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To Value Bitcoin, You Must Understand Money


To Value Bitcoin, You Must Understand Money

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Money is 1 of our oldest and most important technologies, yet it is 1 of the most misunderstood–Paul Ebeling

Fidelity Digital Assets released a report called “Bitcoin First: Why investors need to consider bitcoin separately from other digital assets,” claiming that “Bitcoin is best understood as a monetary good. Bitcoin is likely to be the primary monetary good and another digital asset is not likely to supersede bitcoin in this role.” Next, a ‘talking head expert’ chimed in saying: “bitcoin is a pretty terrible form of money.”

The Big Q: How can financial experts come to these vastly different conclusions?

The Big A: Lies in a misunderstanding of what money is.

The Key to understanding bitcoin is learning monetary history and gaining knowledge of digital networks.

Money does not need to increase in quantity to be effective; it needs to have the following Key traits: divisibility, scarcity, portability, recognizability and durability.

Gold was money for thousands of yrs. Gold, while having scarcity, durability and recognizability, fails miserably at being divisible and portable. Gold receipts (paper) and fiat currency (paper) solved this issue and allowed global trade to expand.

Fiat currency is outstanding at solving for divisibility, portability and recognizability. The problems lie in scarcity and durability, again missing the mark at being optimal money.

Bitcoin has all the properties of money, but, like any money in existence, the demand needs to be there, it is and growing.

The stages of monetization for any object over history has followed a similar cycle: the object being collectible, a storage of value, a medium of exchange and a unit of account. Until fiat currency, part of what gave something value was the difficulty in obtaining it or the time to create it.

Bitcoin solves this value proposition by its mining process, called proof-of-work, and the difficulty adjustment, which allows the mining network to adjust up or down the computing power needed to solve for the next block. The difficulty adjustment goal is to help ensure the supply schedule remains very predictable, which is a new block every 10 mins. It’s an effective, yet simple, solution to a very complicated computer science problem for distributed consensus networks.

Bitcoin mining is costly and time-consuming, yet the verification of the transactions by nodes on the network located around the globe is effortless and almost free.

Bitcoin’s most significant benefit is having a final settlement in a digital world in record time, leveraging the mainchain or the Lighting network, depending on the needs of the parties involved. When measuring speed, you must include “final” settlement – for example, credit card transactions are not finalized before 24 hrs

Money is what allows individuals and businesses to function and thrive. Money that has all of the Key traits that helps to enhance trade and economies, as all actors use the same unit of measure.

Bitcoin as money allows for savings, not credit, to be what families run on, quick and inexpensive payments, and an incentive structure to reward value creation. By producing value and living within your means, your purchasing power can increase by simply saving – not decrease like it does today.

Bitcoin is a $1-T asset today, it is money.

Have a prosperous day, Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.