The brutal truth about Bitcoin

Bitcoin, the original cryptocurrency, has been on a wild ride since its inception in 2009. Earlier this year, the price of one bitcoin rose to over $60,000, an eight-fold increase in 12 months. then it fell to half that value in just a few weeks. The values ​​of other cryptocurrencies like Dogecoin have gone up and down even further, often based on Elon Musk’s tweets alone. even after the recent drop in their prices, the total market value of all cryptocurrencies is now over $1.5 trillion, a staggering amount for virtual items that are nothing more than computer code.

Are cryptocurrencies the wave of the future and should I use and invest in them? and the massive changes in its prices (nearly $1 trillion was removed from its total value in May) portend trouble for the financial system?

Reading: Why does bitcoin have value

bitcoin was created (by a person or group that remains unidentified to this day) as a way to transact without the intervention of a trusted third party, such as a central bank or financial institution. its emergence in the midst of the global financial crisis, which has shaken confidence in banks and even governments, was perfectly timed. bitcoin allowed transactions using only digital identities, granting users a degree of anonymity. this made bitcoin the currency of choice for illicit activities, including recent ransomware attacks. fueled the dark web of illegal online commerce in much the same way paypal helped fuel the rise of ebay by making payments easier.

While bitcoin’s rollercoaster prices attract attention, the revolution in money and finance it has unleashed is far more important and will ultimately affect us all, for better or worse.

See also: 3 Steps to Add Funds to a Bitcoin Wallet

See also: How to validate Bitcoin transactions | GoCardless

As it grew in popularity, bitcoin became cumbersome, slow, and expensive to use. it takes about 10 minutes to validate most transactions using cryptocurrency and the transaction fee has been averaging around $20 this year. bitcoin’s unstable value has also made it an unviable medium of exchange. it’s as if your $10 bill could buy you a beer one day and a bottle of fine wine the next.

In addition, it has become clear that bitcoin does not offer true anonymity. The government’s success in tracking down and recovering part of the bitcoin ransom paid to the dark side hacking collective in the Colonial Pipeline ransomware attack has raised questions about the security and untraceability of bitcoin transactions.

While bitcoin has failed its stated goals, it has become a speculative investment. this is puzzling it has no intrinsic value and is not backed by anything. Bitcoin devotees will tell you that, like gold, its value comes from its scarcity: Bitcoin’s computer algorithm mandates a hard limit of 21 million digital coins (nearly 19 million have been created so far). but scarcity by itself can hardly be a source of value. bitcoin investors seem to trust the theory of the greatest fool: all you need to profit from an investment is to find someone willing to buy the asset at an even higher price.

Despite their high valuations on paper, the collapse of bitcoin and other cryptocurrencies is unlikely to shake the financial system. banks have mostly stayed on the sidelines. As with any speculative bubble, naive investors who are late to the party are at the greatest risk of loss. The government should certainly warn retail investors that, just like in the gamestop saga, they act at their own risk. securities that allow speculation on bitcoin prices are already regulated, but there is not much more the government can or should do.

Bitcoin is not harmless. transactions are processed by “miners” who use massive amounts of computing power in exchange for rewards in the form of bitcoin. By some estimates, the bitcoin network consumes as much energy as entire countries like Argentina and Norway, not to mention the mountains of e-waste from the specialized machines used for such mining operations that burn up quickly.

See also: Here&x27s Why I Still Won&x27t Buy Bitcoin, and You Shouldn&x27t, Either | The Motley Fool

Whatever the final destination of bitcoin, its blockchain technology is really ingenious and innovative. bitcoin has shown how programs running on computer networks can be harnessed to make payments securely, within and between countries, without relying on greedy financial institutions that charge high fees. For migrant workers sending remittances to their home countries, for example, such fees are a significant burden. Technologies that make payments cheaper, faster, and easier to track would benefit consumers and businesses, facilitating trade both domestically and internationally.

technology is not without risks. facebook plans to issue its own cryptocurrency called diem to facilitate digital payments. Unlike bitcoin, diem would be fully backed by US reserves. dollars or other major currencies, ensuring a stable value. But, as with its other ostensibly magnanimous initiatives, Facebook can hardly be trusted to put the public’s welfare above its own. The prospect of multinational corporations one day issuing their own unbacked cryptocurrencies around the world is deeply disturbing. such coins will not threaten the us. uu. dollar, but it could wipe out the currencies of smaller, less developed countries.

Bitcoin technology variants are also making many low-cost financial products and services available to the masses, directly connecting savers and borrowers. These developments and the possibilities created by new technologies have prompted central banks to consider issuing digital versions of their own currencies. China, Japan, and Sweden are already testing their digital currencies.

Ironically, instead of truly democratizing finance, some of these innovations may exacerbate inequality. Unequal financial education and digital access can result in sophisticated investors reaping the benefits, while less well-off investors, dazzled by new technologies, take risks they don’t fully understand. computer algorithms could worsen rather than reduce entrenched racial and other biases in credit scoring and financial decisions. the ubiquity of digital payments could also destroy any remaining vestiges of privacy in our daily lives.

While bitcoin’s rollercoaster prices attract attention, the revolution in money and finance it has unleashed is far more important and will ultimately affect us all, for better or worse.

See also: 3 Steps to Add Funds to a Bitcoin Wallet

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