Five misconceptions against Bitcoin.
Bitcoin specifically has taken a lot of attention from every type of investor across all economic asset classes of late. We have seen counties adopted it, large companies like Tesla and Twitter buying up vast amounts of the currency. Investment and hedge fund firms are dipping their toes down to people living in third-world counties profiting from the asset. However, the same few statements keep coming up about Bitcoin.
1. Bitcoin uses too much energy!!
Compared to what? Yes, Bitcoin uses energy. The question is, “Is Bitcoin worth the energy consumption?” Is it worth having the most robust computing network in the world? If it is, it may be worth having some level of energy consumption.
Let’s look at the traditional financial sector, which is a linear energy consumption model. As the conventional legacy system grows, the energy use expands. The traditional financial sector must create more banks, ATMs, money printing, and techniques to keep up with the expanding industry.
As the demand for bitcoin grows, the energy consumption slows in comparison to users. Blocks on the bitcoin network, where the data is stored, hold the same amount of information regardless of stored information. The exact amount of energy consumed to create one block is irrespective of how much data is stored in the block.
Bitcoin will not consume more energy than the traditional financial system, even if it grows far bigger.
Another point is the miner’s relation to energy consumption. Miners are people who validate all the transactions on the network.
Bitcoin miners are incentivized to use the cheapest energy to lower the cost of business and increase profits. Miners seek out more affordable energy, and the most inexpensive power is renewable energy. This adoption of renewable energy use is seen in Wyoming, where miners use the oversupply of natural gas plants to run their operations. This energy source would have usually been wasted and classed as a byproduct of natural gas mining.
In El Salvador, the government uses volcanos to run Bitcoin mining operations to mine bitcoin and support the network successfully. The way Bitcoin transactions are validated creates a substantial economic advantage in seeking cheap, clean energy.
2. Bitcoin has nothing backing it.
Computing power backs Bitcoin.
Computing power is the most valuable commodity as of yet. The US dollar is backed by oil and military strength, not buy precious metals, e.g., gold. People will pay considerably more for computer power than a barrel of oil.
For a currency to have value, there must be trust within the network regardless of its backing. Bitcoin is code, and the code is unchangeable and can’t be manipulatable by governments or entities. Due to these codes and Bitcoin’s unique properties, we now have the most trusted currency in history.
3. Bitcoin is hackable.
Bitcoin has never been hacked. Bitcoins network is the most secure and safest network in the world. What makes it extremely sound is the fact that it is decentralized. Hacking Bitcoin would be like trying to hack the internet, impossible.
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The exchanges where bitcoin and cryptocurrency are traded have been illegally hacked. Bitcoin personal keys have been stolen, but the network has never been compromised.
The further you get from the source of where money is created, the less secure it becomes. For example, the federal reserve has never been hacked, but the further we get away from the Fed, the more susceptible to theft becomes. Criminals may rob banks, hack bank accounts/identities, people will get stolen from, but the source of the currency is always the most secure. As adoption increases and the more mainstream bitcoins becomes, the more protected the bitcoin network will be.
4. Bitcoin is used by criminals.
It is accurate that criminals have used Bitcoin. Crooks are usually the first to innovate and utilize newer technology. The criminals used mobile phones and the internet for illegal activity in the early days.
Bitcoin is a transparent public ledger, probably not the best idea to commit a crime and then store your information for anyone and everyone to see forever. The police continue to arrest and prosecute people who used the network for illegal transactions ten years later. As Bitcoin becomes more understood, criminals will not want to use the network due to its transparent nature.
5. Bitcoin is a too volatile investment.
Yes, Bitcoin is volatile if you are trying to invest short term. If you are looking for an investment that has grown exponentially year after year and outperformed any other product , Bitcoin is worth looking into.
I like to look through the eyes of young investors as they decide on their options.
You could invest in real estate, but you would have to borrow and take on the liability. Plus, spend the time and energy researching a property. And after you buy, you still have to exert time and energy to maintain the property.
Stocks are another option, but they are at all-time highs in a bull run that has continued for over ten years. Three years above the average bull run length. At the same time, confidence with Wall Street is at all-time lows.
Bonds are not sexy and unattractive to the average investor.
Or you could invest in a product that has continually performed, has ethical values, is predicted to reach record highs year after year, is entirely liquid, and everyone is talking about it, aka FOMO.
Yes, Bitcoin is volatile, but if you look at everything disrupting, performing, and generally crushing, they all have a volatile nature.
Summary
When looking at investing, you have to address the one trillion dollar elephant in the room, Bitcoin. Whether you love it, hate it, bitcoin has morphed into a legitimate asset class that looks to disrupt the traditional financial sector and be around for a long time. As I suggest with all my investment strategies is to research, research, research. Make sure anything you are investing in meets your goals, you understand it, and you ultimately believe in it.
End,
Luke Derrin
