full image - Repost: Trying to understand how Bitcoin actually will work (from Reddit.com, Trying to understand how Bitcoin actually will work)
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Bitcoin gets a lot of hype. You hear these amazing stories about people paying off debts, buying mansions, or finally living their dream life—all because they bought Bitcoin early. It sounds great! But when you think about it, doesn’t someone’s “win” mean someone else is “losing”?When you sell your Bitcoin at a profit, someone else is buying it at a higher price. And unlike stocks or real estate, which have intrinsic value (like dividends or rent), Bitcoin doesn’t produce anything on its own. Its value comes mostly from speculation. So, where does this lead us?Scenario 1: The Bubble BurstsBitcoin keeps growing in price as more people buy into the hype, thinking it’ll just keep going up. But if confidence drops (maybe due to regulations, better alternatives, or tech issues), the bubble could burst. And when it does, late buyers are stuck holding the bag while early adopters cash out big.If this happens, isn’t it just a huge wealth transfer? The majority pays for the gains of a few. Feels like the textbook definition of a bubble, right? And honestly, how is that sustainable or even fair?2. Bitcoin Becomes a Real CurrencyOkay, let’s imagine Bitcoin is adopted everywhere as a legit way to pay for things. That’s cool in theory, but… how does this actually work?Who’s Selling the Bitcoin?For Bitcoin to function as a currency, people need to access it, but the supply is heavily concentrated.Early adopters: A small group of people who bought Bitcoin early hold a significant portion of the total supply. If they decide to sell, they profit massively while latecomers pay a premium. This could lead to a huge inequality, where a few control most of the new financial system. So back to the current situation with Fiat. Corporations: Companies like MicroStrategy and Tesla hold large amounts of Bitcoin. If they control the supply, do we really have a decentralized currency, or is it just shifting control from banks to corporations? (and governments). Hidden stashes: Satoshi Nakamoto, the creator of Bitcoin, owns over 1 million BTC. If that Bitcoin were ever moved or sold, it could destabilize the market, tanking the price and causing panic. Similarly with the lost stashes. The concentration of Bitcoin compromises its idea of decentralization and fairness in my opinion. VolatilityBitcoin’s price swings wildly—one week it’s up 20%, the next it’s down 30%.For businesses: Pricing goods in Bitcoin becomes a nightmare. A cup of coffee might cost 0.0003 BTC today and 0.00025 BTC tomorrow. Businesses would need to adjust prices constantly, creating confusion for customers.For salaries: Imagine earning your paycheck in Bitcoin and waking up to find its value dropped by 15%. How do you plan for expenses like rent or groceries?Even if adoption stabilizes Bitcoin’s value, it’s unclear if it can ever be stable enough for everyday use. And this volatility could actually be a weapon, think about it, nowadays China doesn't have the power to destabilize the US's economy because they don't control the dollar, but if they hold a significant amount of BTC and suddenly drop it to the market at a critical moment, they could destabilize the whole economy and weaponize the financial market. Transaction Costs and SpeedBitcoin’s technical limitations make it less practical as a global currency:Transaction fees: Fees rise with network congestion. During busy periods, sending Bitcoin can cost $20 or more. Paying high fees for small transactions, like buying a coffee, isn’t sustainable. Speed: Bitcoin processes about 7 transactions per second (TPS). Compare that to Visa’s 24,000 TPS. Without significant improvements, Bitcoin simply can’t handle the scale of global usage.DeflationProbably the most important one. Bitcoin’s fixed supply of 21 million coins makes it deflationary, which creates its own set of problems:Hoarding: If Bitcoin is expected to increase in value over time, people will hoard it instead of spending it. Why buy a car today if your Bitcoin might buy a better one next year? This slows down the economy, as spending and investment are critical for growth.Debt: Deflation makes debt more expensive to repay because the value of money increases. Borrowers would face mounting financial pressure, discouraging loans and investments. Why would I lend you BTC if probably holding it will give a better yield?Wage stagnation: Businesses might struggle to adjust wages to match the increasing value of Bitcoin, leading to stagnant salaries and lower purchasing power.A deflationary currency can hurt economic growth and create a system where wealth becomes even more concentrated. In the end, many of people's investments are driven by inflation, you invest to keep you money growing and protected against inflation. Energy ConsumptionBitcoin’s PoW system requires miners to solve complex mathematical problems, which consumes a massive amount of energy.If Bitcoin were adopted globally, its energy consumption could skyrocket, adding strain to power grids and increasing carbon emissions.Some argue that miners will transition to renewable energy, but there’s no guarantee this will happen fast enough to avoid significant environmental impact.This raises ethical questions about whether Bitcoin’s benefits justify its environmental costs.RegulationGovernments won’t easily give up control of monetary systems. Bitcoin threatens central banks’ ability to manage monetary policy, such as controlling inflation or responding to economic crises.Bans: Some governments, like China, have already banned Bitcoin mining or transactions. Others might follow if Bitcoin becomes too disruptive.Regulation: Governments could impose heavy restrictions on Bitcoin usage, making it difficult to adopt on a large scale. For example, they could require identity verification for transactions, undermining Bitcoin’s promise of privacy.If Bitcoin faces widespread regulation, it could lose its appeal as a decentralized and borderless currency. Access and UsabilityEven today, using Bitcoin isn’t easy for the average person.Technical barriers: Setting up wallets, securing private keys, and navigating exchanges are complicated processes. One mistake—like losing your private key—and your Bitcoin is gone forever.Digital divide: Accessing Bitcoin requires internet connectivity and technical knowledge, which isn’t available to everyone. This could exclude large parts of the global population, especially in developing countries.To succeed as a currency, Bitcoin needs to become far more user-friendly and accessible.What’s the Endgame?While Bitcoin’s vision of a decentralized, global currency is inspiring, these challenges make it difficult for me to imagine it replacing traditional money anytime soon. Is it a store of value like gold or a currency for daily use? If it’s not practical for payments, does it lose its purpose?I’d love to hear your thoughts.
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