This past week saw the release of Bitcoin Core 26.0, ushering in a new version of “Bitcoin,” the team at NYDIG noted.
While the Bitcoin ecosystem at large consists of numerous pieces of software that interoperate (wallets, mining software, Lightning, alternative implementations of Bitcoin written in languages other than C++, etc.), Bitcoin Core is “typically the most important because of its popularity and it de facto defines the broader Bitcoin protocol with which other pieces of software interoperate.”
NYDIG also mentioned in an update that while most of the technical changes in the recent version could be described as evolutionary rather than revolutionary, it is important “to remind investors, especially given the resurgence in price (and criticism), of what Bitcoin is and isn’t.”
Bitcoin is Software
At the risk oversimplification, Bitcoin (big “B”) is “a software program, one that is freely available to anyone with an internet connection and a computer to download and run. Version 26.0 is available here.”
The NYDIG team added that individuals and organizations “that run this software form a peer-to-peer network, one that is global in its reach, does not rely on any single entity like a financial institution or cloud service provider, and is difficult, if not impossible, to block (censor).”
The technical requirements are modest “such that nearly anyone with a modern computer should be able to run it. By one measure, there are 67,000 Bitcoin Core nodes (software instances) currently being run,” the NYDIG team explained.
This omits important network participants “such as miners, wallets owners, and exchanges, but we are going for simplification here – plus Bitcoin Core incorporates all of that functionality, as well.”
This system, the network of software, “allows participants to send, receive, and hold bitcoins, the native asset endogenous to the system. It also allows users to verify and append new transactions between users.”
As noted by NYDIG, these bitcoins don’t live in your wallet. They reside on every computer in the network in “a shared and ever-growing database called the blockchain. The keys (password) are secured in a wallet that gives its owner the right to reach out into this network and move certain bitcoins from one owner to another (along with encoding other information as is increasingly popular).”
That’s it. In that sense, the original white paper “described it best – Bitcoin: A Peer-to-Peer Electronic Cash System.”
Bitcoin is an Asset
Ownership of the bitcoin (little “b”) asset, “unlike stocks or bonds, confers no rights to its owners. Bitcoins produce no cash flow and does not give a voting say in the development of the software. The only right bitcoin ownership confers is the right to move them. Because of this, many critics say that there is no inherent value and there is nothing backing it.”
First off, there are plenty of assets “that investors hold that produce no cash flow, even in the theoretical construct – precious metals (gold, silver, platinum), art, collectibles (automobiles, watches, jewelry, handbags, fine wines) are just some of them.”
As an aside, bitcoin is a monetary base, “not a stock, bond, real estate or company. One should not expect a monetary base to produce cash flow (even US dollars have to be invested to generate a return). Comparing bitcoin with these other asset classes is like comparing apples and oranges.”
Why do investors own non-income producing assets?
The report explains that this is either “for objective reasons (returns and risk characteristics), subjective reasons (they enjoy the art), or both. While there might be subjective reasons for owning bitcoin (social media status, group alignment with political/economic beliefs), we would guess that most of the value in bitcoin ownership comes down to objective reasons (risk diversifier, return profile, globally transmissible, nearly infinite divisibility, and weightless in its cost to transport).”
Much of that objective value comes “from technical properties, but there are important subjective properties as well.”
It should be of little debate that Bitcoin has “a programmatic supply function, one that is halved roughly every four years until it is exhausted at nearly (not exactly) 21 million bitcoins.”
This happens for a technical reason – “eventually the block reward can no longer be divided in half. But whether a fixed supply is valuable is complicated subject.”
As stated in the update, Bitcoin continued its “upward trajectory this week, zooming up 14.6% on the week.”
Bitcoin seemed to make short work of “even level” price resistance, “punching through $40K without much effort.”
At its highest point this week, bitcoin touched $45K. The asset is now “up 161.2% on the year, a stark contrast of where it was at this point a year ago.”