“BITCOIN TO $5.7 MILLION!”
And other provocative things you can say at an office party
Thanks to having recently broken through the psychologically significant $10,000 per coin price barrier, bitcoin is now all the rage. Main stream media, heaven help us, can’t get enough of talking about this new “asset class”, “digital gold”, “money for the Millennials”, and it’s new breed of “blockchain billionaires”.
These new headlines alternate in whipsaw fashion, of course, with the usual suspect “Ponzi scheme”, “fraud”, and “bubble” stories depending on the day of the week and bitcoin’s then current price.
But there are no ‘coins’ in bitcoin. It is simply a protocol, a protocol suite to be precise, that describes how to send value packets over the Internet. That’s it. Kind of like how the TCP/IP protocol describes how to send information packets over the Internet.
Ironically, bitcoin’s secret identity as a boring Internet protocol (disguised as a sexy digital currency) holds the key to understanding its inevitable growth in value.
Because, much like the exponential growth in traffic experienced by the Internet after the general adoption of TCP/IP, there will almost certainly be an exponential growth in bitcoin’s price as it is increasingly used as the default transport mechanism for value exchange over the Internet. (Not that there won’t be other competing value transport protocols (read crypto-currencies) vying for the top spot, there will be, but the first mover advantage, judging by the headlines from the world-wide press over the past several days, goes to bitcoin.)
To better understand the hypothetical (not investment advice!) price potential of bitcoin, let’s conduct a thought experiment using the TCP/IP case-in-point:
It is the year 2000, the Internet is already a ‘thing’, and I approach you with the following business proposition: I have created a company called TCP/IP, Inc. and have issued 21 million ‘tokens’ to represent the total value of the protocol. I offer you 1 token for $10,000 dollars and explain that the value of your token will go up in proportion to the growth in Internet traffic, and I assure you that there will never be more than the original 21 million tokens offered. Will you take the deal?
Hmmm… let’s see. In 2000 the total Internet traffic was about 75 million gigabytes per month, and with the typical user experience formed by the technological limitations of first generation routers and 300-baud phone-cradle modems, you might have been forgiven for wondering how much more traffic the Internet could actually handle. So maybe take a pass on the investment opportunity, right?
Wrong. Within fifteen years the global Internet infrastructure had been significantly upgraded and Internet traffic had grown to 43 billion gigabytes per month, 565 times what it was in year 2000, translating into a whopping 57,000% growth rate for your investment, putting about $5.7 million in your pocket. Simple text email and FTP files sends eventually evolves into ubiquitous streaming video on multiple devices and, with no limits in sight, the investment proposition I offered turns out to be a very good deal indeed.
Similarly with bitcoin, all of the ‘issues’ you hear discussed around scalability, open source governance, and public policy frameworks, are to-be-expected growth pains for such a transformational technology, and will soon be sorted as the the network effect kicks in. Fast, easy, programmable, global value transfer without counter-party risk. Let that sink in for a moment; actually makes information packet transfer seem like relatively small potatoes.
So there’s your office party attention-getter: “Bitcoin to $5.7 million!”
Let me know how that works for you.