29/05/2022
Good afternoon,
We are daytraders and normally I would not be the one making these analyses.
But apart from day trading, I am also involved in investing assets.
I already do this in a number of stocks, precious metals and crypto currencies.
What I hear a lot and what I totally disagree with is that people say the following:
"Jeff, investing in Crypto is just gambling. It is not based on anything. If you invest in it, you're not buying anything physical and it's nothing. If the internet goes down then you have no money. Bitcoin has no value. Bitcoin takes crime with it so is bad."
Tonight I want to get this typed up so you can hear my side of the story and I can copy paste it to the relevant people who don't understand it "yet".
Today I want to explain to you 3 different points that in my opinion make bitcoin have value:
- Scarcity
- Proof of work
- The Bitcoin Halves
-Scarcity
The fact that bitcoin is scarce is well known to most of us. In fact, there are only 21 million bitcoins in total. These bitcoins are fixed on the blockchain, so they can never be reprinted, printed, or copied. This is because Bitcoin is a fixed code on the blockchain that is maintained by thousands of computers around the world. Therefore, it is almost impossible to hack into the thousands of computers that keep Bitcoin running and crash or sabotage the system at the same time.
Secret services from several countries have tried to take bitcoin down but have been unsuccessful on several occasions. The group/person who designed Bitcoin, which goes by the name of "Satoshi nakamoto" is still anonymous and untraceable today.
Currently, there are just under 19 million bitcoins in circulation and up to 2140 are being mined until all 21 million are in circulation. If we assume 21 million Bitcoins in total and divide them up between residents of cities/countries it looks like this:
- All New Yorkers can have a maximum of 2.5 bitcoins.
- All inhabitants of the Netherlands can hold a maximum of 1.19 bitcoin.
- All inhabitants of the United States can hold a maximum of 0.0283 bitcoin.
- All inhabitants of the world can have a maximum of 0.002727 bitcoin.
Proof of Work
Bitcoin must be mined to obtain it. Processors are running all over the world to mine a portion of the bitcoin. To keep those processors running a lot of energy is needed. This takes energy costs, build up costs, equipment costs, repair costs and many other maintenance costs. We can't get Bitcoin for free like the dollar, but we have to work for it, and there are costs associated with that. So this is what gives Bitcoin value. A miner wants to make a profit and will not sell his bitcoins until he makes a profit, so he waits for the price to rise. This directly affects supply and demand. Miners are rewarded by the number of hashrates they produce. However, there is a limited amount the contract gives away per period and it is not determined by how many processors you have. It is determined by the number of hashrates that are mined in total.
For example:
The total hashrate is 1000. I produce 100 hashrate with my processors. According to these proportions, I will then receive 10% of the bitcoin to be distributed. If the hashrate is 2000, my hashrate is 100 then I will only receive 5% of the amount to be distributed.
At this point it is a fight to have the most hashrate against someone else.
In 10 years bitcoin's hashrate will be 200 EH. This means that to have a chance at a small reward, a miner must have a lot of hashrate.
The Bitcoin Halving
Every four years there is a halving. This is because the whitepaper (which explains what bitcoin is in 6 pages) states that after each mined block that is released, the block will halve. So blocks are released to be mined.
In 2012 it was 50 bitcoin per block.
In 2016, it was 25 bitcoin per block.
In 2020, it was 12.5 bitcoin per block.
In 2024, this would be halved to 6.25 per block.
This will affect the price. In combination with an increasing hashrate due to many more miners becoming active, more costs will be incurred for less bitcoin. This has a huge effect on supply and demand and is reflected in the price.
This is why it is now beneficial to buy more. See the image below.
