Crypto-Currency

***Under construction – last updated 19.05.23

Partner at Morgan Creek Digital.  He writes a daily letter analyzing crypto news for institutional investors:

“Bitcoin is a unique animal. It has similar features to traditional assets, but it also incorporates aspects that we have previously not seen.

One of the most important components of Bitcoin is the concept of the “halving.” This is well understood in the hardcore crypto circles, yet wildly misunderstood or completely unknown to most endowments, pensions, foundations, sovereign wealth funds, and large family offices.

In order to understand the halving and the potential impact from it, there are a few things to wrap your head around:

  1. Bitcoin is a deflationary currency. There is a set amount created (21M) and once they are all distributed, each lost or damaged Bitcoin will reduce the circulating supply of the asset.
  2. The distribution schedule for Bitcoin is preset. Approximately every 10 minutes, the Bitcoin software rewards those running the network (known as miners) with a previously determined amount of Bitcoin (known as the “block reward”). This reward amount is shared among the miners based on a few factors.
  3. Bitcoin’s supply schedule is disinflationary (a decreasing rate of inflation). The block reward started out at 50 BTC and is designed to decrease by 50% every 4 years or so. To date, the network has seen the block reward cut from 50 BTC to 25 BTC and eventually it was cut to the current block reward of 12.5 BTC.
  4. In May 2020, the next block reward halving will happen. This will bring the block reward to 6.25 BTC distributed approximately every 10 minutes.

While many people understand the general concept of Bitcoin’s halving concept, the historical impact can not be overstated. This system shock theoretically reminds everyone of the digital currency’s scarcity, while in reality drastically reducing the amount of Bitcoin that becomes available on a daily basis.

Pro’s:

  1. Enables rapid, low-cost transactions.
  2. There is a futures market and therefore it has been essentially adopted as a trading class by Wall Street

Cons:

  1. Banks and Nations fear crypto because it takes away their ability to control the currency
  2. There are many currencies backed by difference coding and technology. There needs to be some consolidation to one true majority for it to gain mainstream adoption. This is very similar to what is happening in the crowdfunding space.

 

Notes:

  • There are many types of Cryptos (Bitcoin one of them) but its the blockchain technology that is the game changer

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