Okay so I might be wrong here but hear me out.
Bitcoin’s value is predicated on its inherent scarcity. There can only ever be a finite number of bitcoins. The number is 21 million, but that number will take a while to reach because as more bitcoins are “mined,” it becomes harder to mine new ones (a process known as “halving”):
I have to predicate this next based by saying that yes, I understand that it’ll be more than 20 years before the final bitcoin is mined.
But what if, even before that point, all or at least a controlling percentage of bitcoins get bought up by rich people or banks or whoever.
And these people obviously won’t sell because they have the market cornered and there’s a limited supply, the value just keeps going up and up and up. The incentive is to hoard.
If there were 1000 iPhones in the world and that’s it, wouldn’t the value of those iPhones be constantly going up, because when a person does decide to put an iPhone up for sale, there would be so many bidders it would end up fetching like a billion dollars.
But then it hits the point where a Bitcoin becomes prohibitively expensive and people just say, “screw this.”
What is to stop someone from making another crypto currency just like Bitcoin—on the blockchain, divisible, limited supply, etc.—and then putting it up to compete with Bitcoin?
If there were only 1000 iPhones in the world, it would never get to the point where an iPhone was selling for a billion dollars because someone would have just said, “this is ridiculous. We can make our own smartphones. This technology isn’t that complicated.”
A big company would buy one and reverse engineer it if need be.
What is so special about Bitcoin and its scarcity given that there are other cryptocurrencies out there?
What makes Bitcoin so special when, say, Ethereum exists?
Sure, there’s only one Bitcoin. And it has the name-brand recognition, first-mover advantage and all that. I get it.
But if it gets to the point where people conclude it’s no longer worthwhile to pursue Bitcoins, what then?
In plain terms, if enough people simply say, “Fuck Bitcoin, it’s too expensive. Let’s buy Ethereum.”
Bitcoin collapses, right?
I get the idea behind why people love Bitcoin: it’s stateless, it’s not subject to inflation, it’s a new asset class, etc.
But isn’t that true of all cryptocurrencies, not just Bitcoin?
If Bitcoin gets too expensive that people start to conclude the risk-reward scenario isn’t favorable, they’ll just flock to another cryptocurrency.
I have long maintained that Bitcoin is designed to be hoarded. If there’s a limited supply, and the value just keeps going up, why would you ever sell it or spend it? It’s just going to be worth more in the future.
And so, because Bitcoin is designed to be hoarded, it’s eventually going to attract some very big buyers–institutional buyers–who are going to eventually hoard it, just like they do in the stock market.
And there are no laws to prevent a small number of people from controlling, say, 90% of the total bitcoin supply, and then making it unbelievably expensive to buy a bitcoin in the future. (This will also result in the market being very illiquid, which isn’t good.)
If and when this happens, then people who can’t afford bitcoin will just turn to some other cryptocurrency, right?
Let’s take the flip side of this argument: because of the existence of alternatives, nobody will ever really try to monopolize the supply of bitcoins because people can just buy other crypto currencies.
If this is the case, then again there is no special case to be made for Bitcoin, and while there is still an incentive to hoard it, why would you if people have other options?
I would love for someone to tell me how I’m wrong here, of course.
I have nothing against Bitcoin, I just think it’s primarily a speculative “greater fool” investment and little more than that. I don’t doubt you can make a lot of money trading bitcoin, and I don’t doubt there are a lot of people who have made tons of money off of bitcoin.
But what I don’t understand is what makes bitcoin so special when there are hundreds–probably thousands–of other cryptocurrencies out there.