Posing this issue as a question on Reddit last night and receiving no response has made me want to develop further and write a full article in an attempt to, hopefully, come to some kind of conclusion myself.
Essentially Bitcoin is a ‘crypto-currency’ made up of various ‘blocks’ of code which can be purchased and either traded for other currencies (altcoins) offering differing services and solving different problems. The price of these crypto currencies is currently based entirely upon speculation – they’re all valued based upon the seemingly rational assumption of mass, worldwide adoption at some point in the near future. It does seem only logical for cash to be phased out by these digital currencies for several reasons:
- Many of these currencies are ‘decentralised’ meaning that they’re owned by a single individual or corporation. This ensures absolute freedom and allows people to remove themselves from the banking industries choosing what, when, where and how they spend their money on. It is in effect, a currency for all.
- Global transaction should be cheaper and faster. There should be no need for fees and as there is no central agency managing all of these currencies, there’s no middleman.
- Criminal transactions are easy – no bank statements, nothing to trace, just paid simply and easily.
- Moving times technologically. We had coins, then notes, digitally stored money, then cards, then chip and pin, online banking, contactless…society moves forward technically and cryptos solve a lot of issues which still exist with traditional currency.
However based upon speculation of mass adoption the price of these currencies continue to rise. Coins which offer nothing to the world double overnight. Coins which have been around for years grow by 10% overnight. They appear to be a very smart investment, sure they go up and down but there’s no sign of the bubble bursting currently.
My future concern stems from the theory that Bitcoin and other crypto currencies will never become widely adopted because people will only ever view them as an investment based upon their potential value as a commodity rather than their actual, current value as a currency. In terms of solving the issues above, most people just accept that the banks and governments are in charge and they leave it with that. They’re happy to accept whatever new technologies are offered to them by the corporations which stand to benefit from its widely adopted use. Sure faster and cheaper seems better but isn’t contactless and online banking adequate for the majority?
Currently the only real use I can see for the major cryptos while the price is so volatile is illegal transactions as these coins actually solve a problem by allowing people doing things against the law to remain anonymous. If you’re going to buy drugs on the deep web then you’re going to use Bitcoin because it solves a problem but why would you pay for your weekly shop or your Amazon order with it? You have no reason to. If you bought an item for £100 a month ago using your debit card then still today you have paid roughly £100 for that item as despite Brexit etc the pound remains fairly constant. However if you’d bought the same item with Bitcoin last month you’d have essentially paid over £200 for it due to the dramatic price increase following the blockchain split and continued speculation.
I’m not suggesting that Bitcoin is over valued, in fact I still believe the opposite however my fear lies with the fact that I struggle to see anyone ever choosing to spend their crypto currencies on day-to-day things through a fear that they will miss out on a big price jump by sending their assets elsewhere.
Why I don’t believe that Bitcoin is ‘over-valued’:
To be over-valued to to surpass both current and likely potential worth. Over-valuation of stocks due to a newly formed middle class having extra money to invest is widely considered to be one of the major factors in causing the ‘Wall Street Crash’ in 20’s America. To value say ‘Fentiman’s Beverages’ (a medium sized drinks company based in Newcastle, UK) as being worth as much as ‘Coca Cola’ no matter how superior their drinks may be is an obvious over valuation as their sales are minute comparatively and they show no signs growth wise of ever matching. However to value ‘Tesla Motors’ at a higher price than ‘GM’ may be highly speculative but with the advancements of electric car technology isn’t entirely foolish as they have the ‘potential’ to be worth more in the future – it’s a long term investment.
In the present day relatively few people are aware of Bitcoin thereby it’s not unreasonable to assume that once everyone is aware of it that the price will go up. The issue with Bitcoin and others lies with the fact that the majority of people who buy into them do so in order to make a profit rather than to spend them. Of course ‘forex’ trading of pounds, dollars (fiat) currencies is enormous in terms of trade with people making money from the slight pence and cents shifts day in and day out. People complain when their currency is ‘down’ on others giving them less to spend when they go abroad . The value of currencies also has a massive effect on tourism; post-Brexit, Britain has officially become the cheapest place in the world to buy designer goods due to the fact that the pound is worth less than it was pre-Brexit, meaning that individuals can ‘get more for their money’ when exchanging their currency for pounds. South East Asia has become a ‘backpacker haven’ for Westerners as economy wise and relative to the majority of western countries, everything is cheaper. However let’s imagine that, for example, Thailand’s economy booms beyond belief and even possibility making it doubly as expensive for visitors. It no longer becomes a budget destination, tourism drops, economy drops. People need stability with a currency hence why the USD is globally traded; even the Qatari Rial’s price is pinned to the USD.
The other concern is that cryptos will only become widely accepted when corporations are able to get their way with how, when and where they are spent. This could be done by charging higher fees or taxes on crypto spends and earnings or more incentives for cash transactions. There’s a reason why electric cars aren’t widespread yet – there’s still too many people making too much money from fossil fuels.
Crypto Currencies are currently viewed by the majority as a commodity to profit from. My fear is that the price will never balance out as nobody will ever spend their currencies through fear of sharp price increases in the following days/weeks. Agree of disagree? Join the discussion HERE