The Real Lesson to be Learned from Bitcoin

There is a message in the history of Bitcoin that should not be missed.

When we look at the price history of Bitcoin, we see a rapid rate of increase in the price over time, which roughly followed Metcalfe’s law for a number of years.

This is acknowledged in academic papers of a few years ago (Search “Metcalfe’s law Facebook Tencent Bitcoin” for example).

But since late 2017, the price appears to have somewhat plateaued.

The popular Bitcoin investor opinion is that this is being suppressed by market forces, and will again start to rise rapidly.

My own opinion was no different, until just recently, upon realising the implications of free money.

Bitcoin, in the days of rapid price rise, was a form of free money.

Yes, there was an electricity cost.

But that was far outweighed by the value of the Bitcoins yielded, for much of the most rapid phase of price rise.

The truth is, anyone with a PC could generate Bitcoins.

Now, with Bitcoin nearing the end of its generation lifetime, conventional investors believe its value will increase.

But that is not what we have seen.

In truth, the most valuable period of Bitcoin appears to have passed.

That might seem a disappointment for investors.

But actually there is a very valuable lesson we can learn from the analysis of the Bitcoin historical price.

As I and many others have been writing, there appears to be a need for, and a tendency towards free money.

In discussions around free money, we often hear the question asked, as to what is a reasonable level to set, for the rate of generation of free money.

The answer is, whatever rate the individual or organisation generating it finds most rewarding.

Setting it in advance, like was done in Bitcoin, and pretty much every cryptocurrency we’ve seen so far, is obviously not ideal.

There might be some useful maths that can be derived from further analysis of the Bitcoin historical price, towards assisting with that.

Maybe one day someone will look at it in more detail, to perhaps derive some useful maths like Metcalfe’s law.

But for now, the fundamental point to note is that scarcity is not all it is cracked up to be.

Bitcoin might just be the first experiment in history to show this to us.

Perhaps Satoshi even knew that, and this was the real lesson he set out to teach, who knows.