Recently at a friend's gathering, one friend said that the Bitcoin he bought last year has already multiplied several times, and he wanted to hear my opinion, especially since Trump was elected this year and Musk was about to enter the US government, asking me whether Dogecoin can still be bought now. At that time, I gave him two suggestions: First, a small investment can be tried, but don't get overly excited and invest large amounts just because you've made a profit; second, speculation on trends can be done, but I do not recommend holding it for the long term. The reason for this advice is that I believe Bitcoin can never truly become a currency.
Why did I give him these two suggestions? Because I personally believe that Bitcoin can never truly become a currency.
The essence of currency is the contract of exchange rights between owners. Generally, we say that currency has three basic functions: a measure of value, a medium of exchange for goods, and a means of storing wealth. These can also be described as the three economic attributes of currency.
From the perspective of a medium of exchange, Bitcoin can be realized; after all, even Musk has stated that Bitcoin can be used to purchase Tesla. However, Bitcoin has huge issues in terms of value measurement and wealth preservation. The stability of currency is crucial; we cannot accept that one day we can buy a car with 1 Bitcoin, and a month later, we can buy it with just 0.1 Bitcoin, nor can we accept that before sleeping, 10 Bitcoins can buy a house, only to wake up and find we have nothing left but the bathroom. Bitcoin's volatility is too great and is not suitable as a stable store of wealth.
Of course, Bitcoin also has its unique advantages, such as decentralization, a fixed total supply, and no issuing institution, etc. Therefore, due to its scarcity, combined with the monetary easing triggered by the global pandemic, Bitcoin has seen several times growth in recent years, attracting many investors. However, if Bitcoin truly becomes currency, its scarcity will become its greatest disadvantage. The stable operation of the economy requires moderate inflation; as the total wealth of society grows, the money supply needs to grow in sync. However, Bitcoin's total supply is fixed, and if it were to serve as a currency, it would inevitably lead to deflation.
Looking back in history, some prosperous times are often accompanied by falling prices, such as the price of rice dropping from 9 qian to 3 qian, which is the result of the fixed total supply of currency during the metal currency era and the development of productivity. Although this is good for consumers, it is a form of suppression for producers. If farmers toil in the fields but their income remains nearly unchanged, their production enthusiasm will naturally decline.
Moreover, currency also carries political attributes. Current fiat currencies are backed by the government and possess national credit, while the credit basis of Bitcoin is its algorithms and technology. However, technology will continue to advance; today's advanced technology may be surpassed tomorrow, and anyone can use similar algorithms to generate new cryptocurrencies. Similar alternatives have already emerged in large numbers (such as Ethereum, Litecoin, Ripple, etc.).
Some say that the Chinese central bank is also promoting digital currency; what is the difference from Bitcoin? In fact, the difference is significant. The essence of central bank digital currency is still the renminbi, just in a digital form. As for whether Bitcoin is similar to the tulip bubble, I cannot make a conclusion, but as a true currency, Bitcoin is probably difficult to achieve.
