Lyn Alden - Why Bitcoin Is The Best Bet Against Inflation

Lyn Alden - Why Bitcoin Is The Best Bet Against Inflation

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In this video, Lyn Alden explains how network effect is a major determinant of the survival of any cryptocurrency. She also shares her outlook for Bitcoin in the coming years.

Here is the highlight of the interview:

One of the advantages of Bitcoin is that it has a long history of rising over time, so it can be volatile. This explains why, in developed countries, many people don't understand why someone should own Bitcoin other than for speculation. The reason is that they are used to stable currencies. Whereas in emerging markets, some of the people are going through very bad periods of inflation. So, it is easy to convince them why they should hold a currency that is scarce and can't be debased unlike the currency of their government.

Bitcoin means different things to different countries. For example, Lebanon has much worse inflation than many other countries. So, they are in a more extreme situation.

Network effects are a phenomenon whereby the more people use a network, the more valuable it gets exponentially. For example, if half the world's population uses the phone, it is more effective than if only five people use it. The same is true for emails, social networks, and more. Network dominance is one of the strongest economic strengths that a company or protocol can have against its competitors. For example, if you hire a programmer to get people to use your version of Facebook, your program may not see the light of the day because its users are relatively few compared to Facebook users.

Network effects apply to money in general. This partly explains why the US dollar has a hedge against other currencies. There's a dollar-denominated debt around the world, making the demand for dollars high.

And with Bitcoin or cryptocurrencies in general, the fact that its security is tied to how popular it is makes it much harder to attack and more desirable. We've observed that more developers work on top cryptocurrencies, so they get better security and upgrades over time than the smaller applications. Hence, cryptocurrencies resemble social networks because cryptos now have network effects.

Concerning Bitcoin adoption, central banks may not just dump all their gold for Bitcoin. However, smaller countries can start demanding more assets like Bitcoin. The reason is that not only can they store it as an asset like gold, but they can also use it as a permissionless payment or bypass international finance channels if they are sanctioned.

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