Why do I think we need Bitcoin
By: Henrique Centieiro
Tags: Gold, Federal Reserve, Bitcoin, Bitcoin News, Crypto

One word: trust.

Views expressed are purely personal, and this is NOT financial advice!

Modern banking was created during the Italian Renaissance about 500 years ago. Back then, it was indeed a technological disruption. Nevertheless, for 500 years, banks and financial institutions were the only way humans could send value to each other, do business or keep their assets securely (at least most of the time).

Bitcoin and blockchain are changing things.

The current financial system has its problems. Although it’s a tough job, I’m going to try to summarize them:

I’m so tired of this chart.

Monetary policies such as keeping interest rates artificially low and printing/issuing more currency debases the currency (USD, for example) boost inflation. Basically, if you park your money in asset currency — USD, INR, MXN, EUR, GBP, TWD, TRY, JPY, CNY, CAD, AUD and so on — you will lose money over time. You will lose money due to inflation and currency debasement. Central banks of all these countries increase the supply of their own currency to try to fix the economy by manipulating it, which sometimes has very nasty results. The 2008 subprime crisis that started in the US, hyperinflation in Venezuela, Argentina, Zimbabwe. Hyperinflation in Hungary and Germany dozens of years ago. Hyperinflation in China hundreds of years ago. And finally, in 2020, the American Federal Reserve issuing close to 40% of all the dollars ever created in one single year. People and governments seem not to learn.

Historically, people try to invest the money in assets that protect against currency debasement, such as gold but… what if I tell you that there’s a better solution? So what is Bitcoin is the new gold?

Some people say that Bitcoin has failed as a payment system… but did it really fail? What we see nowadays is people using Lightning Network wallets that allow making small instant payments with extremely low fees.

Being a first-generation blockchain, Bitcoin and other cryptocurrencies like Litecoin, Bitcoin Cash and Dogecoin doesn’t allow the creation of smart contracts unlike other blockchains like Ethereum, EOS or Tron.

Bitcoin and gold are playing a game of chess and the board is the world.

Saying that the main use case for Bitcoin, other than being an excellent payment mechanism, is that Bitcoin is a great store of value, it’s deflationary and is often seen as digital gold.

The high fees paid to the middleman. Currently, in some countries, it’s quite cheap to send cross-border transfers between banks. In Europe, for example, SEPA transfers are fairly fast and cheap. However, billions of people in the world still pay very high fees to transfer money. Especially the people that most need, are the ones that pay the highest fees. Remittance companies such as MoneyGram, Western Union and UAE Exchange frequently charge more than 10% fee to migrants that want to send some savings back home. I know these institutions have played an important role, and they indeed need to charge fees because they have operating costs and the costs of money, but… Do we really these intermediaries considering that you can transfer value in a fast and reliable manner with low fees using crypto?

Privacy issues: with big databases comes big concerns. Financial institutions are seen as huge honey-pots for hackers. They hold tons of private information that, from time-to-time gest leaked. Equifax, Capital One, JP Morgan, CardSystems (Mastercard and Visa), PayPay, Mellon Bank, TD Ameritrade, Citigroup and… well… many, many more financial institutions were hacked and leaked customers sensitive data. Do we need to incur these risks if people use blockchain?

Censorship: the centralized party — bank or financial institution — handling your money must comply with the local regulations. Very frequently, people get their assets frozen by governments because of their political views or because they didn’t comply with the legal theft (aka as taxation) or because they didn’t comply with some arbitrary rules. Bitcoin just doesn’t care who you are.

Data manipulation: centralized platforms frequently use our personal data to leverage advertisement services or to manipulate political views, just like the Cambridge Analytica scandal where Facebook data was being used to manipulate the results of the 2016 US elections by targeting users with specific content. The manipulation was luckily exposed by Brittany Kaiser, a data privacy hero, but what about all the other misuses of data that never reach public knowledge?

Environmental concerns and high costs: I will later write about the energy expenditure of networks such as Bitcoin. Bitcoin mostly uses energy that otherwise would be wasted. Anyway, I wanted to say that quite often, people forget how much energy traditional financial institutions spend. Banks need to have many offices, branches, big buildings and ATMs that spend energy 24 hours per day. Bitcoin and blockchain can actually replace part of that inefficient infrastructure. Maybe it will take a few more years to see exactly is the environmental impact of Bitcoin. Still, I would argue that it can actually have a positive impact considering it can replace the current financial infrastructure.

Additionally, if people compare Bitcoin to gold, the gold mining industry also consumes huge amounts of energy. For example, some people say that Gold mining consumes more than 140 TWh which is more than Bitcoin mining.

So, what are your thoughts?

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