Bitcoin: Is it all contrived?

If you had spent $ 27 on bitcoin when it was created by Satoshi Nakamoto in 2009, your investment would now be worth more than $ 37,000,000.

Widely considered the greatest investment vehicle of all time, in 2017 bitcoin experienced rapid growth from $ 777 to $ 17,000.

By creating millionaires from opportunistic investors and leaving financial institutions open-mouthed, Bitcoin has responded to its critics at every stage of this year, and some believe this is just the beginning.

The launch of bitcoin futures on December 10, which for the first time will allow investors to enter the bitcoin market through a major regulated US stock exchange, means we are just getting started.

What makes bitcoin so valuable is that there is a limited amount. There will always be a maximum of 21 million bitcoins, and unlike regular fiat currencies you can’t just print them more if you want. This is because bitcoin works on the proof of work protocol: to create it, you have to extract it using the power of computer processing to solve complex algorithms in the Bitcoin blockchain. Once this is achieved, you will receive a bitcoin as payment for the “work” you have done. Unfortunately, the reward you receive for mining has declined sharply almost every year since the creation of bitcoin, which means that for most people the only viable way to get bitcoin is to buy it on the stock exchange. At current price levels, is it worth the risk?

Many believe that bitcoin is just a bubble. I spoke to cryptocurrency expert and long-term investor Duke Randall, who considers the asset inflated: “I would compare this to many supply and demand bubbles in history, such as Dutch Tulip Mania and the late 90s dot-com bubble. Prices are only speculation-based, and if you look at the functionality of bitcoin as a real currency, it’s almost embarrassing. ”For those who don’t know, the dot-com bubble was the period between 1997-2001, when many internet companies were founded and given outrageously optimistic estimates based solely on speculation, which later fell by 80-90% when the bubble began to collapse in the early 2000s.Some companies, such as eBay and Amazon, have recovered and are now well above those estimates, but for others it was the end of the line.

Bitcoin was originally created to take away power from our financial systems and put people in control of their own money by excluding the average person and allowing equal transactions. However, it is now one of the slowest cryptocurrencies on the market, its transaction speed is four times slower than the fifth largest cryptocurrency and its closest competitor in payment solutions Litecoin. The Monero coin, which is not tracked, makes transactions even faster, having an average lockout time of just two minutes, which is a fifth of the time it takes Bitcoin to do so, and that’s without anonymity. The second largest cryptocurrency in the world, Ethereum, already has a larger volume of transactions than Bitcoin, despite the fact that it is valued at only $ 676 per broadcast compared to $ 16,726 per Bitcoin.

So why is the value of bitcoin so high? I asked Duke Randall the same question. “Everything dates back to the same supply and demand economy, relatively not much in the presence of bitcoin, and its recent price spike has attracted a lot of media attention, coupled with the launch of bitcoin futures, which many see as the first sign Bitcoins are accepted in the mass market which has led to many people jumping on the bandwagon for financial gain. Like any asset, if the demand is to buy more than to sell, the price rises. This is bad because these new investors are entering the market without understanding the blockchain and the basic principles of these currencies, which means they are likely to burn out. ”

Another reason is that bitcoin is extremely volatile, it is known to rise or fall by thousands of dollars in less than a minute, which, if you are not used to and do not expect this, causes panic among less experienced investors, leading to losses. This is another reason why bitcoin will struggle to be accepted as a form of payment. The value of bitcoin can fluctuate significantly between the time providers accept bitcoin from customers and sell it on exchanges for their local currency. This chaotic movement can destroy all their profitability. Will this instability disappear soon? Unlikely: Bitcoin is a relatively new asset class, and although awareness is rising, only a very small percentage of the world’s population owns bitcoins. Until it becomes more widespread and its liquidity improves significantly, volatility will continue.

So if bitcoin is pretty useless as a real currency, what are its uses? Many believe that bitcoin has moved from a viable form of payment to a repository of value. Bitcoin is similar to “digital gold” and will simply be used as a benchmark for other cryptocurrencies and blockchain projects to be measured and traded. Recently, there have been stories that people in high-inflation countries such as Zimbabwe are buying bitcoin to preserve the wealth they have, rather than seeing it depreciate due to the carelessness of their central banking system.

Isn’t it too late to deal with bitcoins? If you believe what these cryptocurrencies will do for the world, it’s never too late to participate, but with such a high bitcoin value for some it’s a boat that has already sailed. Perhaps you better look at Litecoin, a growth of 6908% for the year, or Ethereum, which has grown by an incredible 7521% for the year. These new, faster currencies hope to achieve what Bitcoin first sought to do back in its early days in 2009, and replace the state’s fiat currencies.

Who knows what the price of these currencies will be in ten, fifteen or even twenty years? One thing is for sure, however, we better tie ourselves in, as it will be a wild trip.