Bitcoin: Let’s put the utility argument to bed

Summary of the assignment

Bitcoin (BTC-USD) is described by many as a speculative asset with no practical use. However, there is plenty of evidence to the contrary. Bitcoin is already a currency and it has the right ingredients to be a store of value. On top of that, there are many other ways Bitcoin adds value and many more will arise in the future, thanks to the robust ecosystem being built on the lightning network.

What many people don’t seem to understand is that Bitcoin is a living and growing system, with over 50 years of rich history. Our understanding of Bitcoin must be dynamic, which is why it is so important to appreciate the latest developments happening in Bitcoin.

Bitcoin is not just a currency anymore, but a resource that gives you access to a growing ecosystem.

Bitcoin: A Rich and Unknown History

When Bitcoin first started, it was nothing more than an interesting technology. Engineers and those with the necessary programming skills could easily mine this digital currency, which was traded for pennies. Bitcoin was nothing more than a fun novelty.

Although Bitcoin, as we know it today, was created in 2008, there is a rich history of cryptocurrency. Numerous papers and projects have been published since as early as the 70s, and each one has expanded on the previous work, finally arriving at Bitcoin.

In 1976, “New Directions in Cryptography” laid the foundation for the use of cryptographic keys in computers. In 1989, Digicash was founded, which essentially provided cryptographic payments, although the company went bankrupt in 1998. Other similar forms of digital currency emerged afterwards such as CyberCash and E-gold in 2006, Liberty Cash succeeded in popularizing a centralized digital currency, but it was shut down by the US government in 2013.

Finally, in 2008, Satoshi Nakamoto published the Bitcoin Whitepaper, “A Peer-to-Peer Electronic Cash System”. Because of its decentralized nature, Bitcoin was able to avoid bankruptcy and regulatory shutdown and succeeded where its predecessors had failed.

Bitcoin as a means of payment and store of value

As we can see, it took decades for Bitcoin and blockchain/cryptographic technology to evolve from a simple idea to an actual working currency. In the 14 years since the first Bitcoin was mined, the cryptocurrency has grown to become one of the most valuable assets in the world, with a market value of over $400 billion as of today.

Bitcoin detractors are quick to point out that Bitcoin has no real use beyond speculation. This may have been true in 2008, and it was even more true in 1970, but as I write this today, the fact that Bitcoin is at least an accepted form of payment is undeniable.

The world’s leading cryptocurrency is accepted by a number of companies, has been used by individuals to buy houses or cars, and is even recognized as the official currency of a country.

The proof is in the pudding, and the argument for Bitcoin adoption is no longer relevant. It has been adopted, and it does what a currency should do. People all over the world know that if they can receive Bitcoin, they can use this Bitcoin to buy the things they want. They may have to sell Bitcoin for fiat currency, but this can be done almost instantly,

However, the more nuanced point behind the concerns of anti-Bitcoiners may be that even if people are happy to trade it now, it won’t hold its value in the long run, making it inefficient to use in trade.

Without going into too much detail on a topic that I’ve covered here before, Bitcoin has all the right ingredients to function as money and a store of value. It has a limited supply,

it is not controlled by anyone, and it stands the test of time. The only real hurdle to Bitcoin becoming a store of value was adoption, and that hurdle has been crossed.

At the end of the day, anything can work as money. In ancient times it was precious stones, in prisons it is tobacco, and in El Salvador it is Bitcoin. However, the real question is, what else can Bitcoin do for us?

Bitcoin can be more than money

Now, on the other side of the spectrum, there are also those who understand the benefits and advantages of cryptocurrency, but are skeptical about whether Bitcoin is the best cryptocurrency out there. These people believe the usefulness of BTC is limited because it was designed with the sole purpose of being a currency. But thanks to the lightning network, Bitcoin is quickly becoming an ecosystem that can also support a wide range of applications.

The key to unlocking the next “stage” of the BTC utility is full utilization of the lightning network. The Lightning Network is a layer 2 payment protocol that works on top of the Bitcoin blockchain. It enables faster transaction speeds by allowing Bitcoin transactions to be settled off-chain, therefore taking the burden off the Bitcoin blockchain.

The chart below shows how the lightning network capacity has grown in both BTC and USD.

As we can see, activity in the lightning network has increased sharply in BTC terms, even though prices have fallen. The lightning network has been adopted by various exchanges and applications such as Square (SQ)’s CashApp, and it is also used in El Salvador.

There is a wide variety of apps that are built on the lightning network. First, wallets such as Electrum and Phoenix enable self-storage of various cryptocurrencies and instant transactions.

Another interesting use case that has emerged is node management. Terminal helps node operators manage liquidity. There are also apps like Bitnoder, which allow running a node-as-a-service.

There are also interesting apps being built in the gaming and entertainment sectors. An example of this is Fountain, a podcast that allows both listeners and creators to earn Bitcoin in the process. In games, we have THNDR Games, which designs various Android and iOS compatible games to earn money.

In total, there are over 100 apps operating in the lightning network.

My point here is that Bitcoin is now entering the next phase of its journey. Over the past 14 years, it has achieved the status of a currency, gaining worldwide support and acceptance. Now it’s Bitcoin’s turn to prove that it can actually be much more than a currency. Thanks to blockchain technology, Bitcoin can lay the foundation for a new financial system. One that is decentralized has no barriers to entry and is truly free and democratic.

Other considerations

It’s true that Bitcoin’s ecosystem still pales in comparison to Ethereum’s (ETH-USD) network. The latter has many more apps and developers working on it. However, ETH is a general blockchain, while BTC is more focused on payments. Ultimately, this will make the Bitcoin network more focused and robust, with fewer, better quality apps.

Bitcoin will always have to compete with new technologies and cryptocurrencies, but it is thanks to its strong foundation, rich history and worldwide adoption that I believe Bitcoin will be able to remain the most valuable cryptocurrency.

The other major hurdle facing Bitcoin is, of course, regulation. The control over currency gives countries a lot of power, and a system based on Bitcoin would take this away from them. This is why countries are largely against crypto and are trying to pass legislation to control or even limit its use. In the past, projects such as Liberty Cash were shut down by the government. But this is why Bitcoin’s decentralized nature is such an important characteristic. Bitcoin cannot be shut down from a practical perspective because no one controls it.

Final comments

When it comes to understanding cryptocurrency, the first fact we must accept is that there is no such thing as a perfect currency. Even in today’s “advanced” monetary systems, currency crashes and instability occur. Fiat currencies depend on the strength of the governments behind them, and it would be hard to deny the idea that political organizations have become more fragmented and less cohesive in recent years.

Bitcoin may not be perfect either, but it is not dependent on external forces. This, combined with its revolutionary technology, is what has allowed Bitcoin to earn a place in today’s world as a respected and accepted form of payment.

Now, with the hurdle of adoption mostly behind us, and the power of the lightning network, we are ready to take the next step in the Bitcoin journey. We are now ready to fulfill Bitcoin’s promise of a worldwide decentralized banking system.

This is why I believe it is so important today to gain exposure to Bitcoin. Not only because of its potential price increase, but because Bitcoin can now be used in a number of different ways. Your Bitcoin will give you access to a whole new set of applications and it can even be used to earn passive income by running a node or even lending it out.

The utility of Bitcoin will only continue to increase exponentially as more people realize this.