Categories: Bitcoin Business

Bitcoin’s Catch-22 Will Keep It From Spurring a Monetary Revolution

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Over the past couple of years, there have been a number of fast-growing industries that have caught the attention of investors. The rise of cannabis, the evolution of artificial intelligence, and the continued expansion of cloud computing have investors excited. But the fact of the matter is that bitcoin has run circles around all three of these popular industries.

Following a miserable 2018 during which the most popular cryptocurrency in the world lost more than 80% of its value, bitcoin has rebounded in a big way in 2019. Recently, the top crypto token in the world by market cap briefly crossed the $14,000 level, which it hadn't seen in close to a year and a half. Even as of this past Monday, bitcoin was trading firmly above the $10,000 mark per token.

Bitcoin aims to revolutionize how money is moved

For cryptocurrency enthusiasts, bitcoin represents a changing of the guard in terms of monetary policy. With payments being processed on a transparent and immutable digital ledger known as a blockchain, cryptocurrencies like bitcoin could transform the way money is moved from one party to another. In particular, bitcoin promises the potential of faster settlement times and cheaper transactions. For context, an overseas money transfer using a traditional banking network can take up to a full week to validate and settle, whereas bitcoin can complete the transaction in an hour or less.

In addition, bitcoin's value has also benefited from its perceived scarcity. Without getting too far into the weeds, the supply of bitcoin is limited to 21 million tokens, with annual inflation of the existing token base, which currently stands at roughly 17.8 million tokens, of less than 4%. This inflation derives from the fact that cryptocurrency miners are responsible for proofing the validity of transactions on bitcoin's blockchain, and are awarded bitcoin tokens for being the first to do so for a particular block (i.e., a group of transactions). With bitcoin nearing its coin cap, there's perceived scarcity.

Bitcoin has also, arguably, been the beneficiary of good press of late. For example, Facebook's (NASDAQ: FB) announcement that it would create a currency-backed crypto token known as Libra is a shot in the arm to the long-term potential of crypto. If Facebook, the largest social media company in the world, plans to launch a new payment medium based on crypto, then bitcoin must have started revolution... right?

Well, not so fast.


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