Bitcoin and Cryptocurrencies
Are They Here to Stay?
November 3, 2017,
Everyone heard the news. Bitcoin's price is currently at an all-time high at around $6,700 dollars. This represents an increase of more than 500% since the beginning of the year. This is tens of times more than the growth of any high-growth tech company on NASDAQ or the NYSE over the last year. Even better, if you invested $100 in Bitcoin in 2010, today you'd be a multimillionaire. This has gotten many people thinking: Are cryptocurrencies the future?
Cryptocurrencies based on Blockchain have several benefits
It is not only the fact that a currency is digital that entices the yea-sayers. After all, we have had many currencies in digital forms over the past years. Instead, it is the technology behind them, namely blockchain, which has several benefits:
First, it's decentralized. This means that no one has control over the cryptocurrency and no one should be able to manipulate it for their own benefit by increasing or decreasing its supply. Many see the lack of opportunity for a central bank or another entity to control a currency as a step forward and a step towards greater transparency in the financial system.
Second, it's secure. With these cryptocurrencies, transactions are both anonymous and immune to hacks. This is certainly a plus for those who want to keep their transactions secretive and secure, without having to provide any extra information, such as their name, age, or purchasing habits.
Finally, there are no extra charges. Those of us who use traditional currencies are well aware that they have plenty of extra costs. From transaction fees to exchange and interest rates fluctuations, cryptocurrencies like Bitcoin are not subject the whims of the third-parties, assuming you are playing via peer-to-peer.
Big names believe in its future
So who's on board? Just this week, Amazon alone bought 3 website domains related to cryptocurrencies, according to Fortune Magazine. No one really knows why, but it's a clear sign of interest by the largest online retailer in the world. And according to Business Insider, other companies like Microsoft and Intuit are already accepting payments in Bitcoin for some of its services. Even Jamie Dimon, CEO of JP Morgan Chase, and outspoken critic of Bitcoin, has seen his firm provide ETNs tracking the currency and apply for one "Bitcoin alternative" patent over 150 times since 2013.
With all this support, benefits, and rise in the price of Bitcoin, should we take it almost for granted that cryptocurrencies are here to stay? And that they may, in the future, replace fiat money?
The future of cryptocurrencies is uncertain
We may be tempted to assume all the above, but the truth is that it's not as easy at it seems.
For one, we can barely criticise big companies for hedging their bets and invest in cryptocurrencies even if they don't see much of a future for them. Well done, they have little to lose, and possibly a lot to gain.
Secondly, it's hard to imagine cryptocurrencies replacing the dollars, euros, pounds or yen we carry today. Without the backing of governments, cryptocurrencies can be extremely volatile. This means that the price of, say, Bitcoin against other currencies can fluctuate tremendously, much more than a government-backed currency.
And of course, cryptocurrencies' security is also a threat. It is the preferred means of payment for illicit transactions and it's near impossible to regulate it. This creates a big dent in the trustworthiness of the source of bitcoins and doesn't exactly please governments who see clear regulatory benefits in the ability to track transactions.
In the end, a lot of the decision power as to whether cryptocurrencies are allowed to exist or not will stay with those governments. So far, their impact has been small (the total market capitalization of Bitcoin, for instance, is less than $200 billion). But, as they become larger, governments will have to ask themselves whether they'll allow them to become more and more part of our daily lives. If governments want, as China did, they can just outright ban them from the country and declare them illegal, likely relegating them to use in black markets.
But one can't deny the interest that cryptocurrencies have drawn lately and they seem to be here to stay, at least for now. There are several benefits and the backing of a significant part of the population; on the other hand, it doesn't come without risks and could threaten the stability of financial systems worldwide, which would benefit no one.
So maybe it's a bubble. Maybe it's the future. Maybe it's a bit of both, and cryptocurrencies like Bitcoin will become just another means of exchanging value between two parties. Either way, we'll have to wait to find out.