Since its beginning, there have been various traits exhibited by Bitcoin that are touted as ‘game-changers’. Three of these are its decentralization, global nature, and disinflation. The ability to combine each of these traits into one package is part of what makes the digital asset so popular. So how are these three traits holding up in 2021? Have they acted as a solution to modern-day issues?
Bitcoin is Decentralized
In past weeks, we have seen China upend the Bitcoin mining industry by essentially ousting the activity from within its borders. This led to the greatest recorded drop in hash-rate on the Bitcoin network since its creation.
The beauty of a decentralized network is that there is no single point of failure. This meant that despite the development within China, there was no interruption or notable effect on the network. In fact, the Bitcoin network has been operational 99.98% of the time since its inception. The same can not be said for traditional banking and payment systems, which regularly go down for both scheduled and unscheduled maintenance.
Darin Feinstein, Founder of Core Scientific, recently stated in a report from the Bitcoin Mining Council that, “Despite China shutting down over 60 percent of the global Bitcoin network, the Bitcoin network experienced zero downtime, no bailouts, has registered no bankruptcies and simply adapted by redeploying its infrastructure into regions that have greater freedoms…The network remains as strong as ever, it simply shrugs off adversity and moves forward.”
Essentially, the decentralized nature of the Bitcoin network has shown that while it may not be fully immune to world events, it is extremely robust.
Bitcoin is Disinflationary
Inflation is a genuine concern for many nations in 2021. During the past 18 months, governments have essentially let their money-printing presses run free. While those behind this decision stated that they did not anticipate a resulting increase in inflation, we are now seeing that this couldn’t be further from the truth.
In recent months, we have seen nations such as Canada and the United States experiencing levels of inflation not seen in decades – with even higher levels now expected to come. While inflation can serve a positive purpose, it holds the potential to quickly erode wealth, and it is for this reason that many search for ‘hedge’ assets.
In times like this, investors traditionally turned to assets which were seen as stable when hedging their bets. Often including precious metals such as gold. The reason for this is a simple one – gold can not simply be created on a whim. There is a finite supply available, and to increase that supply a massive amount of energy/work is required. As a result, the value of gold can not be as easily inflated/deflated like FIAT can.
The same rationality behind why gold is appealing in the face of inflation applies to that of Bitcoin. The digital asset has a fixed supply of 21 million, which is distributed at a known rate regardless of world activities. The difference is that Bitcoin ownership is easily verifiable, and transferrable on a global setting, whereas gold is not.
Overall, Bitcoin has gained a tremendous amount of value over the past 18 months vs FIAT. While this growth cannot be pinned down to one factor, Bitcoin’s disinflationary nature is known to be a key factor behind decisions made by companies like MicroStrategy.
Bitcoin is Global
While a few of the worlds major currencies boast a somewhat global presence, the vast majority of FIAT is only accepted within the borders of its issuing nation. As a result, sending funds internationally can be a slow and expensive process with various middle-men taking a cut. Bitcoin solves this issue plaguing the remittance industry, as it operates on a global scale. You can send money to someone across the world as quickly as someone sitting next to you – and with no premium in fees.
There is perhaps no better example as to how Bitcoin can upend the remittance industry than El Salvador. The nation, which recently became the first to adopt Bitcoin as legal tender, sees literally billions of dollars received from abroad each year. This is money being sent home to support families by individuals working internationally. For families that are often considered poor or vulnerable, every dollar counts. Bitcoin has provided these families with the ability to gain easier access to funds while avoiding exorbitant fees.
Looking beyond El Salvador, we recently highlighted various reports which indicated the highest levels of digital asset ownership was among smaller, Asian nations which rely heavily upon remittance (e.g., Vietnam, Indonesia, etc.)
A Versatile Package
While Bitcoin is not perfect, and still has a way to go in its development as an actual currency, it is hard to deny that its inherent traits have not already had a positive impact on the world. It has given people a means of preserving their wealth through a robust global network. In time the above examples will grow as network adoption continues.