How Should We Approach Bitcoin?

Meyer Blignaut is the co-founder of Bitmorph and is passionate about using progressive technology to bring socio-economic change. The following is a summary from his interview with Ziwani’s Sibs Sibanda.

 

By way of introduction, Meyer explained that Bitcoin is a popular cryptocurrency that was created about 12 years’ ago by Satoshi Nakamoto. It uses trusted blockchain technology for secure monetary transactions, and it not affiliated with any country or organisation.

In more technical terms, Bitcoin is a type of digital currency in which a record of transactions is maintained and new units of currency are generated by the computational solution of mathematical problems. It operates independently of a central bank, and can be sent from user to user via the internet, without the need for intermediaries. It relies on a shared public ledger and distributed consensus, which means there is inherent accountability within the system that prevents manipulation by one group or individual.

The total number of Bitcoin is capped at 21 million, of which 18.7 million Bitcoins are currently available, leaving roughly 2.3 million to be mined. Since it was first introduced to the world, Bitcoin has had a volatile trading history. “Similar to any currency, it isn’t immune to fluctuations, but because of its limited supply it is fundamentally resilient,” Meyer commented.

However, the narrative surrounding Bitcoin has recently shifted from being a currency used for daily transactions, to rather being a store of value – as a hedge against inflation and uncertainty around the U.S. dollar’s future purchasing power. Meyer elaborated, “Bitcoin should actually be seen as an asset, such as gold. I think it has a more rooted value than the fiat system currently used across the world.” Fiat money is a government-issued currency that lacks intrinsic value – it is not backed by a physical commodity, but rather by the government that issued it. Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies.

Any meaningful currency has the following characteristics: portability, limited supply, divisibility, uniformity, and acceptability. In Meyer’s opinion, Bitcoin fairs better than fiat currency because it is limited in quantity, highly divisable, decentralised and efficient, and therefore its value will continue to increase.

Asked about fears that governments might try to shut down the use of cryptocurrencies, Meyer responded, “The price of Bitcoin went up despite recently being shut out of one of its biggest markets, when the Chinese government declared all cryptocurrency transactions illegal and banned citizens from working for crypto-related companies.” Maintaining that Bitcoin’s inherent strength lies in its decentralisation, he admitted that this has also been a weakness, because “its lack of leadership has slowed its adoption and legitimacy as legal tender”.

“There is widespread awareness of Bitcoin, but a knowledge gap exists,” Meyer remarked. Mining and trading Bitcoin presumes a high level of financial literacy and self-responsibility. He warned, “Be careful not to base your decisions on hype, or greed. It is similar to investing in any other asset, such as property – you need to understand its nature, you need to understand how the market works.” For example, transaction fees depend not only on the amount to be processed, but also on the level of congestion in the system, which means fees can vary greatly. Still, Bitcoin has a much lower barrier to entry than most investment options, because “you only need access to the internet, and you can start by investing very small amounts,” Meyer said.

About the concerns that Bitcoin mining consumes unusually high amounts of electricity, Meyer stated, “I think this argument is very subjective. The question of which goods and services are ‘worth’ spending energy resources on, is really a question of values. It is true that mining Bitcoin uses a lot of energy, but it is powering an international decentralised monetary system.” And despite the criticisms levelled against Bitcoin for its energy inefficiencies, the traditional financial system is far from green itself. The formal banking sector depends on a lot of infrastructure which naturally burns through a great deal of electricity.

There is also a move towards diverting excess renewable energy from green energy sources to Bitcoin mining, in order to fund expansion into renewable energy technologies. “So whether you feel Bitcoin has a valid claim on society’s resources boils down to how much value you think Bitcoin creates for society,” Meyer concluded.

 

Note: For those interested in learning more about Bitcoin, the economic properties that have allowed it to grow quickly, and its likely economic, political, and social implications, Saifedean Ammous’s 2018 book The Bitcoin Standard: The Decentralized Alternative to Central Banking would be a useful resource.

 

Share on facebook
Share on twitter
Share on whatsapp

Meyer Blignaut