In the early years of Bitcoin, it was exciting, I guess it still is, but for different reasons. There was a lot of talk about various use cases for Bitcoin and some people even went on to highlight that what was even more important was the blockchain technology that underlies Bitcoin.
The price of Bitcoin soared, more people got interested in what Bitcoin was about, conferences were held, books were written, price continued to soar, more promises about its potential and eventually some of us (like me) decided to sell the Bitcoin we held at what I thought was the peak but laughable compared to today's prices.
Although a lot of things have changed around Bitcoin, one thing hasn't changed - everyone is still talking about Bitcoin's potential and its price, not how it is adding value to our lives today.
So, what is Bitcoin?
There are two sides to Bitcoin, the currency and the technology.
As a currency, the first thing you need to understand is that it is a virtual and digital currency. You don't find Bitcoin in any physical form like any other type of fiat money like the South African Rand, Nigerian Naira, Kenya Shillings, or the US Dollar. It only exists in digital form and like any other currency, it can be exchanged and used at places to buy something or perform a transaction.
Then there's Bitcoin the technology, or more accurately, the blockchain technology that makes Bitcoin work. To explain blockchain technology, I will use an analogy.
Today, if you want to pay someone, buy something, transfer money, or pay for a service if you don't use physical cash, you need a third-party (a financial institution) to facilitate the transaction and validate it. With Bitcoin, for starters, there is no need for this middleman.
When you perform a transaction on the Bitcoin blockchain, a record of that transaction is kept on multiple computers that are connected to the internet and the Bitcoin network. Think of the transaction record as representing a single transaction, a block, and the folder in which all of the "pages" (blocks) will be kept will be a continuous chain of blocks and thus being called the blockchain. What's also important to note is that once this block is created, it is sealed in a manner that none of the computers that have a copy of t can modify it. This is how transactions are confirmed on the blockchain.
Also importantly as far as Bitcoin is concerned, no one owns Bitcoin, and no organization or person controls all the computers on the network. You could theoretically, as we speak, download the software and connect your computer to be part of the network.
(Note: For the Bitcoin experts reading this, I am leaving out a lot of things for the sake of brevity and simplicity, and ease of understanding.)
Blockchain technology, and not Bitcoin, is what has been touted as promising for the future of technology. Many theoretical use cases have been mentioned over the years including digital identities, replacing the banking and payment systems, and more. However, there are several problems.
The first one is that you can't separate Bitcoin's blockchain technology without Bitcoin itself. Thus, you cannot have your own private Bitcoin network to use for other purposes. Also, as far as banking and payments go, Bitcoin has an embarrassing limit as far as the number of transactions it can perform per second which makes it useless as a global payments system when you compare it to Visa and Mastercard that can process and confirm millions of transactions globally per second. Lastly (there are other issues but I will stick to these 3 for this newsletter), the fees per transaction you are charged are not standard, it all depends on how much is each computer on the network willing to accept as a fee to confirm your transaction. As such, this can see you (as a % of the transaction) paying exorbitant amounts in transaction fees, and other times paying very low transaction fees. This also delays how quickly a transaction can be confirmed, from minutes and sometimes to even hours, making it not so viable in retail situations.
The above issues I have highlighted (along with others), have led to the proliferation of many new cryptocurrencies which use blockchain technology. Unfortunately all these cryptocurrencies are nowhere near what Bitcoin is worth.
With all that said, I have to ask again, what value then does Bitcoin add to our day-to-day lives and what determines its skyrocketing price apart from speculation and consensus that it is a potential store of value (e.g. similar to gold)?
I'd love to hear your thoughts given that a single Bitcoin is now approaching $40,000.
Maybe you shouldn't "invest" in Bitcoin but you should read today's top stories below.
₿ According to Marius Reitz, General Manager for Africa at Luno, the recent Bitcoin rally differs from the previous bull run in 2017 in that the first one was largely driven by retail investors’ fear of missing out. This time, sophisticated investors are taking up long positions. Link
📲 A few years ago, Safaricom introduced M-PESA 1Tap in Kenya, a service that was supposed to revolutionize payments. Unfortunately, despite it reducing the number of steps taken to make a payment, it failed. No one has shed light on why it failed to date. Link
⚖️ During its previous presidential elections, Kenya became a victim of narrative manipulation, especially on social media. The aim was to try and influence how the public votes, behind all this, was the infamous company - Cambridge Analytica. In this article, the author argues that policymakers in Kenya must speed up adopting the proposed Data Protection law before the next elections. Link
🗳️ Here is some background information on Cambridge Analytica's role in election interference in Kenya. Link
🧾 It turns out advertising on Facebook has very little impact on sales. "Of 43 publicly traded companies examined by Forrester that participated in the Facebook boycott during the summer, only seven saw their revenue decrease in the third quarter as compared to Q2, according to the findings by Sucharita Kodali, vice president and principal analyst with Forrester. In that cohort, the other 36 companies' revenue increased quarter to quarter." Link
Quote of the day
This is what you need to know about Bitcoin, recent price spikes (and drops), and why perhaps you shouldn't take your hard-earned money and speculate on it. (Tweet this)
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