The Ultimate Investment: Bigger Than Bitcoin?

Bitcoin has become synonymous with cryptocurrency, but it is not the only option for investors. Other cryptocurrencies, such as Ethereum, Ripple, Litecoin, Cardano, Binance Coin, Polkadot, and Avalanche, offer strong diversification opportunities for investors looking beyond Bitcoin. Non-fungible tokens (NFTs) are also gaining traction, with some predicting they will be bigger than Bitcoin. While Bitcoin remains the most popular cryptocurrency, its volatile nature, cumbersome transactions, and environmental impact have spurred the search for alternatives.

Bitcoin's price history

Bitcoin's first significant price increase occurred in October 2010 when its value rose from less than $0.10 to $0.20. In 2011, it started to grow past $1, reaching a peak of $29.60 in June, but a sharp recession in cryptocurrency markets followed, and Bitcoin's price dropped to close the year at about $5.

Bitcoin witnessed strong gains in 2013, starting the year at $13, crossing $100 by April, and $200 by October. It then crossed $1,000 in November and closed the year at $732. Prices slowly climbed through 2016, ending the year at over $900.

In 2017, Bitcoin's price hovered around $1,000 until it broke $2,000 in mid-May and then skyrocketed to close at $19,188 on 16 December. This caught the attention of mainstream investors, governments, economists, and scientists, and other entities began developing cryptocurrencies to compete with Bitcoin.

Bitcoin's price moved sideways in 2018 and 2019, with small bursts of activity. For example, there was a resurgence in price and trading volume in June 2019, with the price surpassing $10,000, but it fell to a closing price of $6,612 by mid-December.

The COVID-19 pandemic and subsequent government policies in 2020 fuelled investors' fears about the global economy and accelerated Bitcoin's rise. It opened the year at $7,161 and closed at $28,993 on 31 December 2020, increasing 416% from the start of that year.

In 2021, Bitcoin surpassed $40,000 by 7 January and reached new all-time highs of over $60,000 in April. Institutional interest further propelled its price, and it reached a peak of $64,895 on 14 April 2021. However, by the summer, prices had dropped by 50%, closing at $30,829 on 19 July. The rest of the year saw more fluctuations, with Bitcoin reaching a new all-time high of $69,000 on 10 November before falling to a close of $46,211 in mid-December due to uncertainty about inflation and the emergence of a new COVID-19 variant.

Between January and May 2022, Bitcoin's price continued to gradually decline, falling under $30,000 in May for the first time since July 2021. Crypto prices plunged further in June, with Bitcoin dropping below $23,000 and ending the year below $20,000.

Fortunes changed for Bitcoin in 2023, which saw a stellar rise in its price. It opened the year at $16,530 and rose consistently, ending at $42,258.

In 2024, the approval of Bitcoin ETFs in the US caused another all-time high, with values exceeding $73,000 in March. As of 3 August 2024, Bitcoin's price was $64,757.

Bitcoin's future as a currency

Bitcoin was introduced in 2009 as the first cryptocurrency. Since then, it has experienced volatile price changes, surging to over $60,000 in 2021 and then falling to half that value in a few weeks. Bitcoin's price is influenced by supply, demand, and market sentiment, and it has become a vehicle for speculation and investment rather than a medium of exchange in daily transactions as it was originally intended.

On the other hand, Bitcoin's blockchain technology is groundbreaking, enabling secure and decentralized transactions without relying on financial institutions. It has the potential to reduce fees for consumers and businesses, especially for international commerce and remittances. The increasing popularity of Bitcoin and other cryptocurrencies has also spurred central banks to consider issuing their own digital currencies.

While Bitcoin may not become the world's dominant currency, it is likely to persist and evolve alongside other cryptocurrencies and central bank digital currencies. Its impact on the future of money and finance will be significant, and it remains to be seen whether it will ultimately be a positive or negative force in this regard.

Bitcoin's energy consumption

The primary operating cost of a cryptocurrency mining facility is electricity expenditure. The computational effort needed to support profitable cryptocurrency mining consumes large amounts of electricity to operate the machines and cool the equipment to prevent overheating. As a result, owners constantly seek ways to acquire substantial amounts of power at the lowest possible cost.

The process of mining Bitcoin involves solving complex cryptographic puzzles, requiring significant computational power. This is known as proof-of-work mining, and it is the only major currency that uses this approach. The large energy usage associated with proof-of-work mining is an inevitable consequence of the fundamental nature of its algorithms.

The Bitcoin Energy Consumption Index estimates that the global electricity usage associated with Bitcoin mining ranged from 67 TWh to 240 TWh in 2023, with a point estimate of 120 TWh. This is about the same as the total electricity consumption in Greece or Australia, respectively.

The energy used for Bitcoin mining primarily comes from fossil fuels, contributing to its massive carbon footprint. A single Bitcoin transaction could cost as much water as a backyard swimming pool, and its carbon footprint is equivalent to that of 651,372 VISA transactions or 48,982 hours of watching YouTube.

Ethereum, another cryptocurrency, has moved to a far less energy-intensive proof-of-stake consensus mechanism, reducing its electrical usage by over 99.9%. A single transaction on Ethereum's network now has a similar electrical usage to a Mastercard transaction.

To mitigate the emissions impact of Bitcoin, there are campaigns such as the "Change the Code, Not the Climate" campaign, which aims to motivate Bitcoin to adopt a less energy-intensive consensus mechanism.

Bitcoin's impact on smaller countries' currencies

However, there are also several drawbacks and limitations to the impact of Bitcoin on smaller countries' currencies. The high price volatility of Bitcoin and other cryptocurrencies makes it difficult to store money and make contracts. The decentralised and uncontrolled nature of Bitcoin also means that it is not widely accepted as a complete substitution for fiat currencies, and it faces regulatory challenges in many countries. Furthermore, the pseudonymous nature of Bitcoin can make it easier to transfer money from illegal activities or finance terror activities without the possibility of government intervention.

Overall, while Bitcoin has the potential to positively impact smaller countries' currencies by increasing financial inclusion and reducing transaction costs, it also faces several challenges and limitations that must be addressed for it to realise its full potential.

Bitcoin's competition

Ethereum (ETH)

Ethereum is a decentralised software platform that enables smart contracts and decentralised applications (dApps) to be created and run without any downtime, fraud, control, or interference from a third party. It is the second-largest cryptocurrency by market capitalisation.

Tether (USDT)

Tether was one of the first and most popular stablecoins—cryptocurrencies that aim to peg their market value to a currency or other external reference point to reduce volatility. Tether's price is tied directly to the US dollar.

XRP

XRP is the native token for the XRP Ledger, created as a payment system by Ripple in 2012. It does not use proof-of-work or proof-of-stake for consensus and validation but instead uses the XRP Ledger Consensus Protocol.

Binance Coin (BNB)

Binance Coin is a utility cryptocurrency that operates as a payment method for the fees associated with trading on the Binance Exchange. It is the third-largest cryptocurrency by market capitalisation.

USD Coin

USD Coin is a stablecoin that pegs its price to the US dollar using fiat-collateralised reserves. It was launched in 2018 and is subject to US regulation.

Cardano (ADA)

Cardano is an "Ouroboros proof-of-stake" cryptocurrency created by engineers, mathematicians, and cryptography experts. It has been dubbed an "Ethereum killer" due to its more advanced blockchain.

Solana (SOL)

Solana is a blockchain platform designed to support decentralised applications. It can perform many more transactions per second than Ethereum and charges lower transaction fees.

Dogecoin (DOGE)

Dogecoin is a cryptocurrency that was created as a joke by two software engineers in 2013. It is accepted as a form of payment by some major companies and is seen by some as the original "memecoin".

Shiba Inu (SHIB)

A memecoin inspired by Dogecoin, Shiba Inu briefly surpassed Dogecoin's market capitalisation in the fall of 2021.

TRON (TRX)

The TRON Foundation launched in 2017 to provide digital content creators with full ownership rights through tokenisation and dApps. TRON's native token, TRX, is used to pay for on-chain transactions and as a payment method on exchanges.

Polygon (MATIC)

Polygon was initially developed as a layer-2 solution to address the issues with Ethereum network congestion and traffic. It has since become a multi-chain system where blockchains can work together using Ethereum's virtual machine.

Other important cryptocurrencies include DAI, Avalanche, and WBTC.

Frequently asked questions