But what is it, where did it come from and above all – why is it so valuable?
Bitcoin is a digital currency and was “invented” in 2008 when a white paper presenting it was published by Satoshi Nakamoto. And here Bitcoin’s story already has an interesting twist, because the true identity of Satoshi Nakamoto is an absolute mystery. As Bitcoin has risen to fame there have of course been many attempts to discovery the true identity of its enigmatic creator, all to no avail.
The mystery of who Nakamoto was has never been solved, but why he or she chose to disappear seems increasingly clear as the disruptive nature of Bitcoin becomes more apparent the more valuable it becomes and the more widely it’s used.
The most important thing which gives Bitcoin its value is its fixed supply. Only twenty one million will ever be made; this is written into its code. This means that, unlike the Euro or the dollar, which can be printed ad infinitum and are inflationary as a result, Bitcoin is an increasingly scarce asset – making it deflationary. This is very important, because throughout history humans have valued scarce things, things that are difficult to come by (such as gold) over things that are plentiful and easy to find (such as more common metals like copper). If, for example, alchemists had ever succeeded in creating gold out of base materials, gold would have become less scare and valuable; it’s price would have gone down.
Once a Bitcoin transaction has been made and confirmed, it can never be changed or deleted. Transactions are recorded on the blockchain, which is in turn recorded on Bitcoin “nodes” – computers owned by tens of thousands of people worldwide. This means that Bitcoin is a peer-to-peer system, so individual people make the transactions and record then without any centralized financial organisation being involved.
Perhaps the most interesting part of this system are the big financial players it excludes. Banks have no role to play in a Bitcoin transaction. They cannot intervene to block or approve a transaction, nor skim a fee off it. Equally, governments cannot intervene in the functioning of the Bitcoin network (though some have unsuccessfully attempted to).
Opinions are divided as to whether this unregulated system is a positive or a negative. To put the most salient arguments into a nutshell, the answer seems to be, it is both. For banks and for governments who want to exercise economic control, it’s a negative. For individuals who want full control over their own finances and for governments who are prepared to support them, it’s a positive.
Examples of this are beginning to emerge in real world use cases. On 7 September 2021, El Salvador became the first country in the world to make Bitcoin legal tender. On 10 September, Western Union announced that it anticipates a loss of $400 million as a result, because El Salvadoreans working abroad and sending money home to their families will be able to do so in an instant with a Bitcoin transaction instead of relying on Western Union’s services. The eyes of the world will be on how Bitcoin performs as legal tender in El Salvador in the coming months but it seems clear that the peer to peer system offers a more attractive service to individuals supporting their families and may even make some established financial services obsolete.
Considering the shift in financial power from established financial institutions which Bitcoin potentially represents it may be no surprise that Satoshi Nakamoto elected to retire gracefully into anonymity!
And what, you may ask, does this mean for Portugal? Portugal is one of the very few European jurisdictions which does not impose a capital gains tax on Bitcoin – a massive financial draw for those who hold it as an asset, especially given that in other European countries the taxation of Bitcoin can be very high. If Portugal continues to keep this policy, what it forgoes in taxation could be easily compensated by the influx of wealthy Bitcoiners to the Portuguese ecosystem. Extending Bitcoiners a warm welcome has the potential to bring investment and innovation – the green shoots of which can already be seen in the increasing number of small businesses accepting Bitcoin in Portugal.