In todays' post we will talk about how bitcoin works, how Bitcoin / gold are similar and why governments fear the potential of other monetary solutions.
1. Bitcoin Halving Cycles:
Bitcoin halving is a process that occurs approximately every four years (or, more accurately, every 210,000 blocks). It's a part of the Bitcoin monetary policy, encoded into the protocol by Satoshi Nakamoto, the creator of Bitcoin.
When a Bitcoin halving occurs, the reward that miners receive for confirming and adding new transactions to the blockchain is reduced by 50%. For example, when Bitcoin was first launched in 2009, the block reward was 50 Bitcoins. After the first halving in 2012, it was reduced to 25 Bitcoins. The most recent halving, in May 2020, reduced the block reward from 12.5 to 6.25 Bitcoins.
Halving is significant because it controls the supply of new Bitcoins entering the market. This halving process will continue until the maximum supply of 21 million Bitcoins has been mined.
2. Bitcoin and Gold similarities:
Bitcoin and gold share some similarities, which is why Bitcoin is often referred to as "digital gold."
- Scarcity: Both Bitcoin and gold have a limited supply, which can increase their value over time. The total number of Bitcoins that will ever exist is capped at 21 million.
- Store of value: Both Bitcoin and gold are considered by some as a store of value. Investors may flock to these assets as a way to protect their wealth against inflation and economic instability.
- Decentralization: Gold can be held outside of traditional financial systems, and Bitcoin operates on a decentralized network that isn't controlled by a single entity.
- Divisibility: Both gold and Bitcoin can be divided into smaller units.
- Mining Process: The creation of new Bitcoins and the extraction of gold both require substantial resources.
3. Universal Coincidence of Wants:
The "coincidence of wants" is an economic concept that occurs when two parties each have a good or service that the other wants. It's essentially the basis for barter transactions. However, in a complex economy, finding a party that wants what you have and has what you want can be a difficult process. This is known as the "double coincidence of wants" problem.
Money, including Bitcoin and gold, solves this problem by acting as a medium of exchange that is universally accepted. With a universal medium of exchange, you don't need to find a direct match for a barter exchange. You can sell your goods or services to one party for the medium of exchange, and then use that medium to buy goods or services from another party. This is why money, including digital money like Bitcoin, is so important for the functioning of a complex economy.
From 2010 to 2020, Bitcoin experienced significant growth and volatility. Here's an overview of Bitcoin's performance during that period:
1. 2010: Bitcoin's first recorded price was in 2010 when it was valued at less than $0.01.
2. 2011: Bitcoin gained attention and experienced its first major price spike, reaching a high of around $31 in July. However, it quickly dropped back down to single-digit prices.
3. 2012-2013: Bitcoin's price remained relatively stable for much of 2012, ranging between $5 and $13. In early 2013, the price started to rise again, reaching $266 in April. However, it experienced a significant correction and fell to around $50.
4. Late 2013-2014: Towards the end of 2013, Bitcoin experienced a massive bull run, reaching an all-time high of nearly $1,200 in December. However, it experienced a prolonged bear market in 2014, with the price gradually declining to around $200 by the end of the year.
5. 2015-2016: Bitcoin's price remained relatively stable during this period, fluctuating between $200 and $500.
6. 2017: This year marked a historic bull run for Bitcoin. The price started the year at around $1,000 and surged to an all-time high of nearly $20,000 in December. This rapid increase in value caught the attention of mainstream media and investors.
7. 2018: After reaching its peak in December 2017, Bitcoin experienced a significant correction throughout 2018. The price declined to around $3,200 by the end of the year.
8. 2019: Bitcoin's price started to recover in 2019, gradually increasing throughout the year. It reached around $13,800 in June before dropping back down to around $7,000 by the end of the year.
9. 2020: Bitcoin had a volatile year in 2020. It started the year at around $7,200 and experienced a significant drop in March due to the COVID-19 pandemic, reaching a low of around $4,000. However, it quickly recovered and crossed the $20,000 mark in December, ending the year at around $29,000.
Overall, Bitcoin's price experienced significant growth and volatility during the 2010-2020 period. It went from being worth less than a cent to reaching an all-time high of nearly $20,000 in 2017 and then surpassing $29,000 in 2020.
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