So, what is Bitcoin? Is it like Gold, or a Currency, or a Stock?

 IS BITCOIN LIKE GOLD?

I am told that bitcoin is like one of those rare objects, like diamonds or gold, and therefore humans crave for it.  Rarity, or limited supply, is what makes humans covet them.  Bitcoin is rare, therefore humans covet it, is how they reason.

I personally do not think that is the case.  Take Astatine, which is one of the rarest element on the planet Earth.  It is rare, and yet, humans have no craving for it.  Or take Iridium, a rare metal, which is also permanent like Gold, Diamond and Platinum, and yet, it is not a coveted metal.

I think humans like trinkets, baubles, something intricate, beautiful, or shiny, or glittery, something they can wear, something they can show to others, and amongst these intricate, shiny and glittery objects, the rare ones turn out to be most coveted, and therefore expensive.   That's the reason why Art by famous painters is expensive.  They are rare, but they are also considered beautiful. 

Lot of people tend to think of Bitcoin as Gold.  That is not the case.

Bitcoin is more like Astatine or Iridium.  It is rare, yes, but it is NOT a trinket, a bauble, intricate, beautiful, shiny or glittery.  Like how humans showcase glittery ones to people, nobody showcases their Bitcoins.  It cannot be shown. The owner doesn't feel the same way, the way he feels when he showcases his Kohinoor diamond, or Picasso painting, or vintage Ferrari. 

When shit hits the fan, Gold still has value, because humans like to continue to possess it. Because it is shiny.   Nobody cares for Astatine or Iridium, even though it is rarest of rare.  Nobody wants to buy it.   Same with Bitcoin.

Bitcoin has some fundamentals that are wrong, concerning human nature.   Humans covet certain objects across generations, across cultures, almost giving it universal appeal.  Gold has withstood that test of time, and remains coveted across generations, cultures, and probably for a very long time into future.  

However, there are some fads that remain confined to certain times and certain regions, but very soon fall out of fashion.  Bitcoin is more like that fad.  It closely resembles the Dutch Tulip Mania, but still falls short, because Tulips were at least beautiful to look at.  Bitcoin does not.

Bitcoin has nothing that makes it appealing like Gold.  It is not a bauble, a trinket, intricate, or beautiful.  

Therefore, Bitcoin is nothing like Gold.

SO, IS BITCOIN A CURRENCY?

Yes, a currency may have no intrinsic value.  The paper currency has no value.  However, it is a promissory note.   Its credibility comes from the fact that a sovereign nation has pledged that promise.  Therefore, when shit hits the fan, the hope, or the assumption, but most importantly, the trust, is that this sovereign nation is going to take its promise seriously and will give you something back in return for that currency note. 

A sovereign nation could always do something else to compensate its citizens.  It could give out land, it could dole out food, it could give gold, it could convert their currency into future bonds.  It could provide future employment, future loans, or future prospects.  And that's why people trust in a sovereign nation, and consequently, they trust the promissory note issued by that sovereign nation.

That's why the more stable a sovereign nation, the more valuable or trustworthy its currency is. 

The more likely a sovereign nation is going to default, go bust, or renege, the less valuable or less trustworthy its currency is.

US Dollar is coveted, not because of its intrinsic value, but because of its credibility.  US is seen by the people as a sovereign nation that has stable future, a solid future, a permanency, stability, and most importantly, the credibility, that it will not renege on its promise.  Whether it is indeed the truth or not, is debatable, but the perception is such, and therefore the US Dollar is coveted.

What happens to Bitcoin?  Is it a promissory note? If so, who is going to stand as guarantee? When shit hits the fan, and you want to cash in, which bank do you run to? Who is going to honor the promise? Who do you hold accountable? Who do you make pay for it something in kind, something else in return?

When shits the fan, Bitcoin is going to disappear like thin air. There is nobody standing behind the counter to give something else back to you.  No sovereign nation.  No bank.  And that's why it is NOT a promissory note.

Therefore, Bitcoin is not a currency.

SO, IS BITCOIN A STOCK?

I see Bitcoin ONLY as a stock.  Because people buy a stock hoping its stock price goes up in future.

And in that regard, Bitcoin behaves absolutely like a good stock.  As long as its price goes up, one likes to buy it.

But the essential problem is: Bitcoin doesn't have anything intrinsic.  It is not a commodity, like aluminum or gold, which always have some intrinsic value, and it is NOT a business which shows growth and has future prospects.  It is NOT a currency either.

So, what is it? And that's where it becomes problematic.

Because it is completely thin air, Emperor's New Clothes.

It is an artificial system created for rich enthusiasts, like a game, where one could keep propping the stock price up, by enrolling more and more people into buying thin air.   Some MBA colleges play this game, where they are given artificial money to play with.  Bitcoin is something like that.  A game for rich enthusiasts to play with. 

People who are committed into it or vested into making a profit out of this game, keep propping it up, but otherwise, it is just a game, of people buying thin air.  And like Tulip mania, which went bust, one day, the hype of Bitcoin is just going to end, and it will just fall down, to become almost zero value.  Tulip mania at least created organic trash, which could be used as manure.   In this case, one just has to shut down the computers, and it’s all gone.

And after hundred years, like how we read the Tulip mania, the future generations will read about Bitcoin mania, and they will wonder how foolish our generation was.

PREDICTION

I have an ongoing bet with a friend.

I predict that Bitcoin will be less than $5 by 2030.

He predicts that Bitcoin will be nearly a $1M by 2030.

If he wins, I have to buy him the most sophisticated smartphone of that time.

If I win, he as to buy me the most sophisticated digital camera of that time.

‘If Germany and Japan could do it, why not India?’

In many discussions and debates amongst the urban middle class, the common refrain has been:

‘If Germany could get back to become an economic superpower after being bombed to smithereens in World War II, and if Japan could come back to become a super economy in the aftermath of being atom bombed, why could India not achieve super economy?' 

The above observation is slightly flawed.

As an organization in Japan that can build a Toyota car, even if the entire factory is obliterated, but if you still have 70% of knowhow in the workforce and leadership, you can always create another factory to create a Toyota car within few years.  

But a country like Ethiopia may not be able to do so even if it is given 100 years.

Comparing Japan to Ethiopia is therefore patently wrong. 

Japan, even after extensively bombed, can get back on its feet, because of the knowhow, the ability to tap into capital, create a new factory, based on experience, which Ethiopia thoroughly lacks.

A person who is well-educated, has experience under his belt, could get into entrepreneurship, and for some bad luck, could fall into harsh times, lose everything, all assets, all wealth, all cash reserves, and hit the rock bottom, BUT still could recover within few years, recover from penury, and hit another good idea, pursue new startup, use existing network to raise capital, create teams, and become prosperous and successful.    

However, a Dalit, caught in vicious cycle of poverty, facing discrimination, owing people money for the loans he took, lacking education, lacking access to opportunity, lacking network, lacking capital, even if given a lifetime, may not escape poverty. 

There are two lessons here.  

India cannot be compared to Germany or Japan after World War II, because our experiences have been different prior to World War II.  India had to go through necessary experiences, which is currently going through, to become an economic superpower, and it takes time, takes decades, to be able to acquire the experiences, have access to capital, create talent pool within, so as to become an economic superpower. 

The experiences of privileged class person going through poverty cannot be compared to a Dalit who has always been caught in the vicious cycle of being at the bottom of socioeconomic pyramid.  Sometimes it takes few generations for someone caught deep in caste-based discrimination, poverty, and indenture, to break the shackles and start climbing the ladder of opportunity.