By Samson Williams, Sr. Economist, Milky Way Economy
Humans love being humans. We love being humans so much in fact that we can’t figure out how to be anything else.
Humanity’s lack of humanity is what gave rise to the very notion of Bitcoin. This led to the belief that big banks along with the traditional financial system had corrupted the very notion of liberty, equity, justice and fairness. Wealth and money as the story goes had become so tainted, leading to the infamous white paper “Bitcoin – Bitcoin: A Peer-to-Peer Electronic Cash System.”
Today, Bitcoin, as a Peer-to-Peer Electronic Cash System, works. It offers a great way to exchange value when two parties can agree upon the price of that exchange.
But, this is where things get a little weird:
- Satoshi, Bitcoin’s founder, never envisioned exchanges (e.g.: Coinbase, Bittrex, Robinhood, etc…) as a part of a peer-to-peer electronic cash system. But as we’ve discovered, Humans could make a ton of money off of exchanging digital records of debts between other humans, hence the birth of crypto-exchanges.
- Bitcoin, as a unit of exchange, can’t exist without the dollar for the value of bitcoin is defined by the dollar. By way of example, as of this writing, the price of a bitcoin is around $48k dollars. However the true value of that same Bitcoin is, well, subjective to say the least.
- 96% of “money” is already digital. Most working poor receive their wages via direct deposit. Shockingly, despite receiving digital compensation they are still poor. The same thing happens when the poor are paid in Bitcoin, cryptocurrencies or other digital currencies. They still don’t earn a living. And despite all their hard work 99% of the poor never earn a living wage.
- But that’s the thing about Bitcoin, it doesn’t address or even attempt to address the underlying social conditions that create generational poverty, institutional racism or systematic financial oppression. If anything, Bitcoin is just a fresh new coat of paint (in a slightly different digital hue) on the traditional barriers to financial health and safety.
But I digress. And I know many of you are already up in arms and vehemently disagreeing with me, shouting from the rooftops about how Bitcoin gives power and democratization back to the people. For the life of me, 7 years into my cryptocurrency journey I can’t figure out what makes Bitcoin or cryptocurrencies democratic other than access to online gambling. That, however, assumes that you’re not part of the 48% of humans who live on the analog side of the digital divide.
How Does Bitcoin Generate Revenue?
In February of 2021 the cryptocurrency exchange Coinbase was valued at $100B dollars. I completely understand Coinbase’s business model and revenue streams. Okay, maybe not completely but having paid .00015% of a BTC to execute a transaction recently (around $7.23 USD to send $41.22) begins to bring this picture into view
NOTE: The crypto nerds can see the transaction here: 34n8HGjxe8p8f3X245hLAMCksveNV9ZDRP)
I get that Coinbase makes $$ on every transaction whether the price of BTC is up or down. As a matter of fact, I’m guessing they make even more when the price is down or dropping as Humans sell, sell, sell!
I invest in startups and small businesses on a regular basis via equity crowdfunding platforms. I’ve also invested into equity crowdfunding platforms like GoingPublic.com and Brite.us. I make these investments after answering three basic questions:
- How will the business generate sales?
- How much of the sale’s revenue will be profit?
- How much of the profit will I get for my investment?
When it comes to Bitcoin ask yourselves the following three questions:
- What does Bitcoin sell?
- How does Bitcoin generate sale’s revenue?
- How do you earn profit from Bitcoin’s revenue?
Again, this is where the humanity and common sense of Humans begins to wane. Yes, exchanges make money off of Humans selling digital gummy bears to each other. But for this example replace “Bitcoin” with “Digital Gummy Bears.” Humans, if they buy the DGB’s low and sell them higher than they bought them, make money…after the exchange takes its fee and the IRS takes its capital gains tax.
Now for the next set of questions:
How much does the person “earn” through selling or trading Digital Gummy Bears?
And perhaps more importantly,
What does the consumer/end user do with these Digital Gummy Bears other than go back and repeat the process of making exchanges rich by selling them on the exchange?
Yes, I know. Bitcoin can, perhaps, maybe, in extremely rare and quite frankly legendary cases be used as a medium of exchange, a la “currency”. But before we go down the hole of the “tail wagging the dog inflationary fantasy” let’s get to the crux of this article which is Price vs Value.
The Price of Bitcoin vs The Value of Bitcoin
I just realized this article is going to be longer than I intended. So, I’ll cut it here and write part two in another article.
Besides, you’ve probably already got a lot to digest just pondering, “How the hell does bitcoin generate revenue?”
Because we all know that Bitcoin becomes more valuable ONLY when more people invest into Bitcoin. However, once we admit that, we may have to realize that we’ve also accidentally just defined how a ponzi scheme works.
“A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. … Instead, they use it to pay those who invested earlier and may keep some for themselves. With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive.”
As you mull over Bitcoin’s legitimate earnings, remember this:
“You can’t have a liquidity event until you have a liquidity event.”
In plain English, while you put your hard earned cash into Bitcoin, you can only realize the value of that “investment” when you cash out.
Good luck! And may the odds forever be in your favor.
My name is Samson Williams. I’m a human, business owner, anthropologist and a Sr. Economist at Milky Way Economy, a Washington, DC based Think Tank and Space Economy advisor. If you like what you read, share it! If you disagree, share what you know or how you feel in the comment section below. Feel free to hit me up on Twitter or Instagram @HustleFundBaby or follow me on LinkedIn. Finally, I would say thoughts are my own but I probably stole them from a woman. Just ask my mama, I quote her often without citation.