Jay Smith @jaynemesis: "𝗛𝗮𝘀 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝗟𝗼𝘀𝘁 𝗶𝘁𝘀 𝗣𝘂𝗿𝗽𝗼𝘀𝗲? //𝘱𝘢𝘳𝘵..."

United Kingdom

𝗛𝗮𝘀 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝗟𝗼𝘀𝘁 𝗶𝘁𝘀 𝗣𝘂𝗿𝗽𝗼𝘀𝗲? //𝘱𝘢𝘳𝘵 𝟣 𝘰𝘧 𝟥 - 𝘴𝘦𝘦 𝘤𝘰𝘮𝘮𝘦𝘯𝘵𝘴 𝘧𝘰𝘳 𝘱𝘢𝘳𝘵𝘴 𝟤 & 𝟥 𝙄𝙣𝙩𝙧𝙤 I actually started writing this post back in December, and for whatever reason got distracted by things elsewhere in the markets and never finished writing it. This is a thought that has been swirling around my mind for several years now. It is no secret that I don’t invest in $BTC or in crypto more broadly any more. The primary reason I gave was that the risk/reward was weak compared to stocks, but behind that was a larger concern - Bitcoin has lost its purpose. In this post, I want to argue the case against Bitcoin. What first drew me to invest in it over a decade ago? What was Bitcoin’s purpose originally? How did its purpose shift and evolve? And what comes next? 𝙂𝙚𝙣𝙚𝙨𝙞𝙨 Bitcoin came into existence in 2009, the 2008 Financial crisis was fresh news, MySpace was still the 2nd largest social network and $PYPL (PayPal Holdings) was the only major player in online payments. In the original whitepaper, Satoshi outlined Bitcoin as being “a peer-to-peer electronic cash system”; Bitcoin was cash for the internet. He added that it was a decentralized network that used a proof-of-work system to validate transactions and build an immutable ledger of transactions - better known as a blockchain. This theoretically meant Bitcoin would function as money that could be used globally without any third parties gatekeeping how you use it, or governments devaluing it through monetary policy. Within the whitepaper, it's clear that Satoshi’s vision was for Bitcoin to fill 2 key roles: • Money • A peer-to-peer payment network Beyond the whitepaper, fans of Bitcoin were quick to argue that it had a 3rd role: • Digital gold / inflation hedge / store of value I don't think Bitcoin fits any these categories convincingly, and I'll lay out the arguments one at a time in this post, starting with Money. 𝙄𝙨 𝘽𝙞𝙩𝙘𝙤𝙞𝙣 𝙈𝙤𝙣𝙚𝙮: 𝘿𝙚𝙛𝙞𝙣𝙞𝙣𝙜 𝙈𝙤𝙣𝙚𝙮 Economists are broadly aligned that for something to function as money, there are 3 core properties it must have: 𝑴𝒆𝒅𝒊𝒖𝒎 𝒐𝒇 𝑬𝒙𝒄𝒉𝒂𝒏𝒈𝒆 People must use it to exchange and transact for buying and selling goods and services. 𝑼𝒏𝒊𝒕 𝒐𝒇 𝑨𝒄𝒄𝒐𝒖𝒏𝒕 Prices must be denominated in it; and people should use it to measure the value of other commodities, goods and services. 𝑺𝒕𝒐𝒓𝒆 𝒐𝒇 𝑽𝒂𝒍𝒖𝒆 It must hold its value and purchasing power over time. 𝙄𝙨 𝘽𝙞𝙩𝙘𝙤𝙞𝙣 𝙈𝙤𝙣𝙚𝙮: 𝙀𝙖𝙧𝙡𝙮 𝙀𝙭𝙥𝙚𝙧𝙞𝙚𝙣𝙘𝙚 Back in 2013 I tried selling an old laptop on an early Bitcoin website structured similarly to $EBAY (eBay) for a few Bitcoin. The problem I quickly encountered was that the price of Bitcoin fluctuated so much that I had to edit the price of my listing every few days. The laptop never got any bids, and eventually I listed it on eBay instead. This is obviously just an anecdotal example from over a decade ago, but it perfectly illustrates that Bitcoin did not fit any of the core properties of money at the time. That was just my experience though, so let’s explore a more recent, much larger real-world experiment for Bitcoin acting as money: El Salvador //𝘦𝘯𝘥 𝘰𝘧 𝘱𝘢𝘳𝘵 𝟣 𝘰𝘧 𝟥 - 𝘴𝘦𝘦 𝘤𝘰𝘮𝘮𝘦𝘯𝘵𝘴 𝘧𝘰𝘳 𝘱𝘢𝘳𝘵𝘴 𝟤 & 𝟥

Not investment advice. The author may have financial interests in the mentioned instruments.