What Is The Most Convincing Argument to Buy Bitcoin?

Lots of arguments are bandied about as to why owning some Bitcoin is valuable but one in particular may be the standout.

While you will hear about the scarcity of only 21 million bitcoin ever being mined, the reality is that alone isn’t a reason to buy something. If another cryptocurrency were launched with a similar cap it would defeat the reasoning behind Bitcoin’s status as the premier crypto investment.

So what is it about Bitcoin that makes it so special?

What Is The Most Convincing Argument to Buy Bitcoin?

The most convincing argument to buy Bitcoin is that it facilitates a digital Schelling point for value storage, meaning that because everyone converges on it because they expect everyone else to also.

The digital Schelling point comes from game theory and predicts the actions of one person based on what they think others will do.

The reason this is so important is that throughout history people have needed to come together to figure out what really constitutes value. In the past everything from shells to gold and even fiat currencies led to a consensus of what value was but the problem was always that these were always fragmented.

The first time in the history of humanity where a truly universal, borderless Schelling point was created and untethered to any specific culture, government, or physical commodity was when Bitcoin launched onto the world.

The reason this point is so insightful is that it swats away other arguments that can be easily counteracted such as the value of Bitcoin comes from its technology, scarcity, or even its monetary properties. Instead it means its value stems from the fact that it’s the first and most widely recognized solution to the problem of “digital uniqueness” without central control.

Why is this so transformative? Well, it means that a powerful network effect is created whereby the more people recognize Bitcoin as a Schelling point for digital value, the more rational it becomes for others to view it similarly irrespective of their own views on its intrinsic worth.

This property is especially powerful because it’s self-reinforcing in a way that previous value Schelling points weren’t. For example, gold was valuable at one time because it was shiny and scarce while fiat currency became valuable because it was backed by the full faith and force of the US government but Bitcoin is valuable as a result of a high number of people agreeing that it is and as more participants enter the pool the agreement gets even stronger, leading to coordination at a global scale.

The Compelling Argument For Bitcoin Few Are Noticing

What is it about Bitcoin that is so compelling? It’s not that Bitcoin is dominant as a cryptocurrency because it has a first-mover advantage or even necessarily the network effects in the traditional sense but rather it has captured a unique position as humanity’s first truly digital focal point for value coordination.

For the first time in history, Bitcoin has done what no other store of value or perceived value mechanism has done and so it necessarily means that it will be incredibly difficult to displace once established, in the same way that it’s nearly impossible to get everyone to switch to a “better” calendar system or a “more logical” language. The switching costs grow over time because the the coordination costs to switch are exorbitantly high.

That’s largely why Bitcoin has withstood criticism whether it’s technical limitations or as a store of value or even banning by governments, like China. It’s simply too high a hurdle to disrupt all the people already bought into it, and the switching costs are too high now to migrate to another solution.

Why Bitcoin Stands Alone

Perhaps the number one argument is that Bitcoin transcends its technical or economic properties and instead represents a fundamental shift in how people agree on the idea of value itself.

The knock-on effect is necessarily that Bitcoin will have profound implications for the future of human coordination and economic organization. For example, nowadays that coordination happens through centralized institutions, such as central banks, financial institutions, and governments but Bitcoin introduces a new model whereby economic consensus can emerge organically through network participation.

To give you an idea of what this means consider how information used to flow through gate-keepers but now flows more freely via the internet.

The Schelling point nature of Bitcoin alongside its programmability means new forms of economic relationships are possible, such as cross-border business contracts that automatically execute based on objective criteria. It’s also possible for economic agreements to persist that can span multiple generations without relying on institutions.

Even the very nature of trust architectures are up for grabs. For example, you trust your bank, which trusts larger banks, which trust central banks, and so on but Bitcoin implies a future whereby economic networks that don’t have single points of failure and business models can exist outside of traditional trust hierarchies

It also means the very nature of governance and consensus can be upended because organizations can operate more like protocols versus traditional hierarchies and there are different ways of achieving consensus in large groups without relying on central authorities.

What Does Bitcoin Mean For the Future?

Where Bitcoin hits a brick wall with a lot of detractors is that they argue Bitcoin is just a new form of money whereas the reality is it’s potentially a new coordination technology that has the potential to reorganize how people collaborate and create value just as the internet reorganized how humans share information.

Back in 1995 when the internet launched, nobody could have fathomed what would come whether it was streaming video or social media, but all were facilitated by the internet. So too Bitcoin’s full impact on human coordination might manifest in ways we can’t yet imagine.

In other words by creating a universal, programmable Schelling point for value, Bitcoin enables new forms of coordination that were previously impossible due to trust requirements or coordination costs. 

Of course whether Bitcoin will achieve all or any of these possibilities remains to be see but they help to explain its potential significance beyond simple store of value or medium of exchange functions.

If we boil it down to one way of thinking it’s this. When the internet was created a protocol for information exchange was enabled, spurring countless innovations. When it comes to Bitcoin, a new protocol for value exchange may be enabled that will lead to similarly unprecedented innovations in human coordination and economic organization.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.