According to BloombergBitcoin’s price surge of 9 million percent makes Bitcoin the top performing asset in the last decade. But what if I told you that Bitcoin is still one of the most undervalued assets even in 2021?
If you are one of those people who thought of putting money in Bitcoin but just couldn’t pull the trigger, then you are not alone.
Today’s crypto community is inundated with people who unfortunately don’t understand the basics of these digital assets. And because Bitcoin has amassed a significant following of those “weak hands”, institutions and major investors may become more cautious when it comes to putting money into Bitcoin.
When they see people failing to answer basic questions like “What gives Bitcoin its value?” Some. and “How does Bitcoin derive its value?” it creates uncertainty and they may be reluctant to go all-in.
The question of the value of Bitcoin is very general and diverse. There are two ways to explain this. One is the traditional way that describes the value of Bitcoin in terms of the energy that goes into mining.
But here I want to touch the other side of the coin. The side that is not discussed that often. And that has to do with our current financial system.
Elon Musk has already said that cryptocurrencies will be the medium of exchange on Mars. But even if we stick to earth, Bitcoin is a disruptive factor. It contains all the ingredients needed to keep it on and become the future “currency” of the world.
While our financial system is failing, Bitcoin offers solutions to all of the problems we face in our monetary system. The value of Bitcoin is largely based on the worthlessness of our current financial system.
The development of the monetary system
According to the barter system, gold has historically always been used as a medium of exchange. Since gold becomes unsustainable over time, we set up the monetary system. We decided to print papers and give them a value so that each piece of paper is backed with a certain amount of gold.
Therefore, we could only print currency if we had a corresponding amount of gold in reserve. In this way we have established a portable exchange system where gold is still the real medium.
As the United States’ sphere of influence grew, the monetary system slowly evolved so that all of the world’s currencies were pegged to the dollar. But the dollar was still backed by gold. So basically it was still the same.
The biggest blow to our financial system came when US President Richard Nixon announced in 1971 that the US dollar would no longer be backed by gold. It’s like pulling the rug out from under the financial system. Suddenly every currency in the world was no longer covered by something.
Were they still currencies at all? Or just notes? Our current financial system, the fiat currency system, emerged independently of this.
The fiat financial system
So our current fiat currency system is not supported by anything. This is a problem on so many different levels.
In the case of Bitcoin, at least, its value can be explained in terms of the mining activity contributed to the network. But there is really no real explanation here. The only reason a piece of paper has any value is because the government enforces it.
Since the fiat system is not backed up by anything, there is no real limit to the amount of money the Federal Reserve can print.
If you keep printing money (as we saw during the COVID-19 pandemic), it’s like stealing people’s money. The more you increase the supply of money, the more will be deducted from the purchasing power of the money already in circulation. This leads to inflation. Now people have to pay more of their money to get the same, and it is through no fault of their own.
Another big problem with our current financial system is that it is regulated by the central bank. The central bank is the real authority behind the transactions.
When you see all these people and hell, even countries, being sanctioned, they lose access to their money. Have you ever thought about it Did you realize that in the current financial system, people don’t? Really own their money?
So you can work for sixty years and earn a fair amount of savings – but the central bank can decide at any time that for one reason or another you are no longer entitled to the benefits of your years of hard work. I’m not saying this is going to happen, all I’m saying is that there is definitely a way that it can happen.
Bitcoin: a solution?
Now that we understand the monetary system, the next question is, how does Bitcoin solve any of these problems?
Let’s go first to the inflation rate. In contrast to the unlimited printing of fiat currencies, the total supply of Bitcoin is limited to 21 million. Bitcoin has a falling inflation rate, and once the last bitcoin is mined in 2140, the inflation rate will reach zero. You can no longer create Bitcoin. So that takes care of the inflation problem pretty well.
Next comes the question of the third party authority. If you are transferring money in the current system, it is the banks that actually do the transfer. You are literally updating the numbers within the two accounts involved in the transfer, subtracting an amount from one and adding it to another. Yes, it is that simple. But then the question remains, how can you do business with people without an agency actually doing those transactions?
This is where the beauty of Bitcoin comes in! Bitcoin is a peer-to-peer network. When you carry out a certain transaction with Bitcoin, the blockchain is updated by all of your colleagues. This means that everyone is an authority on the Bitcoin blockchain. So if everyone is an authority, it means that technically nobody is the only authority. That’s why we never have to worry about central bank regulations at Bitcoin.
On the one hand, we have a financial system that leads to insane inflation. A system that is not supported by anything. A system that is fully controlled by a central authority. On the other hand, you have a system that has almost no inflation, a peer-to-peer network that has no central authority, and the cherry on top is that the fees in Bitcoin compared to our current fiat System are considerably lower.
Too long, not read (TLDR)
Bitcoin has been the most powerful asset in the past decade. Unfortunately, due to the presence of “weak hands” in the crypto community, institutions and major investors are still more cautious when it comes to investing in Bitcoin. They don’t really understand how Bitcoin is valued. Bitcoin’s value actually stems from the worthlessness of our current financial system. The current financial system is doomed to collapse. The world’s currencies are tied to the dollar and the dollar is not tied to anything. As a result, there really is no limit to the amount of money the Federal Reserve can print. It’s like robbing people of their money. It reduces the purchasing power of the money already in circulation, thereby causing inflation.
On top of that, a third party like a central bank has actual control over your money. So in our current financial system, your money is not Really yours. Therefore the system has to crash sooner or later. The solution is something that doesn’t have inflation. The answer is a peer-to-peer network with no third parties. The answer is bitcoin. And once Bitcoin takes over the currency, its value will increase tremendously. That’s why it’s still one of the most undervalued assets of our time.
This is a guest post by Fahim Ahmadi. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.