Why invest in Bitcoin?
Similar to gold, bitcoin may allow people to store value transnationally
in units that are scarce. Indeed, bitcoin may offer an advantage to gold
in that it is more easily verifiable and easier to transfer.
Bitcoin presents several other characteristics that may make it
favourable as a store of value.
Secure and resistant to attack
As the Bitcoin blockchain is decentralized, it possesses no central
point of vulnerability, making it difficult to attack and resistant to
seizure by any government or entity. In addition, the underlying
protocol has a strong track record in terms of security. Since Bitcoin
came into existence in 2009, the network has not been hacked.
Although some cryptocurrency exchanges or wallets have been
hacked, this does not reflect upon the security of the underlying
blockchain, which has proven extremely robust.
Immutable and tamper-proof
The Bitcoin blockchain is based on cryptographic mechanisms that
prevent the tampering of transactions. The proof-of-work mechanism
seeks to ensure the immutability of the transaction history by making
sure that it is increasingly unlikely that a bad actor could rewrite a past
transaction, as the number of subsequent blocks increases.
Large network effects
Bitcoin currently leads global cryptocurrency market by market
share4. The total computational power securing its blockchain is many
times more than that of the top 500 supercomputers in the world
combined. Over the years, many other cryptocurrencies have
emerged, many of which seek to expand on the capabilities of
Bitcoin’s blockchain. Most notably, the Ethereum blockchain supports
a wide variety of smart contract5 applications. By contrast, Bitcoin’s
blockchain allows for less programming flexibility of this kind.
However, it’s important to note that the relative simplicity of Bitcoin’s
blockchain was by design, to make it particularly robust in terms of
security. Going forward, we see room for multiple blockchain networks
targeted for different purposes to coexist.
Since launch, the issuance rate of new bitcoin has decreased over
time and will continue to decrease in the future. Bitcoin’s hard cap
supply limit of 21 million coins is coded into its core protocol. Around
every four years (every 210,000 blocks), there is a halving of the block
reward received by miners. The third, most recent, halving occurred
on May 11th, 2020, which dropped the block reward from 12.5 to 6.25
bitcoin. At this rate, the hard cap limit is expected to be achieved in
the year 2140.
Medium of exchange
Bitcoin makes some compromises with regards to its transaction
processing capacity to foster greater decentralization and security.
While bitcoin may not (at least not yet) be the medium of choice for
day-to-day low-value transfers (although this is changing with
solutions like the Lightning Network), its blockchain can be useful for
settling transactions that are inefficient or costly via traditional
payment rails. For example, bitcoin could be beneficially used for
international remittances in certain cases