"Bitcoin could be everything tomorrow, or it could be nothing"
I'm sure by now you have heard of Bitcoins. We have progressed into a time in this digital age where you can't go through a conversation without bringing up Bitcoins and its counterparts, eg. Ethereum. Bitcoins have taken the world by storm and essentially created a new asset class for itself, nothing like the stock market has ever seen before.
So what is Bitcoin?
Bitcoin is a currency, like a euro or the US dollar, used to exchange goods and services. However, unlike other currencies, Bitcoin is an electronic currency that presents novel features and stands out for its efficiency, security and ease of exchange. Its biggest difference compared to other currencies is that, it is a decentralized currency, so nobody controls it. Bitcoin does not have a central issuer like dollars or euros, the cryptocurrency is produced by people and companies from around the world devoting a lot of resources to mining.
It was created to prevent any one power to abuse the value of paper money and destroying the value of the dollar by over printing money, as demonstrated by the hyperinflation in Venezuela. The country's central bank abused the power that they had and printed too much paper money, reducing the value of their currency to essentially, nothing. To prevent this, the creator of Bitcoin wanted to share the responsibility of the bank to the rest of the world through blockchain technology, a technology that was created to digitally timestamp documents to prevent tampering in 1991 and was then left unused until Bitcoin was created. With this new digital currency, everything that is done within the blockchain of Bitcoin becomes public knowledge and there is no one single point of creation, destruction and power to Bitcoin.
Over the years, Bitcoin has made a name for itself as the value of Bitcoin continue to grow. The value went up to almost USD20K last year and this just showed how much people appreciated the utility and the idea behind Bitcoin, so much so that everyone was buying the coin and bumping its value astronomically last year. As this currency grew, more people are starting to learn from the creation and technology of Bitcoin and created their own coins -- but a better version of Bitcoin. We have to understand that Bitcoin is still new, there are mistakes that can be improved on the coin, and that is exactly what other coins that were created after Bitcoin were attempting to do.
With more and more cryptocurrencies coming to light, and more people turning to cryptocurrency and the blockchain as an alternative to banks, authorities have started to push regulations to make it harder and harder to purchase cryptocurrencies in their countries.
So where do people usually get cryptocurrencies?
They go to Cryptocurrency Exchanges. Exchanges are platforms where people can buy and sell cryptocurrencies. These platforms attempt to make things easier for anybody to obtain cryptocurrency, such as Bitcoins. With regulations put in place, more exchanges are finding it difficult to help people purchase Bitcoins as banks are trying to restrain transfers made from their bank card holders to cryptocurrencies.
Is there still hope for Bitcoins and other cryptocurrencies?
There is always hope for the new currency, as proven in 2017, there is much faith that is put into the utility of Bitcoins. Especially for places without banks, Bitcoin is seen to be creating a pathway for them to experience a normal economy. Being a more secure and efficient way of transacting from one place to another, more companies are taking on Bitcoin and other cryptocurrencies as a form of payment - especially over international waters.
The hype of cryptocurrency and blockchain has prompted a few countries to look at the possibility of issuing their own digital currencies based on the blockchain. The idea behind that was to attempt to evade or undercut international sanctions that are enforced, through the banking system. However, advocates of government-backed cryptocurrencies say that if this movement takes hold, there is a possibility of it irrevocably changing the international monetary system.
This idea was first brought up by Venezuela's president, Nicolas Maduro. He is pitching a virtual currency known as Petro, and each unit would be backed by one barrel of oil. Maduro says the Petro will have a “great impact” on how Venezuela accesses foreign currencies and obtains goods and services from around the world — a reference to the country’s dollar shortage as a result of sanctions imposed by the U.S. An initial round of sales for about 40 percent of the Petro tokens is focusing on institutional investors. There is no guarantee that this would work as there is currently no mechanism to exchange the cryptocurrency for crude or any other hard assets and Venezuela's opposition-controlled parliament has already declared that Petro would be considered an illegal currency if made.
But would governments benefit from issuing their own cryptocurrency?
The traditional way of regulating money supply through changes in interest rates based on the monetary policy would be more direct. This might be more effective and cost-efficient. Governments could also crack down on tax evasion because all transactions will be traceable in the blockchain. It is also evident that Bitcoin is popular among people who are looking to evade and move away from the government being in control of all currencies. Creating their own cryptocurrency may be something that a government that does not appreciate the workings of the global financial system can consider.
Saying all of that, there is always a possibility the Bitcoin could be everything tomorrow, or it could be nothing at all.