US dollar is backed by the US tax, company stock is backed by the assets of the company, many people think Bitcoin is a scam, since the value seems to come from thin air. Does Bitcoin has any value at all? Different people has different view points. In my eyes, Bitcoin is a network, the value should be measured by the dispersion of the coins. At the same time, Bitcoin is not like a traditional IT network, it is not a network of information, it is a network of value and consensus.
This content was originally posted in July 2018 at https://zhuanlan.zhihu.com/p/40606500 in Chinese.
My first and also main point is that Bitcoin is a network and its value depends on how many people is using the network, or to put it differently, the dispersion of the coins.
Must all value be backed with some assets? Not necessarily. Wechat certainly values more than billions, but is not backed by any visible assets. Same is true for Facebook and Taobao, why are they so valuable? The answer is that they are all networks. Take Wechat as an example, if I am the only guy using Wechat, does Wechat has any value? No. But if I can connect my family with Wechat, a small network is formed, and the value is there. With the number of network nodes rising, the value of the network rises exponentially. With all our old mates, clients, supporters connected, Wechat’s value exploded, like many Chinese people experienced in person.
Likewise, Bitcoin is a network too, with each holder as a node of the network. A side note, tech geeks will tell you a machine with Bitcoin client is a node, but that’s not the viewpoint I take now. For the last 10 years, coins are dispersed to the hands of many people. The outsiders sees only the market cap, but what matters is the dispersion. More holders bring larger network, and therefore the value of network is greater. That explains why one same bitcoin worth more and more, and believers still consider there is a value behind the price.
That brings us to the end of my first point.
The second point is equally important. Bitcoin is not merely a IT network like others, but a network of value. One of a famous figure in Bitcoin field named Andreas Antonopoulos once wrote a book called Internet Of Money, and I highly recommend that.
But is the value of Bitcoin overvalued? Like Wechat, Bitcoin is a network, but there is the big big difference between traditional network of information like Wechat and the new network of value like Bitcoin. Bitcoin for first time in history enables people to pass something on Internet to another person, and before that you can only share sth with others, which means you still hold a copy. Keeping a copy for ourselves won’t harm if we are sharing some information, but is not acceptable if we want to pass value.
To quote XiaoLai Li, one of the Bitcoin early investors in China
The Internet implemented the Zero-cost information transmitting, 20 years later till now, all industries have been heavily impacted by the Internet. Blockchain implemented Zero-cost value transmitting, so it’s very hard to image how much our world will be impacted.
Mainstream people are not yet using Bitcoin very often, but within the circle of Crypto people, there are real world use of Bitcoin in many places for sure.
Bitcoin means freedom to pay, money is your vote.
Bitcoin is a network of value based on network of consensus. We are here at the third and last point of this episode and will cover why Bitcoin is also interesting form a social perspective.
Consensus does not only happens with Bitcoin. The fancy word Blockchain, simply means consensus achieved by cryptography. People used to base their trust on small number of so-called trust-worthy people, but now Blockchain people try to rebuild a new society with its root of trust based on consensus of everybody. Our society pays a lot for the lack of trust. Blockchain is here to build the trust with math. It’s ridiculous to hear people saying Blockchain is a wonderful new invention, and Bitcoin is a scam, since Bitcoin is the thing that brings Blockchain to us.
Bitcoin is money issuing based on the consensus of everybody. That’s why Bitcoin is trust-worthy, cause everybody are watching.
To conclude this episode, Bitcoin showed us the right direction of our future, but I am not saying Bitcoin is 100 percent the final solution for the job. So it’s risky to invest in Bitcoin. But for me Bitcoin is still the best for job at least for now, so I put in a certain amount of money and never care about the short term. Price will pump and dump, but the value of the network grow only gradually with people like you and me coming in.