If you want to talk about the hottest topic in the near future, it's bitcoin. By the time of xiaokaiwen, bitcoin has exceeded $60000, which means that as long as you have three bitcoins, you can make up the down payment in Beijing.

What is bitcoin?

Before revealing why bitcoin is expensive, there must be some students who don't know the difference between bitcoin and traditional fiat money. Let's take a look at the definition of bitcoin in Baidu Encyclopedia.

Bitcoin is a virtual encrypted digital currency in the form of P2P. Point to point transmission means a decentralized payment system.

Unlike all currencies, bitcoin does not rely on a specific currency institution to issue. It is generated by a large number of calculations based on a specific algorithm. Bitcoin economy uses a distributed database composed of many nodes in the whole P2P network to confirm and record all transactions, and uses cryptography design to ensure the security of all aspects of money circulation.

This passage extends the two biggest characteristics of bitcoin, "cryptocurrency and decentralization". Needless to say, encryption means decentralization?

As we all know, legal tender is issued by the central bank, and the central bank relies on the motherland, so we can trust the currency issued by the central bank. But bitcoin is different. It is not issued by any central institution. It was dug out with a shovel of miners!

The students who have contacted bitcoin must know the word mining. The so-called mining is that bookkeeper uses the CPU or GPU of the computer to carry out encrypted hash calculation to solve a problem of calculation randomness, so as to compete for the bookkeeping right of the ledger. Whoever completes the calculation first, the packed block will be added to the end of the blockchain and become the latest block. Bookkeepers can record a reward in their own books, which is called bitcoin.

It is through the consensus mechanism of pow (proof of workload), which enables the nodes of the whole network to reach a consensus and create a trust free bookkeeping institution on the blockchain to ensure the consistency of each transaction on all bookkeeping nodes. Therefore, we can still use bitcoin safely without the endorsement of centralized institutions, which solves the problem of trust.

At the same time, the use of digital signature technology can effectively prevent the problem of counterfeit bitcoin. According to the current cryptography theory, if the cryptocurrency bitcoin can be cracked, it means that all the money we have in the bank can be cracked, so we don't have to worry about the security of bitcoin.

Based on the above principle, bitcoin has two attributes: transaction media and value storage. Needless to say, the transaction media itself is a region centered digital currency. The value storage property of bitcoin depends on scarcity.

As we all know, rarity is the most important thing. That's why gold is so valuable. According to the principle of the bitcoin algorithm, the output of bitcoin is halved over time, with a maximum of 21 million. It will not lead to currency inflation like the Fed's unlimited QE and unlimited dollar printing, so bitcoin has a natural value storage attribute.

Why does bitcoin price soar?

At the end of 2020, a big event happened in the stock market. The US stock market was broken for many times. The then trump government adopted the way of unlimited QE to rescue the market. The so-called unlimited QE can be understood as the US Federal Reserve printing money on a large scale, so it is bound to cause the depreciation of the US dollar.

So investors are bound to find a way to invest so that their assets will not depreciate. As we said earlier, both gold and bitcoin are naturally scarce. It is for this reason that the price of bitcoin began to soar.

By comparing the balance sheet of the Federal Reserve and the prices of bitcoin and gold in the same period of time, we can see that after 2020, when the Federal Reserve began to print money on a large scale, the prices of bitcoin and gold rose accordingly.

From another point of view, we will compare the price of bitcoin and Apple Corp and Tesla stock, so that rather than bitcoin value bubble, bitcoin is on the fast track of technology bubble.

(2021-4-15)