TamimTaban (CC0), Pixabay

The so-called universal recognition is a kind of consensus. This is the same as the source of value of BTC. Then, the change in the value of diamonds is a good reference for BTC.

Nowadays, whether it is the propaganda about manufactured diamonds in the international and domestic markets or the changes in the market, it can be seen that the market consensus is changing to some extent.

Let’s look at BTC again.

There is a word circulating in the currency circle: the one that said it would replace BTC was finally hung up.

There is some truth to this statement.

Blockchain cryptocurrency is essentially the currency of ideas, and the decentralized consensus is the underlying logic. Therefore, BTC has a substantial advantage at this point. However, people tend to make one mistake: overestimate in the short-term and underestimate in the long-term.

The risk of BTC stems from the characteristics of BTC itself. There are only 21 million BTCs in total, and this limited issuance makes it a fundamentally “bad coin.”

The so-called lousy currency refers to the continuous appreciation of the currency. Hence, people tend to postpone consumption because, for the same dollar, they postpone consumption, so you can buy more things in the future.

BTC is a typical “bad currency.” The total amount of BTC is limited, only 21 million, and it will become more and more valuable. Therefore, people tend not to use it, and it will gradually withdraw from circulation. The so-called unlimited subdivision function of BTC cannot solve the “bad currency” characteristic of BTC. Infinite subdivision, the unit is changed from 1 to 0.01, does not change the fact that one unit of BTC is appreciating.

After all, the price of BTC needs to be based on its exchange function. So when the function of an exchange is limited by the restriction of “bad currency,” when the function is limited, can the price of BTC always remain high?

As new virtual currencies replace BTC on most occasions, BTC is only reserved for those scenes that are highly opposed to regulation. As a result, the theoretical value of BTC will also be limited. This is like the gradual replacement of artificial diamonds in the industrial field, even in the gem field, for natural diamonds.

Moreover, although BTC is a bad currency and will not be inflationary, the virtual currency will still follow the law of inflation. With the emergence of new virtual currencies, there is competition among various virtual currencies regarding use and functionality.

New virtual currency functions will be better. For example, BTC transactions are slow, and new virtual currency transactions are faster. The later Ethereum accounted for an increasing proportion of the entire virtual currency market. On the one hand, this will hit BTC’s position; on the other hand, the funds in the virtual currency market will be more dispersed.

Therefore, although BTC is issued in limited quantities, the entire virtual currency market will inevitably be inflationary. This is like even if the production of natural diamonds is limited, the production of artificial diamonds can increase dramatically. Eventually, the supply of diamonds as a whole increased, and prices fell.

This will directly affect the belief that “virtual currency will continue to rise due to deflation,” which in turn affects and suppresses its price and ultimately promotes the value of the virtual currency to return to rationality.

Today, BTC’s global consensus is robust, and it is unlikely to repeat the tragedy of Tulip’s plunge. However, the consensus will still change in the long run, and this process will be much faster than the rise of manufactured diamonds. Then, there is undoubtedly a systemic risk from the process of high prices returning to rationality.

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