Introduction
The cryptocurrency
(bitcoin) saga began in the midst of the 2008 financial crisis. When bank after
another was collapsing on account of loans going bad, it was a tumultuous time
that was accompanied by a lot of chaos. Amidst the chaos, came along a group of
programmers or sometimes assumed to be a single individual called Satoshi
Nakamoto who published a white paper on bitcoin mechanism and mailed it across
to a cryptographic mailing list.
This
never-before-seen technology was revolutionary in the way it transacted money
or digital money to be precise. It bypassed the traditional means, as the need
for the hard currency was completely done away with. The model of the transaction
was entirely dependent on a peer-to-peer transaction without requiring a central
bank or a credit card network. In fact, it did not elicit personal information
(identity) to be disclosed and it did not extract a transaction fee which was unheard
of.
Underlying Technology
There was no
parallel to this technology in the world of finance and it did shake the
foundations of the financial world. Technically, the currency runs on a
technology called “Blockchain”. It is a publically distributed ledger system
that records each bitcoin transaction ever made on the block. When the block
memory is full, it is added sequentially to a chain of blocks. These
transactions are available on any computer on the bitcoin network that
validates transactions, stores bitcoins and relays transactions to other
computers. These computers on the network are called nodes.
Since the
database is stored on a network of computers (nodes) – hacking or stealing
bitcoins’ data from computers is not an option. To hack or steal bitcoins, the
crooks would have to simultaneously break into the majority of nodes. This
makes the bitcoin a superbly secure digital currency safe from cybercriminals.
What the Future Holds?
It has been
close to a decade when Bitcoins were first introduced and there were naysayers
who predicted its doom from its inception. However, Bitcoin has weathered the
storms and has stood the ground as a robust asset option. As we move into the
next decade with deep uncertainties in the global financial system on account
of a slowdown and the contagious COVID-19 bringing the world to its knees.
Let’s look at what makes the digital currency a viable option in years to come.
·
Lower Transaction Cost with Decentralized Ledger – A decentralized
ledger makes it immune to third party transaction costs. This makes for lower
costs on remittances and other fund transfers. Presently, the remittance fees
stand at 7% to 8% that can be significantly lowered to 1% to 2%. Besides, a
decentralized ledger has little vulnerability compared to a centralized system.
Since a single party no longer controls the record of previous transactions – a
distributed ledger operation holds great promise.
A factor
that hooks investors is the fact that Bitcoin does not erode in value with the
passage of time. It is on record that only 21 million Bitcoins would be
produced in all. Making it inflation-proof, with hard money inflation picks up
when the Central Bank prints more currency to beat the recession.
·
Global Geo-Political Tensions & Uncertainties – US-China trade war,
upcoming American elections, Corona aftermath are issues that hold great
interest among investors and the rich alike. The anticipation behind such
global events means heightened speculations among investors and the rich elite to
park their funds in safe assets and bitcoin has become the de facto choice.
Bitcoin
recently touched the $10k mark and analysts predict it was not on account of
the global uncertainties rather it showed the maturity of the asset. Over the
course of time, it has become less volatile and it would continue to rise in
value. Both Iran-US tension and the COVID emergence have shown a negative
correlation compared to traditional assets. When assets plunged across the
board during the course of these events, the Bitcoin actually jumped in value.
Some have gone overboard to predict that it is behaving in a manner similar to
gold and should rightly be called “Digital Gold”.
Given the
continuation of global uncertainties, Bitcoin is increasingly being seen as a
safe bet to protect wealth through guaranteed returns.
·
Improved Technology – Earlier investors used to be highly sceptical about investing
in Bitcoins. However, as technology has shifted gears with auto-trading
platforms and readily available tech tools powered by artificial intelligence
that can create a Bitcoin portfolio. These, when run through an array of rules
and filters, ensure that a digital asset with a solid track record is chosen
and kept to give to intended return on investment.
Most
contemporary investors today speculate that traditional investments/ IPOs would
become old school and Bitcoin is likely to take centre stage. It is quite
obvious with the ease of registration, less paperwork with a quick and high
return on investment. This along with 24/7 availability, improving market
adoption rate through an increased number of exchanges & crypto ATMs have
made the Bitcoin the darling among investors.
·
Facebook Joins the Race – It has come to focus that Facebook has joined the bandwagon of
institutions that are developing their own Bitcoin called Libra. This is likely
to influences others to rethink their crypto strategies in the coming future.
This is a likely game-changer in “Crypto” scheme of things. Facebook has
decided to create the coin from scratch and in times we might see other tech
giants follow suit. The fact that Facebook has taken this bold step only
validates its confidence in the underlying technology that makes cryptocurrency
work.
·
Compatibility Aspect – The Bitcoin stands to be a compatible invention that requires
the user to make very few adjustments in their daily routine to be adopted. For
example: When the iPhone came into the markets, there were a variety of
stand-alone gadgets that performed different functions. The iPhone happened to
incorporate all these gadgets into one versatile-gadget that was accepted with
open arms by Apple aficionados. Similarly for a user to deal in Bitcoin, all
he/ she need is an iPhone and an internet connection. Such ease of adoption
makes optimists believe that the user base of Bitcoin will swell in the coming
future.
·
Improved Trialability – The Bitcoin has come a long way from the original Nakamoto
paper. This refers to the options provided to first-time users to engage with
new technology on a limited basis. The number of exchanges and crypto ATMs
getting started over the course of time makes it easier for first-time users to
trade in Bitcoins. These exchanges allow users to participate in small
investments in Bitcoin sometimes even with a simple credit card.
Conclusion: Although we must
understand that Bitcoin is a sophisticated piece of technology that is today
understood by few people. But in times to come, we would see the adoption of
this technology on a wide scale. This is being said with regard to the curious developments
happening around the world around cryptocurrencies.
·
Similar cryptocurrencies like the Bitcoin are entering the market
·
Attempts to regulate cryptocurrencies by governments
·
Impoverished countries looking for hard currency alternatives
All such
scenarios make cryptocurrencies indispensable in the long-run. Lastly, it must
be admired that Satoshi Nakamoto created a process which was way ahead of its
time. The Bitcoin technology would not remain restricted to currency for long.
But, would metamorphosize into various applications that would reduce
bureaucracy & middlemen in both government and private institutions.
(The reader must understand that Bitcoin is
not the only cryptocurrency in the world market. There are other currencies
like Ehtereum, Ripple, Litecoin and such. Technically all these are subsets of
Bitcoins technically. Since they all use the same Blockchain technology. This
article was written primarily to showcase the brief history of bitcoin and the
advantages that it offers compared to traditional money. We chose bitcoin
because it was the first to appear.)
---------Sujit Susheelan
