First, I’d like to thank Walid Al Otaibi in Germany for his valuable thoughts, that helped me to frame my piece (aka flattery) based on his original article.
In Dec 2015, I was in the pits after having lost ALL my savings in foolish (and unfortunately, bad luck) deals over the past 9 years after my very gainfully-employed 23 years in a big firm. I've heard about Bitcoin since perhaps 2011 but like most "educated" people, I dismissed it as a fad without really doing my homework.
What is a cryptocurrency? And how can a non-regulated currency have any value: I didn’t even give the subject any further thought. Then, to me, it was an airy-fairy concept that would never become a reality in current finance. All these changed when in early 2016, I started to study this phenomenon seriously. By late 2017, I was invited to teach classes in Singapore, Thailand, USA and Malaysia on cryptocurrencies to accountants, doctors, engineers and indeed, economics professors.
What the hell is Bitcoin?
Bitcoin (“BTC”) is a cryptocurrency probably "invented" in 2008 by an unknown person (or persons) using the moniker Satoshi Nakamoto. In 2009, its implementation was released as open-source software in the US, likely. A crypto currency is a non-paper (aka "fiat") currency that is not issued by the currency officials of countries like Bank Negara in Malaysia. However, recent exceptions to this rule are Venezuela, Ecuador, Senegal, Singapore, Tunisia, Estonia, Japan, Palestine, Russia and Sweden who are looking to launch their own national cryptocurrencies....think of it as "if you can't beat them, join them? Of course, China being the global manufacturing leader, has already put the Crypto Yuan (not the official name) on covert trial, I hear.
Therefore, a cryptocurrency is a decentralized digital currency without a single “controlling” issuing house. The currency can be sent from A to B globally without the need for any intermediaries. The transactions are verified and recorded in a public distributed ledger called a blockchain. This is done electronically in the “clouds” and there are no physical ledgers. Simply, what this means is that for each transaction of bitcoin, there could be hundreds or even thousands of "cyber-space auditors" verifying the transaction as opposed to your one "big strong friendly bank" that charges you 20 bucks per forex transaction, to send your own money. And in some countries, the recipient pays another 20 bucks to receive your cash. So a total of 40 bucks to send say 100 bucks, that would probably take 3 working days and some level of scrutinous paperwork. Now, via the blockchain, this transaction would cost perhaps, RM 2, and take 15 minutes max on your cheap Android handphone. Now, you can see why banks (and governments) "fear" the spread of crypto-currency transactions.
BTC is generated via a process called mining. Basically, by lending your computing power to support and manage the blockchain, you will receive a certain portion of a BTC as a reward. In 2010, it was relatively easy for Tom, Dick and Harry to mine BTC; now, it is almost impossible to mine from a normal PC due to extremely high computing power requirements to solve the complex algorithms (ie "mining") in the blockchain network. Many miner wannabes have “fried” their home PCs trying this now. And the cost of electricity (depending on the country you are mining in, maybe up to $3,000 per BTC) has made this process, too expensive for a home miner. It is said, the total energy consumption of BTC miners globally is equal to the energy consumption of Switzerland!
In 2010, buying BTC was very difficult. There were very limited exchange platforms (similar to stock exchanges) for BTC. People were mining the cryptocurrency by using their own computers, or by ganging up as clubs and pooling their resources to buy the computing power.
The value of any form of money is eventually determined by a minimum of four major attributes; trust, adoption, scarcity and fungibility. Gold, for example, was the main payment method in the old ages. It is scarce, and therefore people trusted that its value would remain, and they adopted gold as a payment method. It isn't exactly fungible but still, you could melt it for smaller transactions.
In BTC's case, the value of the cryptocurrency can be measured by its growing base of users and merchants. Like all other currencies, BTC’s “value” comes directly from people willing to accept them as payment. Today, there are about 1 million+ establishments globally that accept crypto payments, including Amazon, Microsoft, AT&T, Starbucks and PayPal. In Malaysia, there are “mamak” stall accepting BTC as payment. This number is growing daily by leaps. Oh yes, BTC is fungible as it can be divided into 100,000,000 mini pieces, each called a “satoshi” (of course).
In August 2010, the Bitcoin price skyrocketed 900% within 5 days. The value of one Bitcoin went from $0.008 to $0.08. In Jan 2018, it had reached almost $20,000. Since Feb 2018, the price fell to a low of about $1,800 and climbed back slowly to hit $19,600 a week ago.
Hypothetically speaking, assuming you missed the 9x jump and you bought $1000 worth of BTC in late August 2010, you would have had 12,000 BTC. As I mentioned before, buying Bitcoins, back in 2010, was incredibly hard but buying BTC is easy today. Yes, in Malaysia, there are legal exchanges like LUNO and Sinegy where you can buy cryptocurrencies using your Maybank or CIMB accounts, or even credit cards. There are other peer to peer exchanges like Remitano where the same is possible.
On 22 May 2010 in New York, Laszlo Hanyecz, ordered two pizzas from Papa John’s (worth about $20) and paid 10,000 BTC for the pizzas. You can see a picture of him here - he can still smile.
Conclusion
In 2010, no one in his right mind would have invested $500 in Bitcoins, let alone RM 500. In my lectures, I’ve expressed my appreciation to see the development of this new concept of currency: We have come very far from the days when a chicken or a pig was the currency of trade. In May 2016, I advised about a dozen of my friends to invest in BTC, alas only 2 did. Both are overjoyed now. The other 10…are cursing me for not being more forceful.
Bitcoin paved the way for the birth of many other cryptocurrencies in the market and gain functionality. Ripple, Ethereum and Cardano, are some of the more popular alternative cryptocurrencies (altcoin). There are almost 8,000 altcoins now. And where does it go from here? Well, we have to wait and see. I’m betting that the top 40 altcoins as of today, will be around for a while. Recently, a Citibank analyst opined that Bitcoin may surpass $300,000 by the end of 2021. John McAfee thinks $1,000,000 per BTC is possible. As for me, if BTC’s price hits $30,000 by 2024, I would have a greater story to tell in my classes: I was there when it was $450 in May 2016………
Finally, the answer to the title of this article: 1 BTC is about $19,000 now. So the value of the 12,000+ BTC you bought 10 years ago is currently, equal to about $230,000,000 or just a tad under RM 1 bil. Not a bad investment at all !
In the meantime, for a long-term prospect, I think it would be fair to call a “BUY” on BTC.
