Now the price of the cryptocurrency is absolutely unreal. However, for the money. A bar of gold. Disk of iron. A chain of beads. Card of plastic. Cotton roll. These things are useless. You can’t eat, drink, and shelter them. But they have value. And their value stems from the simplest things. People believe that it is money, and so be it. If you count every currency confusion on the terms of consensus, bitcoin, the digital cryptocurrency, is more like “consensual hallucination in a psychedelic drugs,” says the Wall Street Journal. The concept of the bitcoin was born in a detailed document, published in late 2008 by a person with the pseudonym Satoshi Nakamoto. By 2013, one bitcoin was worth $ 12. Today more than 10 000 dollars. Its price has doubled over the past two months. If the Japanese yen or the U.S. dollar pulled something like this, the economy of these countries flew in to a hell of a deflationary spiral.
Throughout history, currency has taken one of two forms: physical assets, like gold or beads, and FIATA currency, like a government issued paper money and coins. Bitcoin and its brethren represent a third category: the digital currency, which includes game theory, Economics, and cryptography — they are cryptocurrencies. If you count any money joint illusion, bitcoin wants to create the best way to split this illusion.
Many people watched the growth of bitcoin as a surprise, and confusion. To understand all this, you need to contact the experts in cryptocurrency and scientists and ask them a question: if bitcoin is a bubble, like Tulip bulbs in the 17th century? Investment hedge as gold? Currency as dollars? While these questions have no single answer. There are only the options: “all of the above” “none of the above” or “nobody knows”.
On the road to perfect money
What’s wrong with the dollar? Ask the average American, and he replied that everything is in order. He loves his credit card. About cash do not worry.
But for others the danger of the dollar is obvious: a single Almighty entity, the Federal government strictly controlling the money supply and the rules governing it. Some fear that the creation of a large number of dollars will lead to uncontrolled inflation. “Tsifrovani dreamed of fully decentralized electronic payment systems for decades,” because they would get rid of such problems, writes Timothy Lee, senior reporter for political Affairs in Ars Technica. However, most of the ideas of digital currencies suffered from the same problem: the possibility to include the printing press. Any information can be copied (text, photos, files). The fear of rampant counterfeiting would mean death for the digital currency.
Bitcoin solved this problem at the expense of the blockchain, such online journals in which to record and confirmed all payments, making a double waste is prohibited. Transactions are encrypted, ensuring anonymity. The payment network is maintained by “miners” of bitcoins, a decentralized group of individuals with powerful computers that approve transactions and get rewarded with bitcoins for their work. The maximum number of bitcoins is limited. Bitcoin solves both problems cryptopenct blockchain implies decentralization, and the planned deficit bitcoin prevents inflation.
The blockchain is a very clever and kind of brilliant technology. Mark Andresen known venture capitalist, believes that the blockchain could be the basis for the entire economy like the Internet. Here is his opinion published in The Washington Post:
“Digital exchange. Digital promotions. Digital fundraising for companies. Digital bonds. Digital contracts, digital keys, digital signatures, digital rights. Digital voting, digital contracts, digital signatures you’ve already got… Ahead of all aspects of financial services: insurance contracts, insurance derivatives, currency exchange, remittances, and so forth.”
No one knows for sure how the blockchain is transforming the economy of the future. But it is obvious that the economy of today he has not changed. Although the number of bitcoin transactions is growing every year, it is nowhere near worth it with the consumer technology mass market, like Google, Netflix or even PayPal. Bitcoin remains cumbersome to use (normal transaction can take several hours or even days in terms of scoring channel), and its price is extremely volatile. Frankly, it’s a terrible currency, built on top of the transformational potential of technology.
This leads to the obvious question: if bitcoin wants to become currency the mass market, why is he suddenly succeeded as an investment tool?
There are many theories about why the bitcoin price breaks all barriers. But to save time let’s keep them to four big arguments.
For the first five years of bitcoin the interest of venture capitalists in regard to the products and companies associated with bitcoin were minimal. In the end, the idea of cryptocurrency was associated with black markets like Silk Road, where criminals traded drugs, explosives and other forbidden things. There is even a view that the price of bitcoin goes up from the fact that its dubious use — for example, the avoidance of taxes or money laundering will continue to grow. It seemed that at some point the US will decide to try to crush neoconcrete Almighty dollar.
But in November 2013, immediately after the FBI busted Silk Road, some senators welcomed bitcoin and other virtual currency at the official hearing. The price of bitcoin has tripled, increased to $ 900, and venture capital licked his lips. Investing in bitcoin flowed rivers. While it has no obvious applications. But the recognition is there.
People have long referred to as the bitcoin digital gold. In early November, Bloomberg wrote that for “buy bitcoin” has overtaken the “buy gold” that may indicate that investors think it is the fashion equivalent of the precious metal. As gold or silver, bitcoin is by default, in short supply, and can be “get”.
There is something else important in the similarities between bitcoin and gold: the reputation of bitcoins above the market. For a week sold bitcoins at 34-50 billion.
A Professor at new York University and the so-called “Dean of valuation” Aswat Damodaran believes that bitcoin could become a reserve cryptocurrency world or the greatest con of the century. “Now is not a good currency because it is not a good store of value because of volatility and because the sharing of it is not a very good environment. Bitcoin can be considered “gold for the Millennials”.
What is ICO? The so-called “original offer of coins”, initial coin offering, is essentially a way for companies to raise funds without selling the shares. Instead of trying to attract public money in exchange for shares as at IPO, ICO offers digital tokens that are marked as new cryptocurrency.
The traditional view ICO more blurred. Some believe this is a clever way for the founders to quickly raise money without relying on venture capital guards. Others note that a simple way to cheat the poor people who go crazy over the cryptocurrency. In 2017, the market just exploded ICO, attracting $ 2 billion to new companies.
There are several factors that fuels the madness of ICO. First, some analysts believe that the most profitable ICO pushed, not only people, but also Piccolomini millionaires who want to diversify their investments without paying taxes for cashing out of crypto.
Second, many ICO investors first convert the money in bitcoin and then buy tokens new cryptocurrency. According to the Tim Lee bitcoin does it “reserve currency” cryptoeconomy. As well as the US dollar enjoys its status as world reserve currency, globally accepted instead of, or in exchange for local currency, the same thing is often observed in bitcoin at the cryptocurrency markets. Perhaps these factors work in a closed loop, and the bitcoin millionaires, raising the profile of ICO, and raise the value of bitcoin.
To name the currency bubble — weird. But in the absence of more accurate terminology, many people prefer to use this word.
Even if we accept at face value the argument that the blockchain is a miracle, cryptocurrency is the new gold, and a bitcoin reserve currency of the market ICO is still strange to see that the cost of the product doubles in six weeks without any significant changes in application or success. On the contrary, there was a strong divergence between transaction volume bitcoin (which increased 32% since 2012) and its market value (which has increased more than 1000 times).
Polls show that the vast majority of owners of bitcoins buy and hold (HODL) bitcoin to exchange them for dollars. But if the predominant use of a certain asset is purchase, pending assessment, and then exchange for dollars, then it’s a terrible currency. So people collect baseball cards or stamps, not money. For most owners of bitcoin is not a currency. It’s collecting.
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The explosion of the bitcoin value took many by surprise. But such surprises can be born for great things.
As Dan gross wrote in his book “Pop!”, explosions of bubbles often fertilize the next generation of breakthrough technologies. Before the invention of the national Telegraph, the railway system and technogiant was the Telegraph, railroad bubbles, the “dot-com” bubble of the online trade. The blockchain, as all these technologies may be an important part of the infrastructure of the digital economy, even if the price of bitcoin falls while you read this paragraph. Or growing. Or falls? Or growing?
Christian Catalini, a Professor of technology in Slanovskiy school of management at MIT, begins to describe their attitude to bitcoin is a classic phrase about the properties of money. Money is a unit of account (you think a salary in rubles or dollars), the store of value (money you can keep in your purse, and they will not be spoiled) and medium exchange (give someone a hundred rubles, and he will immediately understand, what kind of value is at stake). Bitcoin satisfies all of these criteria? Perhaps the Professor says. Maybe not, but it doesn’t matter.
“You can imagine that in the future will be the cryptocurrency, which will be mainly to store value, like gold. It will be decentralized, reliable, but with high commissions per transaction. It could be used to buy a house, but not coffee. On the other hand, others could be used for smaller payments. We can have many different currencies, which together will be of value in the exchange environment.”
What is clear for sure is that the future of money will jeopardise our usual definitions of rates, bubbles and the original proposals. What is happening this month with bitcoin similar to the intermittent paroxysm. But the prices, as the currency is a collective illusion. And even if these illusions will be destroyed, this does not mean that when the smoke clears, there is nothing else will not.