“Bitcoin is a bank in cyberspace, run by incorruptible software, offering a global, affordable, simple, & secure savings account to billions of people that don’t have the option or desire to run their own hedge fund.”
The importance of mining
The purpose of mining is to secure and protect the integrity of the Bitcoin blockchain and the transactions within it. The volume of processing power in the Bitcoin network ensures that the consensus-based mechanism known as “proof of work” is nearly impossible to hack or crack. It is possible to achieve trust and consensus in a decentralized network by using proof of work, and all transactions in the Bitcoin network are validated using cryptography.
Evincing resistance against manipulation
As the total value of Bitcoin continue to grow, having surpassed a trillion dollars in total market cap, its resistance to market manipulation and extreme volatility is also increasing. Smaller cryptocurrencies by comparison are a lot more vulnerable to pump and dump schemes and other manipulative activities which are prohibited in more regulated stock exchanges. They are also more vulnerable to irrational and erratic trading patterns by retail investors, switching between euphoria one day and complete panic in the next.
The total amount of Bitcoins is finite and the supply of new coins from the blockchain (through mining) is fixed, independently from market-demand, halving every fourth year. Bitcoin is the only cryptocurrency that genuinely represents absolute scarcity.
Growing adoption and network effect
Since its infancy, Bitcoin has been driven mainly by retail investors. This changed last year when we started seeing true institutional adoption, led by companies such as Square, Paypal, Microstrategy among others. This year has marked the milestone when we saw entire countries adopting Bitcoin as legal tender. Huge public companies like Tesla has added it to its balance sheet and started accepting it as payment for their products.
The growing network effect and its own gravitational pull combined with genuine absolute scarcity, at a time of aggressive expansionary monetary policies, negative interest rates and threats of exponential inflation rates, Bitcoin appears as perhaps the safest and most rewarding asset class available in our lifetime.