Q&A Of The Day – What’s The Purpose Of Bitcoin?
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
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Today’s entry: Your Bitcoin story was eye opening. I’d never heard what goes into mining explained but I have a follow up question to your story. As I recall, you mentioned the power required to mine Bitcoin was enough to power hundreds of thousands of devices in addition to needing what sounds like very expensive equipment. I thought the point of cryptocurrency was for the average person to be able to break away from the monetary policy of central governments. It sounds like the average person wouldn’t be able to afford to mine for Bitcoin let alone pay for one at today’s prices. Doesn’t that undermine the point essentially of creating an asset class for everyone?
Bottom Line: You’ve raised several interesting points, but you might be a little off base regarding the expressed purpose of Bitcoin at the time of its founding. I’ll start there. Bitcoin wasn’t a new concept at the time of its creation in 2009. Dozens of cryptocurrencies had been attempted and failed since the onset of the consumer internet. In the 90’s alone I’d tracked 36 cryptos that went to zero wiping out every dollar any developer, miner or purchaser had placed in them. Having failed to gain traction previously, the more recent generation of crypto developers have realized marketing is an important component of a successful digital currency. Many cryptos have tapped into the notion of being for the “little guy”, or a level playing field. A quick search of cryptocurrencies for the poor or universal basic income will reveal the strategy many have employed to try to garner support around world. Bitcoin was never about the little guy specifically and that’s likely been key to its success.
Bitcoin’s purpose was laid out in 2008 in a straight-forward 9-page document called Bitcoin: A Peer-to-Peer Electronic Cash System. The opening statement tells you exactly what it was and is about: A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network.
Clear purpose, right? A purely digital currency that bypasses the traditional financial system. They elaborate considerably from there, but the point is Bitcoin was never about a social cause, it was to become the digital currency of record. Over a decade later having achieved a trillion-dollar valuation, it’s largely accomplished that goal. Given the extreme complexity of the algorithm’s explained within the initial doc and the limited number of Bitcoins which would be made available it was known from the founding that successful mining would be a very restrictive process. It’s also that restrictive process which has attracted the interest and investment of billionaires like Elon Musk and investment banks like Citi Group and mostly recently Goldman Sachs. As for the cost to mine yeah, it’s not cheap.
As I citied yesterday, you can power 500,000 devices for power it takes to mine for bitcoin in addition to the hardware necessary to do it. The most recent estimate is that successful Bitcoin miners are averaging hard costs of $4,161 per Bitcoin mined. It’s certainly not a cheap process. As for the ability to “afford” Bitcoin. While a whole Bitcoin currently goes for $43,800 – it is possible to buy fractional Bitcoins. Fractional Bitcoin can be purchased in dollar amounts as low as $5...which of course would buy you an itty-bitty fraction of a Bitcoin at today’s prices.
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