Bitcoin- a term that has been ubiquitous on mass media ranging from the internet-based channels to traditional means, and it is now unavoidable in daily basis unless you have been living under a rock. This emergent invention has sent shock waves to financial markets around the world. Its significant increase has gone beyond general expectation of many financial experts as well as acclaimed monetary economists. Starting at $131 CAD in 2013, it had cracked $24,000 CAD mark in December 2017 and reached an incredibly high record at 18,200% point, which has never happened before in any blue-chip and gilt-edged bonds or stocks. Although Bitcoin price has plunged sharply in recent months, and widespread rumours ridiculed that the crypto bubble has finally burst and reach its end. One guaranteed thing is that Bitcoin is and will be evolving nonstop to against criticisms and polarization, becoming more invulnerable and more resilient pieces of software around to ultimately eliminate cash-based society. That being said, the price of Bitcoin will eventually increase in long term, and reaching six figures in value might just only a matter of time.
So why is this digital currency important? And why people should care more about Bitcoin? In this blog, I won’t talk about what Bitcoin is (you can simple google numerous well-explained definitions on Internet) but mostly mention about the fundamental role of blockchain-based money in the equity-oriented world.
Will Bitcoin’s price bear a resemblance to Gold’s explosive growth in the past?
Everything has increasingly revolutionized into digital form. We take the advantage of redundant resources and utilize it to be more useful and more effectively to economize scared resources. Here are some examples:
Unlike newspaper and any printed journals, Facebook– a sharing platform allows everyone to write and post contents on their own wallpaper, generating absolutely zero tangible publications.
Uber– the largest peer-to-peer ride sharing and transportation network company is basically owning no vehicles and gradually transforming the entire taxi industry.
Airbnb– an online lodging service that allows people who are owning houses or cottages to rent out to guests, owning no physical properties. Airbnb has disrupted the hospitality industries and shown substitute attribute in long term since its entry to the market.
So what do all the inventions have in common? They all serve a special purpose: decouple the monopolistic power of conventional central firms and share equal opportunities to everyone, so that people can become their own authorities and have power to raise their voice, spread their ideas and increase their wealth creation.
And now come to Bitcoin. We have one of the greatest inventions that has ever seen before, holding no physical cash and enabling users to transfer money across border without the need of intermediaries. Bitcoin show no discrimination to users. Everyone is capable of having access to it regardless of age, gender, employment, social status and financial ability. Every person connecting the Bitcoin network is able to receive and spend money at any amount almost instantly without queuing in a long line at financial services and being questioned by any third parties. Basically, sending Bitcoin is like sending an email. Fast and convenient. It was something previously unheard of. Moreover, Bitcoin is controlled by no one, even the government. Its value is completely determined by supply and demand, in short, the MARKET. And only MARKET can decide the fate of Bitcoin. In other word, your value of labor power is completely dependent on mathematical formula and market acceptance, not centralized bodies.
Admittedly, this money will shrink and redistribute power. We don’t have to depend on the notes released by government anymore. We are entirely detached from physical objects and third parties. In a cashless-based society, we will conceivably change from “In God we trust” to “In Open-source we trust” or “In Blockchain we trust”
“I think the Internet is going to be one of the major forces for reducing the roles of government. The one thing that’s missing but that will be soon be developed is a reliable e-cash” – Professor Milton Friedman, a winner of Nobel Memorial Prize in Economic Sciences
Concerns about Bitcoin
New market often comes with multiple concerns. Listed below are the common concerns that people usually question about
People disregard the potential of Bitcoin because it is…unconventional and ambiguous. It’s different with what they were taught in school or textbooks. The only money they know is the one released by the central bank and government. For them, money is an asset that can be held on their hand. They said Bitcoin is a virtual currency and is intangible, so it doesn’t have any intrinsic value. However, Bitcoin is not the first digital money ever created. Up to 90% of the money we are using is stored as digital form. So how can you ensure it is more real than the other? Let’s break it down a little bit here.
How can you tell the difference between the note you are holding and the white sheet? They are all paper. So why one is more valuable than the other? Because the government make you believe that the note in your bank account is worth of exchange, and everyone is all agree with it. It’s about BELIEF. Same thing to a diamond and a coal. They are both composed of carbon, but diamond is much worthy than coal. Because everyone all admits one is worth of money than the other –> BELIEF. Let’s bring back to paper money and Bitcoin. The party holding power forces you to believe that their printed money is worthwhile. People all accept it and have been using for centuries without questions until the creation of Satoshi Nakamoto arrived.
Fiat currency is backed by gold and armies whereas Bitcoin is backed by global networks of anonymity. One is issued by government, one is predetermined by mathematical rule, and Bitcoin is LIMITED. Only 21 million Bitcoin are available on the market. As the result, it holds the objectivity and consistency and its value is stable if not to say increases over time. Table below is well-explained about the critical distinction between Fiat money and Bitcoin.
Comparison of different forms of exchanged propertyLink: http://www.thrivenotes.com/the-extropy-of-bitcoin/
Money laundering is one of the major concerns when it comes to Bitcoin. It is believed that Bitcoin will facilitate illicit activities by enabling criminals to move a large amount of illegal money across border without being traced. With its absolute security, personal identity is not linked to Bitcoin remittances and there are no central record-keeping systems to track. As a result, it is believed to be the perfect tool for tax evaders, money launderers and terrorist financiers to defeat the efforts of law enforcement. However, it’s just a temporary problem. New technology is always one step ahead of institutions. By the time Bitcoin is approved as an official currency, government will have imposed laws to tighten cryptocurrency circulation on the market. Moreover, history of every transaction is visible on public ledger so that users can see others’ exchanged activities. As a result, it will place major constraints for illegitimate money-moving activities.
The table below shows money laundering endeavors associated to financial preferences regarding to HM Treasury in the UK. Noticeably, banks and cash are the major methods for monetary violations, accounting for the highest structural risk level compared to digital currencies.
It is true that mining actions cause a considerable volume of electricity which makes regulators frown upon its expenditure. It is also called environmental disaster. Proportionally speaking, however, the mining cost is just a small cog in a large wheel compared to annual economic costs. Below data describes a bigger picture of the concern.
It is interesting that my brother once mocked that Bitcoin system will soon collapse in the future, but he has no clue to prove how :D. In fact, Bitcoin is operated by the presence of Internet. If government, let’s say, want to eliminate the threat of Bitcoin, the one and only way for them to do so is to shut down the entire Internet, globally. It is highly unlikely to happen, right?! Even so, the amount of Bitcoin you own when the Internet goes offline is still available on the blockchain system, it doesn’t disappear. When the global Internet resumes, you will be able to access to your Bitcoin again. Interestingly, if worldwide computer network outage were the scenario, not only Bitcoin blockchain would be shut down, but you have to expect all the Internet services and Internet-based titans (e.g Facebook, Amazon and Google) would be fell down as well. That’s would be a horrifying catastrophe. That’s being said, cryptocurrency should be accepted as parts of the human evolution. It is inescapable. Collectively cohabit or fall apart together
I am not totally convinced when people think Bitcoin is a financial tool for speculation and gambling. Not just any digital currency, any properties such as stocks, housing and even FOREX can be used as a tool to predict the prices for speculation and gambling. I believe that Bitcoin in general should not be viewed as a speculating creation since it might form a misleading perception for people at the first place. Instead, this encrypted currency needs to be genuinely embraced as a disruptive technology that has within it the promise to unbank the banked and distribute the power of financial authorities to people’s hands.
The Bitcoin Bull will inevitably come back, there’s no doubt. Bitcoin will likely become a commonly used currency on a global scale. If you want to build a spaceship, you have to build a strong foundation first. There is no short cut. Bitcoin is still in the early stage and is in many laborious testing and tough challenges from the SEC and the market. Only time will answer this. But now we know that the Industrial Revolution 4.0 and WEB 3.0 are the future of economic development, and they are progressively built by various receptive, tech-savvy and passionate entrepreneurs who will be the major lead of the industry. Besides the volatile price and fraudulent activities in ICO arena, people should focus on the fact that this new technology will carry out an unprecedented revolution and transform the surface of financial institutions all around the world. It’s just the start of the future of transactional economy.