The first bitcoin was mined 13 years ago. For the first three years it was worth less than a penny. But in 2011, he took an important step towards achieving parity with the dollar.
At the time, many people laughed at bitcoin and claimed that it could never be used as a common currency or a long – term investment. But if you were to accept the opposite view and bought a hundred bitcoins with $ 100 that year, $ 4.32 million worth of investment today.
How did bitcoin silence the critics?
When bitcoin was created, the idea of using computers to mine digital currency seemed far and far absurd. But in practice, it was not so different from using industrial machinery to mine precious metals.
Just like gold, bitcoin is a finite resource. As bitcoins are extracted, it becomes more difficult and less profitable to mine new bitcoins. First, bitcoins could be mined using high-end PC graphics processing units (GPUs).
But today bitcoins cannot be extracted efficiently with regular GPUs because of the time and energy required to mine only bitcoin. Instead, expensive devices are now needed to mine bitcoins. But the same economic logic applies to bitcoin and precious metals: Miners can only make money if the costs of machinery and labor do not exceed the market value of the metal.
In addition, the bitcoin algorithm limits its lifetime production to 21 million bitcoins. It is generally estimated that the last bitcoin will be mined in 2140.
As people understood these concepts, they began to view bitcoin as an asset just like gold and other precious metals. In addition, due to the anonymity and security of bitcoin transactions, enabled by blockchain, it is an attractive alternative to fiat currencies for financial transactions. The number of investors has also increased after starting touting bitcoin as a potential inflation hedge.
The future of bitcoin
After bitcoin achieved parity with the US dollar, more and more investors, analysts, entrepreneurs, and even governments jumped on the bandwagon.
Bitcoin mining companies like Marathon Digital and Riot Blockchain emerged, cryptocurrency exchanges like Coinbase grew, and the first bitcoin exchange traded funds (ETFs) hit the market.
Bitcoin evangelists like Jack Dorsey and Mark Cuban have generated more excitement among traditional investors, and a growing number of retailers have begun to accept bitcoin as a form of payment. El Salvador even became the first country to officially accept bitcoin as a legal tender last year.
Many challenges still to be overcome
The future of bitcoin may look bright, but there are still many challenges ahead. Government regulators around the world have implemented bans, restrictions, and taxes on bitcoin and other cryptocurrencies. Countries could also develop their own digital currencies linked to their own fiat currencies as a viable alternative to cryptocurrencies.
The environmental cost of bitcoin mining, which Elon Musk opposed to the cryptocurrency last year, also raises red flags. Dutch economist Alex de Vries estimates that if the price of bitcoin reaches $ 500,000, miners will emit more than 617 million tonnes of CO2 per year, surpassing the carbon output of countries such as Brazil and the UK.
At the same time, bitcoin volatility may prevent it from being used for everyday transactions. If fewer retailers accept bitcoin as a payment option, it may fail as a currency and continue to be used as a speculative investment.
Is it too late to buy bitcoins?
Bitcoin volatility has prevented it from becoming an effective inflation hedge in recent months. But that could change in the future if the price of bitcoin stabilizes and regulatory obstacles arise.