Making Sense of Bitcoin, Cryptocurrency and Blockchain

By Brent MacDonald

Understanding blockchain starts with understanding bitcoin, or at least what it is trying to be. Bitcoin as a token, is a digitally-native, non-government issued currency. On the other hand, Bitcoin as a blockchain network is a proposed evolution of money; it is an evolution of the system humans have adopted as a means to create, store, and transact value. Combined, the token and the network are different from our current monetary system in multiple ways, but two striking differences stand out: it does not rely on any central organizing authority to exist; and it is digitally native, which allows it too also be verifiably scarce and borderless. Those points combined make bitcoin—or a competing decentralized cryptocurrency—more compatible and functional as a currency that denominates transactions of value on the Internet.

Bitcoin is to blockchain what email is to the Internet: the first meaningful application of a new technology. Blockchain technology (aka: Distributed Ledger Technology) is enabled by recent theoretical breakthroughs in the field of cryptography and distributed system design. Equally important, it has actually been implemented in bitcoin and Ethereum, and has achieved through them a critical mass of human interest and adoption, which brought forth aspiring competitors and further innovation. The most important upgrade that the crypto industry has introduced to the world is that of digital scarcity. It’s a new concept in practice, but it’s straightforward and can be clarified in a simple example: you can send a PDF and retain a copy, but you cannot send a bitcoin and retain a copy. Scarcity is a very real concept, and its introduction to the digital world has so far brought forth bitcoin and Ethereum.

The combined market value of all cryptocurrencies in circulation exceeds $1.1 trillion, of which bitcoin represents $700 billion

It’s important to note that even ‘major blockchains’ like bitcoin and Ethereum are still in their nascent years, and that there is still much more that the advent of digital scarcity foreshadows. Digital identity, digital property rights, digital medical health records, and digital legal contracts are some of the applications that we may see in the future. But to understand where adoption is at, it’s more useful to focus on bitcoin and where it stands today. As of September 2021, the combined market value of all cryptocurrencies in circulation exceeds $1.1 trillion, of which bitcoin represents $700 billion. Many liken bitcoin to gold, so it’s worth noting that the total value of bitcoin is currently 4.5% of the total value of gold. It’s estimated that 100M people own bitcoin and according to the World Economic Forum, up to 10% of global GDP could be stored on blockchains by 2025 (that’s more than $14 trillion based on Global GDP in 2020).

Some of the Blockchain investment themes we are interested in include: DeFi (decentralized finance); applications that simplify the experience of interacting with a blockchain; applications that make use of digital scarcity; and hard and soft infrastructure for a blockchain-enabled world (innovative custody solutions, crypto on ramps / off ramps, simplifying staking).