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Deep Understanding of Bitcoin as an Asset Class and Investment Tool

Louis Liu, a prominent activist in the Chinese bloc, in an essay Published on the Medium website, this new asset class will help people better understand Bitcoin. 

In his article, he examines bitcoin from three perspectives, based on conversations he has had with managers of startups and digital currency investment funds over the past two years.

  • The uniqueness of bitcoin
  • The social value of bitcoin
  • The value of bitcoin investment

Unique like Bitcoin

A journey into the depths of investing called Bitcoin

The first step to understanding bitcoin is to know the difference between bitcoin and other things. What exactly has Bitcoin changed?

The technologies used in Bitcoin, such as private key, public key, cryptography, distributed general ledger, public database, proof of work, tokens, etc., are all technologies that have existed for many years.

All that Bitcoin did was combine all of these technologies in a clever and ingenious way to build the first “computer autonomy” platform . A platform that separates money and currency accounts from government.

In the past, kings, queens, and national or federal governments represented sovereignty, and what they all had in common was their right to mint coins or print money. With the advent of the Bitcoin blockchain, for the first time in human history, this power was offered by a computer platform: a computer-based coin called Bitcoin.

Bitcoin, a decentralized power

A comprehensive discussion of the investment logic of BitcoinNinety bitcoins, an impenetrable fortress

The decentralization of power in Bitcoin is one of its inherent characteristics, which means that Bitcoin does not need any other group or entity to prove the authenticity of transactions. instead And miners are the two main factors in maintaining this decentralized rule.

The degree of decentralization of the Bitcoin blockchain can be seen from the number of nodes. Any computer that connects to the Bitcoin network and receives the blockchain is called a node. Nodes are important parts of generating, receiving, and transmitting messages for the purpose of disseminating current transactions in the Bitcoin blockchain.

Nodes allow bitcoin transactions to be transferred on a peer-to-peer basis without the need for a third party entity or group. When updating Bitcoin (Fork) software, any node is free to accept or reject it.

Bitcoin is still one of the largest blockchains in terms of the number of nodes, with about ten thousand nodes.

The number of Bitcoin nodes is 20% higher than that of its closest competitor, Atrium.

The security of the Bitcoin blockchain and the authenticity of transactions on its chain are protected and verified by miners. The miners must place the blocks in a frame as a Chinese block, providing the required processing power. The bitcoin chain also gives them some bitcoins as a reward.

If the bitcoin reward is removed from the Chinese block, the miners will lose their motivation to protect it, and as a result, its security and independent power will be lost.

Today, the daily extraction of bitcoins consumes more than 7 gigawatts, equivalent to the daily consumption of Switzerland, electricity. Bitcoin computing power has set a new record compared to 2017 and has reached 100 quintillion hashes per second.

A comprehensive discussion of the investment logic of Bitcoin
Bitcoin hash rate

Higher computing power means more people are investing in bitcoin mining; On the other hand, the more they are, the more secure the bitcoin blockchain will be.

Many people consider the power of bitcoin to be harmful to the environment, but this is too much to rely on and cannot be relied on. According to Coinshares, about 74.1 percent of Bitcoin’s power needs come from renewable energy sources.

It is interesting to know that 60% of the electricity required for Bitcoin also comes from China.

The value of bitcoin is directly dependent on the processing power required. Miners have to spend a certain amount of electricity to extract bitcoins. If bitcoin does not require electricity to be extracted, its security will be completely destroyed and its network will be easily attacked. The loss of bitcoin computing power will make it no longer an independent computing power; In this case, it will lose its value.

If a person or persons intend to destroy bitcoins, they will incur not only the purchase of mining devices, but also the provision of the electrical power they need.

To overcome the current bitcoin computing power figure, they must provide electricity equivalent to one day’s consumption in Switzerland. It is clear that with the increasing computing power of Bitcoin, destroying it will become much more difficult.

Bitcoin has been attacked many times by many hackers, none of which have been successful, and this proves the high security of Bitcoin. Of course, many organizations and countries can be expected to attack Bitcoin in the future because of the threat it poses to their power. In this case, only time can prove the independent power and security of Bitcoin in the future.

The Legend of China Block

Valuable technologies based on Blockchain They must have two important characteristics. First, the value of China’s blockchain technology lies in its decentralization; This means that no individual or entity should be able to easily change current transactions in the China Bloc or its infrastructure.

If the data in a blockchain could be easily changed, that chain would no longer be a decentralized system and would lose its original use. Decentralization is the main and ultimate goal of China Blockchain technology.

This feature has been realized at least in the case of Bitcoin, because it has been able to create decentralized money for people. The only innovation that can be found in the heart of the Chinese bloc is the creation of a decentralized government in the virtual world.

In addition, it must be borne in mind that the stability, independence and scarcity of a monetary system will affect the value of the Chinese bloc. If we implement a currency on the Chinese block, as the value of that currency disappears, the Chinese block will also lose its meaning. Monetary policy and the way Bitcoin is delivered have never gone wrong in the last ten years.

What makes Bitcoin valuable is its stable and predictable offering and its limited quantity. Many blockchain technologies and digital currencies on the market do not have any of these features. Currently, only Bitcoin offers two features in an acceptable way, and it is not acceptable to have either without the other.

Bitcoin and not the Chinese blockchain

Many people still do not understand bitcoin properly and believe that the Chinese blockchain is more powerful than bitcoin and more innovative than it is. The China Bloc is not a revolution that is going to change the world, but a slogan created by investors and startups to meet their advertising and marketing goals. Many companies have been able to extort hundreds of millions of dollars from investors who know nothing about the Chinese bloc. The phrase “Bitcoin is not a blockchain” is quite appropriate to correct today’s chaotic and illiterate market. The transformation and real innovation is the bitcoin currency and its blockchain platform, not a concept called blockchain.

Socio-economic values ​​of Bitcoin

Does Bitcoin have any intangible value? The answer to this question has occupied the minds of many experts for many years.

Compare Bitcoin, Dollars and Gold

Since Bitcoin is not a company and its shares cannot be profited from, it has no intrinsic value. Bitcoin can be considered a currency, in which case Bitcoin, like most currencies, will have no intrinsic value. Gold, dollars, and national currencies are used only because of their supportive government monetary policies. The biggest challenge facing Bitcoin is how to gain widespread social recognition. A challenge that is very difficult and breathtaking to overcome, but it should not hinder our efforts.

The evolution of money

So far, Bitcoin has made it possible to exchange values ​​and settle global accounts. Bitcoin follows the same logic as gold for 2,000 years and the dollar for 70 years as a global currency. Bitcoin as a rarer, more transparent and peer-to-peer currency is even better than gold and dollars.

And bitcoin is scarce because the code embedded in it has set the maximum number of units available at 21 million, and changing that number requires the consensus of 51% of network members; In other words, few people do not have that power.


The next important point is that third parties cannot legislate for it.

No one can change a current transaction on the network or prevent others from using it.

This feature was able to give the world economy a level of freedom that was unprecedented, and in this respect is only comparable to the freedom of information that the Internet offered to the world.

Gold is a valuable asset that is thousands of years old and most people value it and that is why it is superior to bitcoin. We can not compare bitcoin with gold in terms of age or validity. The advantage of the dollar is that the dollar is a global currency and its network effect is in no way comparable to bitcoin.

These advantages are features that Bitcoin cannot replace in the short term, but perhaps one day we will be able to understand the value of Bitcoin as a currency that cannot be controlled or arbitrarily generated.

Bitcoin as an intermediary currency

Bitcoin will not replace any national currencies, even if successful, but it can rise above national currencies and become an intermediary currency, a neutral monetary settlement system, and a new standard. As we now have several universal measurement systems such as mileage for distance and kilogram for weight.

These scales will never change for political reasons, but in the economy after the abandonment of the gold standard (gold-backed money), no new standards for measuring the value of money have replaced it.

The global currency may be valued in US dollars today, but it is by no means a good scale for reasons such as its vulnerability to political influence and monetary policy and its long-term depreciation. What we need in a world full of extra money is a standard of non-political monetary value.

Bitcoin has the potential to become an international non-political settlement standard.

Currently, only banks can participate in regional or international settlement networks (Swift, Fedwire, ACH, CHAPS, VISI and MasterCard).

Individuals, organizations and governments can only operate in these networks through these banks. Using these networks to transfer money abroad can take several days; A very vague and costly process in which it is possible to exert political influence.

Instead, imagine an open platform in which individuals, businesses, and governments can settle their accounts on a 24-hour, peer-to-peer basis. A very low cost and transparent platform that operates regardless of time, place, amount and political ideologies. This is what can transform money. A process just like the Internet that revolutionized the flow of information.

In the world of bitcoin, all currencies will be valued based on bitcoin and satoshi (the smallest unit of measurement of bitcoin). If your grandfather asked you how many bitcoins each dollar was worth, you could say, for example, about 7,200 satoshi (compared to the daily price of bitcoins).

Oil is about 19,000 satoshi, US gross domestic product is 5 million bitcoins and Taiwan’s national reserve is 100,000 bitcoins.

This bitcoin-based valuation can be used in many currency-based exchanges.

If the financial foundation of the future is based on bitcoin, the world of the future will be very different from the world we know today. If the price of a currency is constantly falling, people will be more inclined to spend it because if they do not spend it, it will be worth less than the day before.

Today’s financial institutions encourage their customers to invest to ensure the value of their clients’ assets, because investing in non-cash assets is the only way to combat Inflation Is. These organizations are so large and influential that they cannot ignore behind-the-scenes national monetary policy.

If the monetary system is based on a non-inflationary currency, the consumption habits of the people of that country will also change. In this case, they prefer to save their money instead of spending it. Conversely, as capital becomes more traditional, the way people invest will become more prudent in the future. Bitcoin as a scarce currency in the age of capital inflation can become a tool to fight inflation.

The value of bitcoin investment

A journey into the depths of investing called Bitcoin

Bitcoin is an open source protocol. Unlike the history of a company (such as Amazon, which revolutionized the retail market, and Apple, which replaced Nokia), the history of a protocol does not include any boom, innovation, competition, or change. Once a protocol is implemented, it will be very difficult to change it.

For example, today we use the Internet Protocol to transfer data over the Internet. Cisco tried another protocol in the 1990s, but in the end it was IP that became our best choice.

Today we only use this protocol, and although efforts have been made to create a better protocol, none of us have ever heard of them. Once a protocol has established its foothold and implemented the effect of its own network, it will not be easy to replace it with a new protocol. The Bitcoin protocol is currently the main standard of the Internet of Things, and no other protocol has been able to bring its market share to a level where it can be replaced.

Everything wins from it

The logic behind this sentence will be more obvious in a decentralized world. Many interesting Chinese blockchain technologies and applications are already being tested by startups, but they are unlikely to be able to replace bitcoin even if they succeed. There are more than 2,000 digital currencies on the market, most of which lack quality developers, a large user community, or significant market activity, and many of which should be considered finished by now.

Bitcoin, on the other hand, has performed very well over the last decade. The network has about 60 million users, and their number increases by an average of 1 million per month.

The Bitcoin network processes billions of dollars of transactions every day. The total number of other digital currency users is less than 5 million, and the amount of transactions processed daily by their networks is only 1% of bitcoins. With this account, it can be said that about 92% of the current transaction fees are related to Bitcoin.

A comprehensive discussion of the investment logic of BitcoinBitcoin dominance in the digital currency market (in terms of transaction fees)

Now that Bitcoin has some of the networking effect it needs, trying to replace it will not be economically viable because it will cost a lot of capital, electricity, talent, and hardware to replace the Bitcoin blockchain; On the other hand, building a new structure based on bitcoin is very cost-effective.

For example, we can point to the speed and cost of bitcoin transactions, which has always been criticized by payment companies. Bitcoin blockchain can only process 3,000 transactions every 10 minutes. Users have to wait 10 minutes for the transaction to be registered in the blockchain and one hour for it to be irreversible, at the end of which miners are paid a fee of half a dollar or more.

Appearance Lightning NetworkIt was able to solve the problems of low transaction speed and high cost. Lightning Network is a decentralized Layer 2 network implemented on Bitcoin. Using the security built into Bitcoin, the network can support thousands of transactions per second and reduce transaction fees to one Satoshi.

The other two-tier solution, RSK or Rootstock, enables Bitcoin to take advantage of Atrium Smart Contracts without sacrificing its security features. Liquid is also one of the Bitcoin side chains that can issue smart contracts. A chain on which Tether also operates.

As long as the security and power of Bitcoin is not compromised, it can be expected that other second-tier technologies will be transferred to Bitcoin and more companies will be involved in implementing its ecosystem. The further growth of the bitcoin ecology can increase its value and usability.

Historical trends and prices of Bitcoin

Bubble Initial Coin Issuance (ICO)In 2017, it was just like the Internet bubble in 2000. In both cases, their prospects and short-term technical value were much higher than their real value, and the price reduction was a natural consequence of investors’ temporary skepticism about them.

The interesting thing about Bitcoin is that it is the oppositeBubble.comThe currency has fallen three times since 2010 with prices falling by an average of 79%, and each time after the fall, it has experienced a new wave of price increases.

The downtrend in 2017, like the previous two, was just a periodic price correction in the market that did not affect the long-term movement curve of Bitcoin.

A record low of $ 3,200 and a resurgence to $ 10,000 in 2019 is the best sign of a downturn. In May 2020 (approximate date), Bitcoin output will halve for the third time.

This means that the bitcoin generated per block will be reduced from 12.5 to 6.25. If we consider the effect of each Hawing event on the price (average 5.439%), we can conclude that 2019 was a good time to buy bitcoins.

A comprehensive discussion of the investment logic of Bitcoin
Historical Bitcoin price chart

Dimensions of the Bitcoin market

The market value of Bitcoin is currently around $ 200 billion; That means only 0.09% of the market volume of Fiat gold and currencies! But if Bitcoin can become a value standard and an international settlement network, its value will be much higher than that of Fiat gold and currencies.

The total volume of the gold market is about $ 8 trillion. Based on these points, if the market value of bitcoin reaches gold, the value of each bitcoin will be $ 300,000.

Now, if we compare bitcoin with the limited amount of money in circulation in the world (currently $ 40 trillion), it would be worth $ 2 million. It should be noted that the supply of bitcoins is limited, but the number of bitcoins is limited to 21 units.

A comprehensive discussion of the investment logic of Bitcoin

Bitcoin dominance in comparison to money and gold markets

The value of bitcoin as digital gold and an independent asset

Bitcoin as a digital gold and an independent asset can act as a safeguard against the financial risks of our world. In today’s turbulent world, geopolitical risks such as the US-China trade war, Hong Kong bloody protests, and the like will increase the price of bitcoin. Traditional assets such as stock markets, bonds and real estate do not have many positive aspects in the current market situation.

Investors these days can hardly find assets that have a low price while having asymmetric risks (risk of a sudden price increase) and a reasonable profit. In terms of risk-to-profit criteria, Bitcoin has the highest Sharpe Ratio of all major market assets.

A comprehensive discussion of the investment logic of Bitcoin
Compare Sharp Bitcoin Ratio with Other Assets


Bitcoin was born in the midst of the 2008 financial crisis. Satoshi Nakamoto wrote in a message on one of the bitcoin blocks:

Chancellor on the verge of another bailout for banks.

Times; June 3, 2009

Nakamoto sees bitcoin as a lifeline for current systems. Ten years have passed since then, and the social problems and financial risks of that period still remain. Recently, with the start of a new round of economic crises, the price of bitcoin has reacted well.

This technology may be the only hope for mankind to escape the reckless monetary policies of central banks and the unlimited creation of financial credit by governments.

If Bitcoin succeeds, early investors who have developed their knowledge and understanding of the technology will excel. Their understanding of the digital world of the future can advance our society today. Bitcoin is an invention that can transform the world with much more power and initiative than a tulip.

Bitcoin offers a new alternative solution to our society by providing an open, transparent, restricted, peer-to-peer and decentralized monetary system.