of Bitcoins that could ever be in circulation and creating a steady rate at which new Bitcoins would be produced. The maximum number and the rate of production cannot go beyond the set limit because of the coding used in its design.
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Bitcoin was created by the mysterious and pseudonymous, Satoshi Nakamoto. There isn’t much information about who Nakamoto exactly is or what the motives are behind the creation of Bitcoin, but his creation has taken on a life of its own that has netted, as of August 2019, 17,971 Bitcoin millionaires — each owning more than $1 million worth of Bitcoin.
Bitcoin uses a method referred to as the ‘Proof-of-Work (POW)’ model. PoW describes a system that requires a feasible amount of effort to deter malicious uses of computing power, like sending spam emails or launching denial of service attacks. POW was first known to be adapted to money by Hal Finney in 2004. Following its introduction in 2009, Bitcoin became the first widely adopted application of Finney’s idea. It should be noted, Finney was also the recipient of the first Bitcoin transaction. Proof-of-Work as the basis of many other cryptocurrencies as well (yes, there are others).
Another question a curious person may ask is “who is buying Bitcoin?”
While millions of people are investing today, older individuals are drawn to Bitcoin because they’ve had the opportunity to accumulate wealth. It’s important to note that there will only be 21 million Bitcoin produced in the world.
This is an unprecedented time in the macroeconomy. The Federal Reserve has cut interest rates to 0% for the foreseeable future. The stock market is at an all-time high, and nobody can really justify why other than the fact that the Federal Reserve is printing trillions of dollars in money per year.
Once digital currencies receive mass adoption we will see at least 1% of everyone’s 401k, Roth/Traditional IRA etc. Stimulus packages in 2020 have totaled to about 3 trillion dollars thus far in QE (Quantitative Easing). Quantitative easing is when banks or central entities buy government bonds or other financial assets in order to inject money into the economy and increase economic activity.
The Federal Reserve’s balance sheet has expanded by 75% since the start of the year(mostly due to COVID) Globally most currencies in countries that don’t have a strong central banking system are relying on Bitcoin. EX: Venezuela
The average investor fears inflation, so most investors are looking for assets to hedge against the dollar. The combination of the feds asset price manipulation has driven the price of Gold Bitcoin to outperform equities and other commodities.
As the world continues to shift, I fully expect for Bitcoin to increase by 10-20x in the next 15-20 months.
