Tag: Bitcoin

Bitcoin is a religion. But before we discuss that, let’s talk about the religion of fiat.

When we were given birth to, we automatically entered into some contract that we cannot by design reverse. You cannot reverse which family you were part of, nor can you change your country of origin and the list goes on. Relevant to this discussion is the contract of money that you are part of.

Money is a belief system that we all agreed to from birth. A belief that you cannot speak against because it will seldom even cross your mind to do so until death. I never questioned the belief until Bitcoin and I’m sure you have most likely not considered what makes money a “money” as well.

Speaking against it is bound to immediately attract the label of fraud or delusional. In fact, speaking against any prevalent system of money without the presence of an alternative may be seen as being mad. That’s how religion operates. You are in or out, there’s no middle ground. And when you are in, you can’t say a word against it. When you are out, you are alone and you are labelled.

The reality is that any form of money is a religion. Otherwise, it won’t be money. Money has to be a religion before it can be money. Everyone has to believe it or it’s worth it. Everyone has to be a security guard of the principles, otherwise, it’s not money. Everyone has been its authenticator, otherwise, it’s not money.

That brings me to the religion of Bitcoin. It’s emerging, forming principles, making converts and building from the ground up. We have different people saying this is what it is and this is what it is not. It reminds me of Jesus’ story in Matthew chapter 16 when he was wondering what people think He is. A lot of different answers came in before the truth was revealed through Peter.

When a new religion is forming, it is only normal that different believers have different definitions of what the tents of that religion are. Ultimately, time will reveal and in the case of Bitcoin, the forces of demand and supply plus regulation will determine.

Note: this does not in any way try to equate Jesus with bitcoin. No. I am just trying to help you understand the parallel of religion and how they develop.

In the intervening period, just like Jesus had apostles and followers who served different purposes, Bitcoin will also only achieve its purpose with every believer playing their part.

So here are several ways you can be part of that religion.

• Convert a path of your fiat to bitcoin – this is the easiest way to participate in the new religion of bitcoin. Doing so would mean you are showing how interested you are in exploring the new religion despite the old religion of fiat. Converting a part of fiat would also help expand the size of the network. Bitcoin thrives on network effect which means the utility of the network increases with every additional user. 

• Be curious – curiosity is an underrated way to participate in the new religion. The reason why a lot of people are still taken aback in participating is that they do not understand the least about bitcoin. With your curiosity, you would get more knowledge and if you are asked the reason for your faith, you would have a basis of standing. People in the days of Jesus got Him wrong because they wouldn’t apply their heart to understanding.

• Be an evangelist  – talk about it, write about it, make a new convert of it. As I said earlier bitcoin feeds on network effects just as all forms of money that we developed as humans. Becoming an evangelist would mean you are helping the network to achieve its aim faster.

• Share ideas about the ramifications of bitcoin – when you imagine a utopia, it’s common for the society to dismiss you as being a dreamer. However, assuming the utopia, thinking about it and sharing it helps humanity to know what the edge is. And knowing the edge helps us determine and prepare for what may be on the side of the edge. Yet, if it’s not possible to reach the edge, then we are aware of our limitations which in itself is a good thing as well. So things like what if the world is indeed powered by Bitcoin, what would such a world look like? What monetary policy would we settle on and how are we going to innovate in a deflationary economy? Think about ramifications and share your ideas.

• Know the history of money – fiat is new, we have not always used fiat as a medium of exchange. Study history to know where we are, where we are coming from and where the journey could lead us.

• Work for a company democratizing access to it – if you have the opportunity and you are persuaded, why not. Take up the opportunity.

• In short, do all things that can be seen as an activity that furthers the acceptance of the new religion.

Bitcoin as an asset class is still emerging at best. It is relished with a lot of possibilities from replacing all fiat to becoming the transaction powerhouse of the world, it has been dubbed the internet gold and enthusiasts expect it to replace the physical gold in terms of market capitalization, an event which will bring its market value to $7 trillion. Some claim it will be the primary way to do cross border payment since fiat cost of such payment can’t be eliminated.

The truth is that it is doing all of these functions already. I hold it as an asset class in my personal portfolio and I’m sure so do others. My country has been reported to be one of those actively using Bitcoin to bypass trade hurdles and facilitate cross border payment. MicroStrategy is holding Bitcoin as a reserve asset in their balance sheet in place of Gold. And a lot of merchants accept Bitcoin as a means of payment on their platform already.

While all these happen and Bitcoin evolves, all that we are seeing are still on a micro scale relative to what Bitcoin’s potential. And that brings us the question why it is not doing it yet. Why is the internet gold not replacing the Gold market market capitalization yet and why is it not powering all the world’s cross border payment yet with its apparent advantage?

If Bitcoin fulfills all these assumed potential, it will be a multi-trillion dollar asset. But to do so, it needs to first cross some hurdles.

Imagine 2030, a Deutsche Bank report published in 2019 looked at the potential risk attached with the fiat system and its possible collapse in the event that the government is unable to sustain it any further. It imagined Bitcoin as a viable replacement (because of its inherent advantage of course). However, it highlighted the three hurdles below before it can take that position.

1. First, they must become legitimate in the eyes of governments and regulators – if bitcoin will become as mainstream as imagined and even replace fiat in case the system fails, it has to become legitimate in the eyes of the government and the regulator. Which simply means it has to lend itself to regulation. Yes, it’s decentralized money,  but the government needs to find a way to structure its monetary policy around it, in terms of taxation, jurisdiction and classification to name a few.

This hurdle will be the most important to cross and if it does, we can be set for a new era of monetary policy and economic order. 

2. Since it will mean basing a robust financial system entirely on electricity consumption, is the world ready for that? Bitcoin can’t be separated from power consumption and one estimate currently has it to be consuming electricity more than the whole of Switzerland. Also, the system will need to be prepared for possible power failure due whatever reasons. And when I say whatever reason, no possibility is too impossible not to consider. As I like to say “risk always looks impossible until it happens.”

While this is a question the world and Bitcoin will have to answer as it prepares to replace the fiat system, Nic Carter, a partner at Castle Island Ventures, a public blockchain-focused venture fund based in Cambridge, Mass has a caveat to the claim.

According to him, “part of the reason Bitcoin consumes so much electricity is because China lowered the clearing price of energy by overbuilding hydro capacity due to sloppy central planning. In a non-Bitcoin world, this excess energy would either have been used to smelt aluminum or would simply have been wasted.” So the argument is not that to say Bitcoin isn’t using much electricity but to say Bitcoin is a savior of what would’ve been a matter of waste.

Whatever the case maybe, the question of electricity is something Bitcoin will seriously have to deal with to scale. Still on power consumption, “the Bitcoin network processes fewer than 100 million transactions per year, a “completely insignificant” figure compared to the 500 billion payments processed by the traditional financial industry. Yet consumes more energy per transaction than all the rest of the world’s banks combined,” noted Alex de Vries, a Bitcoin expert at PwC during a BBC interview. 

3. Cyberattacks are also becoming more frequent – Deutsche Bank noted,  “In January 2018, the Tokyo-based cryptocurrency exchange Coincheck reported that hackers had taken £400m. Even though transactions for many cryptocurrencies are public, all 523m stolen coins ended up in nameless accounts.” While this is a very serious one as well, I fear we may not be able to completely mitigate this. Bitcoin may not be subject to hack but the exchanges are. Yes, there could be a private ledger but not everyone will subscribe to that option.

Bitcoin is filled with potential, the fiat system is currently undergoing an existential threat with rising debt levels and economic disparity. However, for the Bitcoin network to replace that broken system and become a multi-trillion dollar asset, it must answer the questions outlined above.