– BTC then stands no chance to become a commonly used currency.
– Not necessarily. BTC was never to replace any existing currency. It was to be more like a cryptocurrency that you can invest in without a risk of depreciation in value in the long run of course.
– Are you saying BTC can be compared to what gold used to be at the beginning?
– Not entirely. Gold mining was never limited like bitcoin is. Apart from that people always knew the value of investment in this asset. The resource that is scarce and difficult to produce will always be a good investment. Imagine what would happen to the price of gold if it was suddenly announced its all natural resources have been depleted. Prices would shoot through the roof. Gold doesn’t oxidize and it doesn’t corrode like other metals such as silver. For that reason it can successfully be stored for years.
– Is bitcoin mining somehow limited, unlike gold?
– There are some anti-inflationary mechanisms implemented in BTC code and thanks to them the quantity of BTC is limited and set in advance. The total number of bitcoin possible to mine is 21 million and it will be reached somewhere around the year 2060. It is also worth mentioning that the first 20 million will be mined up to 2025
– How is that possible?
– Production of any currency or natural resource can be increased if needed what in turn causes loss of value. With BTC this process is somewhat reversed. The flow of new coins entering circulation is decreasing. Roughly every four years mining difficulty level rises twofold. In comparison the annual growth of coins was 59% in 2011, 9.9% in 2015, 3.68% in 2019. In 2023 it was about 1.70% whereas the quantity of regular currencies (fiat) are constantly increasing and the value is continuously depreciating. Bitcoin’s value is going up minus the fluctuations, thanks to the mentioned before restrictions. It is impossible for the miners to produce more coins no matter if it is going up or down. There is also no institution like a bank which could flood the market with additional coins to quench the sudden demand. The only way to satisfy market demand for BTC is such a sudden rise in value that would incentivize some investors to sell their coins at the same time making room for new investors. It helps to understand why in the span of 8 years bitcoin’s price has risen from $0.000994 in 2009 to $4,200 in 2017 giving an average annual growth of 570%.
– Many people claim BTC can not be a widely adopted currency because of the huge price fluctuations and the media often write about how bitcoin crashes on crypto exchanges giving it bad press. These are not exactly encouraging signals for potential investors.
– It is true. The fluctuations on crypto exchanges are relatively big when compared to traditional stock exchange. Less stable cryptocurrencies with low market cap can depreciate even 98%. Bitcoin during an ongoing bull run can drop even by 50% in a very short time. Bearing in mind price fluctuations on traditional stock exchange in the amount of a dozen or so percent or even less, one could assume BTC to be crashing more than often. BTC is relatively young when compared to gold. In time its value will stabilize. The price of gold in the early times was acting in a similar way. It usually happens when stock to flow ratio becomes very low meaning a lot more new coins are added to the existing stock which is not too high. However, thanks to the anti-inflationary mechanism implemented in bitcoin’s code, bitcoin’s price should be less prone to such high fluctuations.
– You mentioned before that the capacity of bitcoin’s network is four transactions per minute. How is this going to influence the growing popularity of bitcoin?
– Indeed it is a significant bottleneck especially with the growing number of transactions. However, there is a difference between a transaction carried on the blockchain and the one conducted on crypto exchange or within another institution that deals with crypto. Those inside trades happen off the blockchain. Blockchain transaction happens for example when we are sending BTC from one digital wallet to another.
– Are payments in real time possible?
– Of course. This is where an intermediary would have to step in. The intermediary must have BTC capital available to ensure the flow of transactions. That kind of solution would also enable the possibility of micro transactions without the risk of prolonged waiting or paying high transaction fees. However, this type of third-party centralized solution is against the initial BTC idea of becoming the true decentralized digital asset.
– Mr Nakamoto, thank you for talking to us.