Market value approaches double that of Berkshire Hathaway! Three years later, is Bitcoin still the "rat poison" in Buffett's mouth?

In 2021, we have seen many publicly listed companies adding Bitcoin to their balance sheets. Over the past six months, institutions have been entering the market in droves, with at least one common goal: to "store value" and hedge against inflation through Bitcoin amidst global monetary easing.

However, many still do not understand why these institutions choose Bitcoin. Aside from the reasons mentioned below, perhaps every year in the future, we will see more new "highlights" of Bitcoin.

(This article is authorized and reprinted from "Plain Language Blockchain," with the original title "312 After a Year, Is Bitcoin Still the Rat Poison in Buffett's Mouth?" Original article here)

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If you randomly pick someone from the circle and ask, "What is the use of Bitcoin? What is its value?" Many people's answer may be nothing more than the word "speculation."

Sometimes, when we look at the "skyrocketing" price and market capitalization of Bitcoin, have you ever thought, "How did something that was almost worthless, had no background or backing, and just a virtual thing, manage to accumulate wealth from scratch to a trillion-dollar market value in 11 years?"

Fundamentally, Bitcoin is just a computer software, and for most people, it is just a pile of unreadable code, making it almost impossible to see its value. When it comes to a software that can amass so much wealth, the most familiar and understandable example to us is Bill Gates and his Microsoft Windows operating system.

Windows entered thousands of households and various industries, and people improved productivity and created immense value through this computer program, making Microsoft the world's most valuable company at one point.

So, as a software with an exceptionally high "net worth" like Bitcoin, "value comes from consensus," this phrase has been heard so often. In fact, what many people are more interested in knowing is: what specific value has Bitcoin brought to individuals and events, thereby supporting the consensus on it and steadily pushing its market value over a trillion?

1. Miners and Other Participants in the Mining Industry

In simple terms, Bitcoin mining machines are like constant profit-making machines for miners. They generate value like a chicken laying eggs, potentially leading to the path of becoming billionaires. This is the value of Bitcoin for participants in the mining industry, including miners, mining equipment suppliers, and mining pools (service providers) involved in the upstream and downstream of the mining ecosystem.

As explained in a straightforward blockchain introductory article "Is there a difference between a Bitcoin mine and a chicken farm?", miners are the most important participants in the Bitcoin ecosystem. For miners, mining machines that can produce Bitcoin are like a "mother hen" laying golden eggs.

Although mining is not as simple as one might imagine, and is somewhat like operating a "chicken farm" where various suitable environments, maintenance, and the supply of "food" energy are needed to successfully produce "golden eggs" for profit, miners are attracted by the profit distribution mechanism of Bitcoin, leading to new miners continuously joining the industry.

Today, over a decade later, we see self-made digital crypto tycoons emerging from the mining industry, and it is the miners who ensure the security of the Bitcoin system, enabling Bitcoin to remain robust.

2. Users

The full name of the Bitcoin system is: a peer-to-peer electronic cash system. Therefore, for users, it is a means to initiate transfer transactions. Why use it for transfers? Simply put, it saves time, effort, and money.

Bitcoin enables transfers to reach the recipient's account directly without going through banks, third-party payment companies, etc., eliminating the processing time, operational costs, and fees of third-party institutions. The fees charged by banks and other financial institutions for financial services go towards building their towering skyscrapers, illustrating the significant expense involved.

In reality, many people may not fully understand the concept of third-party guarantor institutions. Often, transfers are free because in a credit society, small transfers are completed through the credit limits between different financial institutions, rather than actual transfer of funds.

But what about large transfers? For instance, in the Bitcoin network, where values can reach millions, billions, or even tens of billions, the traditional banking system struggles with high-value transfers. These large transfers often require counter transactions within the same bank and pre-booking. Imagine attempting to withdraw a billion from a bank account, the challenges include using armored vehicles, security, and a large team to handle the cash.

By contrast, processing a high-value asset transfer exceeding billions through the Bitcoin network takes just a minute, with transaction fees of just a few dollars, and the transfer is completed rapidly. This is the practical value of Bitcoin.

3. Hodlers, Speculators

Due to Bitcoin's utility and numerous favorable characteristics, akin to gold but with additional advantages, it has become a store of value similar to international hard currencies like gold. Consequently, many people are accumulating Bitcoin as a form of digital gold.

Being only "12 years old," Bitcoin is still in its early stages, with significant volatility due to external scrutiny. This volatility creates ample room for speculation, attracting speculators. Stories abound of early Bitcoin adopters becoming crypto millionaires, or the infamous example of a high-priced Bitcoin purchase for a pizza, resulting in missed opportunities or financial losses for speculators.

For example, consider the earlier analogy of miners and chicken farms; Bitcoin is akin to the "golden eggs" laid by mining machines, comparable to chicken eggs which are not only nutritionally rich but also serve as raw materials for various delicacies, directly and indirectly contributing to significant economic benefits. Most people usually stock up on eggs in their refrigerators for daily consumption.

Due to various external factors such as avian flu leading to a decrease in egg production, egg prices can fluctuate significantly, prompting speculators to engage in egg futures trading, thus "speculating" on eggs.

This is the value that Bitcoin brings to hodlers and speculators.

4. People in Poverty, Underdeveloped, or Turbulent Areas

With low transfer costs and fast transaction times, Bitcoin offers a practical solution for transferring funds in many impoverished countries without the need for expensive network infrastructure. Bitcoin's infrastructure is built by miners worldwide, relieving poor countries' governments of the burden of building such infrastructure, and enabling cost-effective payments and salary disbursements without intermediaries, resulting in significant cost savings.

These countries and regions in need often receive financial aid from around the world to alleviate poverty. Many charitable organizations globally donate through Bitcoin, as this allows donors to transparently track the flow of their funds and ensure they reach the intended recipients. This transparency enhances the openness of charitable activities and ensures that people in impoverished areas truly benefit from the aid.

How valuable and usable are cryptocurrencies like Bitcoin as a transfer infrastructure in impoverished regions? For instance, due to limited infrastructure development, convenient and economical payment methods like WeChat Pay and Alipay in China may not be available in many countries, making it challenging to develop similar mobile payment solutions.

However, with Bitcoin transfers, all that's needed is a device capable of running simple programs to send signed and encrypted transfer information, regardless of the recipient's online status. Even without internet access, transferring via SMS or handwritten letters with the signed and encrypted information broadcasted to the Bitcoin network by a third party can complete the transfer, a feat impossible with traditional methods.

5. Energy Value Storage

In remote corners of the world rich in mineral resources or abundant natural resources like hydro or wind power, there is often excess energy production from coal mines, power plants, or wind farms due to high transportation costs or sparse populations, leading to underdeveloped economies in these areas.

These regions greatly benefit from hosting miners, who not only create numerous job opportunities but also convert surplus local energy into electricity resources, generating profits through Bitcoin mining. Essentially, Bitcoin enables the storage of the surplus energy value that would otherwise go to waste, and the generated revenue can stimulate the local economy by paying electricity bills to the government and the people.

This field is still evolving, and the future introduction of network infrastructures like 5G may utilize clean energy resources worldwide, storing and maximizing clean energy resources for the local population, ultimately creating more substantial income opportunities.

6. Illicit and Gray Uses

Due to its characteristics, Bitcoin's early value was largely supported by "illicit" or "gray" activities. However, as Bitcoin becomes more mainstream, the "sunlight" is breaking through, and these dark corners are gradually exposed to intense scrutiny.

Like a double-edged sword, Bitcoin possesses transparency and traceability that lawbreakers fear. With stricter regulations globally and the discovery of more legitimate use cases, the proportion of Bitcoin's illicit activities is significantly decreasing, making it potentially more challenging to use Bitcoin for illegal purposes than traditional cash.

7. Conclusion

"Value comes from consensus" can also be viewed inversely. The extent of consensus depends on how many problems it solves for how many people, thereby creating value. Bitcoin, at just 12 years old, has established itself as a trillion-dollar "tycoon" by helping others amass wealth, store wealth, save costs, and alleviate poverty.

Of course, the story is far from over. What will the future hold for Bitcoin when it reaches maturity, and how crazy will the world become? Only time will tell.