I remember that in 2014, when the price of Bitcoin was falling from 8,000 yuan, I kept asking myself how to value Bitcoin. When it fell to 2,800 yuan, I figured out a way to calculate it and did a rough calculation. It was normal for the price of Bitcoin to reach 200,000 US dollars. I was very satisfied with my calculation at the time and wanted to write an article. I had even thought of the title, which was called You Should Invest in a Bitcoin. I will release the calculation process later.

People's perceptions of Bitcoin are quite fragmented and contradictory, and the differences in perceptions are far greater than those between Hillary and Trump. Some people think that Bitcoin is the hope of mankind and the only currency issuance system that can overcome human selfishness and greed and replace the central bank system; some people think that Bitcoin's technology is flawed and not capable of taking on this responsibility, but it is a good settlement system. These are relatively positive.

There are even more negatives, including that Bitcoin is a scam and a primitive experiment doomed to fail.

The theme of today's article about Bitcoin is to put aside the controversy. Whether you think it is a currency or not, we will only interpret the investment value of Bitcoin from the perspective of new technological things and look to the future.

Bitcoin is growing rapidly, but most people don’t notice it

After seven years, people no longer feel unfamiliar or novel about Bitcoin.

As shown by the search popularity, Bitcoin seems to have lost its popularity. After a period of prosperity, it has returned to calm. Some even say that Bitcoin is slowly dying.

But the reality is that the search popularity only proves that people no longer need to use search engines to educate themselves. Most people don’t notice that Bitcoin is growing strongly, and I have some very strong evidence here.

The first piece of evidence: the number of wallets

This chart shows the number of Bitcoin wallet users from the beginning to now. When Bitcoin price peaked in 2013, the number of wallet users was about 1 million, and in 2016, this number reached 10 million.

The number 10 million may not seem large or small, but for Bitcoin, which has a network effect, this number is a solid foundation.

The second piece of evidence: trading volume

According to the 24-hour trading volume of the three largest Bitcoin exchanges in China, the daily turnover is equivalent to RMB 103 billion. In comparison, the daily turnover of the A-share market is only RMB 200 billion, which can be said to be of the same magnitude. However, one point needs to be emphasized. Domestic Bitcoin exchanges generally do not charge transaction fees, so the domestic trading volume is much higher than that of foreign countries. Domestic exchanges gather many robots to trade frequently.

The volume of Bitcoin transactions in China is still very scary, at least it scares me. Moreover, Bitcoin has entered the sight of regulators and cannot be ignored.

The following chart shows the transaction volume changes of a website called Bitcoin China (btcc.com), which is one of the largest Bitcoin exchanges in China. The recent weekly transaction volume is 30 times higher than the 8,000 yuan in December 2013.

The third piece of evidence: computing power

The growth of computing power comes from two aspects: one is the improvement of mining capacity of mining machines, and the other is the continuous increase in investment in mining hardware. The computing power has increased by 260,000 times compared with the peak at the end of 2013, but the computing power that can be purchased for each dollar has only increased by dozens of times.

Bitcoin has crossed the trough of disillusionment and has become immortal

What is the chasm? Disruptive new technologies, if they are to be widely adopted, require users to change their behavior, creating a discontinuity between early-stage markets and mainstream markets. This is the chasm.

I will illustrate with a few pictures.

According to the Gartner hype cycle, each wave of technological innovation will go through these five stages: technology trigger point, peak of inflated expectations, valley of disillusionment, slope of enlightenment, and plateau of productivity. My judgment is that Bitcoin is already climbing the slope of enlightenment, so I choose to talk about Bitcoin at this point, and the risk is relatively small.

The following figure is the Moore's Technology Application Lifecycle Diagram, which can be verified with the Gartner diagram. The Moore's Technology Application Lifecycle Diagram defines the acceptance characteristics of different groups of people for new technologies: technology fanatics are the first to come into contact with new technologies, visionaries can discover the potential and future of new technologies, the third group of people who accept new technologies are pragmatists, followed by conservatives, and the last group are slow people and critics.

Therefore, when a new technology enters the early stage of the market, the mainstream population does not care about it. Only when the new technology crosses the valley of death will it be gradually accepted by the mainstream population. This valley of death corresponds to the valley of disillusionment described by Gartner.

A harsh reality is that not all new technologies or startups can survive the trough of disillusionment. I personally experienced RSS subscriptions and Feedburner, LBS check-in services and Foursquare, virtual worlds and Secondlife, etc. The virtual world took off in 2006 and 2007 and was hailed as WEB 3.0 and the next generation of the Internet. The media reported that everyone should have an avatar. However, the virtual world did not support people's dream of social interaction, and Facebook replaced it. Later, Chinese people learned about avatars through the movie Avatar.

The following is a new technology hype cycle chart released by Gartner in 2015. Intelligent robots, AR, VR, cryptocurrency, and cryptocurrency exchanges are all on the list. Of course, everyone has different opinions. For example, some people predict that VR will die in the valley of disillusionment.

So why do I dare to say that Bitcoin is already in the climbing stage of the enlightenment slope? Let’s take a look at the major events of Bitcoin.

After experiencing government suppression, hacker attacks, and exchange closures, it has gone through all the risks that could be experienced, so my conclusion is that Bitcoin has passed the trough of disillusionment.

In 8 years, Bitcoin has become a mainstream software product

If you agree with my conclusion above, then we will be curious about where Bitcoin will go? How good will the prospect be? My prediction is: within 8 years, Bitcoin will become a mainstream software product.

I used the number of wallet users from the beginning of Bitcoin in 2009 to the present 2900 days to perform polynomial fitting and extrapolate the trend. The current number of wallets is about 10 million.

This chart is extrapolated 1,000 points. In less than three years, the number of wallet users will reach 80 million.

This chart is extrapolated 2,000 points. In less than 6 years, the number of wallet users has climbed to 500 million.

If we extrapolate this chart by 3,000 points, that is, in 8 years, the number of wallet users will reach 2.5 billion, and the penetration rate will reach 33%. Bitcoin should become an indispensable product in daily life. The reason why I say 8 years is that it has been 8 years since Bitcoin was born, and it will take another 8 years to become a big success, and now is the midpoint.

Some people say that my prediction is just a linear extrapolation, without any inflection point, which is unscientific. My explanation is that I did not extrapolate the price trend, which is absolutely unreasonable, while the penetration rate extrapolation is reasonable. For example:

The two curves in the above figure show the growth of Internet users since the early 1990s and the growth of mobile Internet users since 2006. It took more than 20 years for the number of Internet users to grow from zero to 2.5 billion, and the growth curve is very similar to that of Bitcoin. In comparison, the growth rate of mobile Internet users is faster.

If we extend the time span, it will be easier to reach a consensus. The following old chart shows similar growth in the penetration rates of TV, electricity, and automobiles. I drew a line at 50% penetration, which means that TV has been around for about 20 years, electricity has been around for nearly 50 years, and automobiles have been around for nearly 80 years. This chart is relatively old, when PC and Internet penetration rates were very low, but the growth rates were higher.

If Bitcoin were only used as a store of value like gold, it would be worth $200,000

If you agree with the above analysis, then I would like to throw out a big brick below: How much should Bitcoin be worth?

To answer this question, we must first make a premise. My premise is to ignore the monetary attributes of Bitcoin and only regard it as digital gold. Bitcoin is an indispensable storage option for people in the future.

If Bitcoin reaches the status of gold and takes up half of the usage space of gold, how many times will the price of Bitcoin increase? 200 times, reaching $200,000 per Bitcoin.

About 160,000 tons of gold have been mined on Earth, and about 2,600 tons of gold are mined every year, which means that the total amount of gold in the world is increasing at a rate of 1.6% per year. The price of gold is now $1,200 per ounce, and the global gold is equivalent to nearly 7 million US dollars. There are 16 million Bitcoins now, which corresponds to the current price of $1,000, which should be 16,000 million US dollars.

Of course, this is a simple static analysis that ignores many factors and does not specify when the price will increase 200 times. It is only used to illustrate that the price of Bitcoin has great room for growth.

Another question that is of general concern is whether Bitcoin can become digital gold. In fact, we can see from the major events of Bitcoin that Bitcoin is really an excellent hedge against real-world risks. Every time there is a government crisis, Bitcoin will rise. Another advantage is that the total amount is fixed. The Bitcoin algorithm is set to halve the output every four years. In July 2016, Bitcoin ushered in the second halving day, and the money supply rate was halved again. Third, in extreme cases, the government can confiscate gold, but Bitcoin cannot be confiscated.

Can Bitcoin become a global currency? My view is that it cannot. But the reason is not that there is no national credit or military behind it as people often say. My reason is that Bitcoin is not yet mature in technology. It is just a test product and has a long way to go. But I am optimistic about this decentralized issuance method.

The following chart looks like good news. One of the common attacks on Bitcoin when people argue that it cannot become a global currency is that Bitcoin's price is too volatile due to crazy speculation and no one wants to use Bitcoin in their daily business. This chart shows that Bitcoin's price volatility is clearly decreasing, and in the long run, a very obvious rule is that as the number of Bitcoin transactions increases, the price volatility will decrease.

Let's take a look at the current price of Bitcoin, which is convenient for many people who don't know how to check the price of Bitcoin. The current price of Bitcoin is:

Luo Pang said in his New Year's Eve speech that consensus is valuable. Bitcoin is a process of building consensus. Its short-term price increase is a consensus, and its long-term development is even more of a consensus. So how much do you think consensus is worth?

Let me explain that I don’t think that there must be a military or a powerful force behind legal tender. That is just a means to maintain the status of legal tender. It is the consensus of the people that shapes the status of cryptocurrency. As long as everyone agrees that it is a currency, it is a currency. At present, the consensus on becoming a currency has not been fully established.

Where is the next opportunity?

Bitcoin, cryptocurrency (called altcoins by the media), and blockchain, as an industry, have only been around for eight years. There is a long way to go and they will continue to evolve. So where is the next opportunity?

I first joined the Bitcoin army as a miner at the end of 2012, and later participated in the mining of Litecoin, Primecoin, PPC and other coins, but I didn’t get any good results because the computing power grew too fast. After reflection, I concluded that I didn’t participate in these coins early enough, so after a hard search, I found Gridcoin among hundreds of altcoins.

Gridcoin has improved one of Bitcoin's shortcomings. It believes that mining is a waste of energy and that the computing power should be used for scientific computing, such as cancer prevention, the search for new proteins, and the search for aliens. Gridcoin cleverly combines mining with scientific computing. During the mining process, your computing power is really used for scientific computing.

I was the first Chinese to contact this project, and I was also in the top 10 worldwide. Another Chinese who contacted me at almost the same time was a computer doctor living in Germany. I built a website to promote Gridcoin, and he built a QQ group. In essence, we were both preaching Gridcoin. I translated Gridcoin into Gridcoin, and almost all the articles about Gridcoin on the Internet were written by me. I invested a lot of computing power at that time, accounting for almost 5% of the total computing power of Gridcoin.

This was a pretty good start. Like many angel investors, the sexy projects and dreamy teams were only realized later that fairy tales were all lies. Now, Gradcoin is still an obscure small currency. It has also experienced hacker attacks, several forks and rollbacks. In general, my income probably just covers the cost of investment, because the current price is 150,000 Gradcoins to exchange for one Bitcoin.

The painful experience is a treasure, which made me understand cryptocurrency more deeply. I was silent for a while and kept a distance from the cryptocurrency circle. Until the beginning of 2016, blockchain technology became popular again. It was a very special day, February 8, 2016. That day was the Spring Festival, and I found that the price of Ethereum started to rise. Of course, I missed this opportunity. I realized that missing opportunities is a habit.

Ethereum is another innovation worth noting after Bitcoin, and everyone should pay attention to it.

Next, I would like to mention DAO. The full name of DAO is Decentralized Autonomous Organization, which can be understood as a team organization that is completely controlled and operated by code. I think DAO is expected to replace the existing corporate system in the future. With DAO, people can coordinate with each other and achieve common goals on a global scale without relying on third parties.

DAO participants have the right to review projects, vote and share dividends according to their investment amount. I think entrepreneurship is the driving force behind business and the cornerstone of the company system, but it is also a scarce resource. Now we can release more power through programs and use decentralized methods to automatically replace many corporate governance activities.

After the birth of cryptocurrency, decentralized collaboration has been the main driving force. Millions of early participants have contributed code, hardware resources, publicity and preaching to cryptocurrencies such as Bitcoin and Ethereum, and they have also received corresponding rewards. Such a contribution reward mechanism has promoted the development of digital currency.

With the concept of DAO in mind, the German blockchain startup team Slock.it launched the DAO project based on Ethereum's smart contract.

The Slock.it team is committed to bringing physical objects to the Ethereum blockchain so that people can rent, sell and share physical objects. They didn't expect that the DAO project would push them to the forefront. On April 30, 2016, the "DAO" project started crowdfunding. In 28 days, it raised $150 million, becoming the largest crowdfunding project in human history. What happened next can be described as a dramatic turn of events. On June 18, hackers exploited the "recursive call vulnerability" in the DAO program and successfully stole 3.6 million Ethereum coins, worth more than $50 million.

After The DAO incident, the Ethereum community held a heated discussion and finally decided to hard fork. The price of Ethereum was greatly impacted and began to fall. On the bright side, the crisis also proved the robustness of Ethereum and the ability of the development community behind it. DAO is a small episode that allows everyone to appreciate the vitality within the blockchain community.

Why You Should Invest in Bitcoin

If you dislike Trump, you should invest in Bitcoin. Uncertainty is the enemy of an efficient market. It is unknown how Trump will act when he takes office. In the future, infrastructure will be vigorously promoted, the Fed will raise interest rates, the US dollar index will rise, funds will flow out of emerging markets, and currencies will depreciate. Holding Bitcoin is a good hedge.

If you are a technology worker, programmer or a technology enthusiast who feels you have insight into technology, you should invest in Bitcoin, which is a reward for those who dare to enter the early market.

If you love freedom, believe in the market, and oppose big government, and if you also believe that the evil of human nature cannot be overcome in the existing central bank currency issuance system, you should buy Bitcoin. After all, Bitcoin's mission is to replace the existing currency issuance system. Even if this human experiment like communism cannot ultimately succeed, your investment can be regarded as a reward for human innovation.

If you believe that the future of mankind is virtual and the second half of global economic development is digital economy, you should allocate Bitcoin, because Bitcoiners should use Bitcoin.

Before I point out the risks of Bitcoin, I would also like to emphasize that a large part of the impetus for Bitcoin's current rise comes from the government, including India's demonetization, China's exchange rate restrictions, and Zimbabwe's currency crisis. This impetus will not stop in 2017.

Risk Warning

Bitcoin expansion is the biggest risk point in the future. Of course, when the risk is already known to everyone, it has little killing power. The 1M capacity of the Bitcoin block has severely restricted the use of Bitcoin. The high transfer fee and slow transfer speed make Bitcoin obviously inferior to mobile payment.

There are two camps and opinions about Bitcoin expansion. One is the Bitcoin Core team that developed the Bitcoin core code, which proposed a soft fork solution; the other is the hard fork solution that most miners (Chinese are very powerful) insist on. Supporters of the soft fork solution believe that Bitcoin is a settlement system and refuse to allow small payment transaction information to be written into the blockchain, but instead hope to support it through the second layer network (Lightning Network). Supporters of the hard fork solution believe that Bitcoin is not only a settlement system, but also an electronic cash system. They hope that the Bitcoin blockchain can record all transaction information, so they hope to expand the capacity of the block. Regardless of right or wrong, the escalation of conflicts in the future will definitely have an impact on the price of Bitcoin.

The second risk I want to point out is hacker attacks. Hackers will continue to attack exchanges. Exchanges are not as strong as blockchains. Crisis at exchanges will generate panic, causing large fluctuations in Bitcoin prices.

In the past few days, Bitcoin has plummeted when it broke through the previous high, which is easy to foresee. Next, there should be a wave of rise. Friends who want to allocate Bitcoin should regard it as a long-term investment and seriously consider the risks. People who are optimistic about Bitcoin in the long term can consider an investment strategy: switching back and forth between Bitcoin and Ethereum. Because when Bitcoin rises, Ethereum is falling in terms of Bitcoin. But when Bitcoin falls, other cryptocurrencies will enter an upward trend.

This article is only the author's opinion, not the opinion of Agan Finance Network, and is not an investment advice or solicitation. Bitcoin investment is a high-risk thing, please consider it carefully and take your own responsibility.