Obi Nwosu is the CEO and co-founder of Coinfloor, the UK's longest-running Bitcoin exchange. He has over 20 years’ experience building online marketplaces and bringing virtual currencies to tens of millions of people. Obi writes The Road to Bitcoin Hegemony, a weekly recap of some of the most impactful developments in Bitcoin.
Welcome to The Road to Bitcoin Hegemony, a weekly analysis of the most important developments in Bitcoin and why they matter in Bitcoin's journey towards monetary dominance.
We often talk about Bitcoin as if all the hard work has been done already. And from a technical point of view, that’s mostly true. When it comes to maturity, resilience, stability, and community support, no other cryptocurrency comes close. But there is one big issue that still looms over our industry: adoption.
Sometimes it seems like we’re on a mission to convince each individual consumer about the benefits of Bitcoin - things like the ability to be your own bank and hedge against disasters in the traditional financial system. As an industry, we’ve had some notable successes in this regard: just look at the number of over-55s (the most financially-savvy of all the generations) who now hold bitcoin. But we still have a long way to go before Bitcoin achieves universal acceptance as a sound investment.
This is why the recent Microstrategy announcement that it is investing $250 million USD in Bitcoin is so significant.
Let me explain. The most important thing about Microstrategy’s announcement is that this is a company with no prior skin in the crypto game. They are not evangelists; nor are they investing because they believe Bitcoin will bring about a better world. Microstrategy’s own statement said it all: for them, Bitcoin provides a decent hedge against inflation and the prospect of earning a higher return than other investments. Their move into Bitcoin is motivated purely by sound financial planning. And being the world's largest independent publicly-traded business intelligence company, it’s obvious that they reached this decision after doing their due diligence.
Microstrategy must have known that their decision would make waves, being the first billion dollar company to tie its valuation to Bitcoin. But it shouldn’t be a big surprise. At Coinfloor, we are also seeing well-known brands, including those with no background in crypto, finance, or even tech, starting to make inquiries about making significant Bitcoin transactions.
But how does this affect adoption? Well, as Nick Chong points out in his recent article, Microstrategy’s investment means that its major investors, among them BlackRock and Vanguard, as well as their millions of customers, have all indirectly gained significant exposure to Bitcoin.
As the Bitcoin market expands beyond its core demographic of technology, crypto, and financial insiders — a trend that is set to increase dramatically over the coming months - we can see the beginning of a new route to its normalization and widespread adoption.
Our industry still needs to focus on evangelizing for Bitcoin and demonstrating the unique benefits that the currency can bring to ordinary users. But when major corporates adopt Bitcoin, it represents a powerful endorsement for the uninitiated and, consequently, acts as a huge ‘force multiplier’ for further adoption. I predict that we will see more companies like Microstrategy making the decision to make significant investments in Bitcoin over the coming years. This will be an essential part of Bitcoin’s ascent to global hegemony.
At Coinfloor, we’re often asked why we decided to de-list Ethereum and concentrate solely on Bitcoin. Even those who accept that Bitcoin is streets ahead of its rivals in terms of technical maturity are puzzled that we turned our back on a cryptocurrency that has been adopted by so many.
There are many reasons for our Bitcoin-only focus, but one of the most important is the brilliantly simple concept core to its value proposition: we know exactly how many Bitcoins have been issued, and the maximum that ever will be.
You certainly can’t say the same about Bitcoin’s closest challenger. At the time of writing, the total supply of ETH on the Ethereum network is yet to be conclusively determined. This should be a big problem for Ethereum, and a member of the Bitcoin community has even put up a bounty for anyone who can develop an "auditing script" that can tell us just how much ETH is in circulation.
But hang on, say the Ethereum evangelists: it’s unfair to make comparisons with Bitcoin, because the two cryptos are based on very different philosophies. Bitcoin is digital "gold," a commodity and high-powered store of value. Ethereum, meanwhile, was never meant to be money and is more akin to digital “oil" whose most valuable use is in powering a range of smart contracts.
Here’s the thing: I agree with them. Ethereum, in theory, has many exciting potential uses, but a replacement for fiat currency isn’t one of them. I’ve written about the competing philosophies of Bitcoin and Ethereum for some time now, but ultimately it’s Bitcoin’s killer app - its finite and transparent supply - that means it will always beat Ethereum as a store of value (although one of my Twitter correspondents put it more pithily than I ever could).
The problem is that Ethereum continues to be touted as a competitor to Bitcoin, something that it was never really intended to be. If you don’t know the original intent behind Ethereum, the clue’s in the name: it was supposed to be an “ether” or “gas” that acted as a medium for decentralized applications.
Even then, this use case also has significant risks that aren’t shared by Bitcoin. And perhaps the greatest risk for Ethereum is obsolescence. Smart contract creators can choose between multiple —-and in many cases, technically superior - alternatives to Ethereum.
That presents a big problem for Ethereum as an investment: Ethereum needs smart contracts, but smart contracts don’t really need Ethereum.
Ethereum is still the dominant force within smart contracts, but more sophisticated competitors may well chip away at its hegemony. Ethereum is like coal: it powered an industrial revolution and was the preeminent fuel for decades, but has gradually been replaced by better forms of energy. Like coal, Ethereum’s dominance could quickly decline as developers find better alternatives. Worse still, these "crypto fuels" will be easier to switch to due to smart contract cross-chain interoperability.
So there you have it. Let the arguments about “supply gate” rumble on. It’s the modern-day equivalent of debating how many angels can dance on the head of a pin. For us, we’d much rather concentrate on backing crypto’s one real winner: Bitcoin.