Something that I’ve never been able to understand these past years is people’s reluctance to embrace Bitcoin as a viable currency. I always chalk it up to a combination of factors, the greatest of which includes people’s lack of understanding of general economics, people’s blind adherence to what media elites have to say, and finally people’s lack of knowledge on what makes a currency valuable. No matter how much money my friend’s and I have earned from earlier investments in Bitcoin, no matter how much education I provide about the safety of cryptocurrencies, no matter how long Bitcoin and altcoins endure market, people maintain their level of smug denial, swearing that any money invested in Bitcoin is money wasted and that the entire crypto-economy is a scam. They’re now being aided in this skepticism by the sharp drop in Bitcoin value this past month, which is something to take note of, but not a reason to panic and drop all faith in the currency. Simply understanding the situation at hand with cryptocurrencies can allay these concerns, and hopefully not only will you have more faith in these new currencies, but you’ll also be willing to make the jump in yourself.
What Makes a Currency Valuable?
Before I get into what’s been happening with Bitcoin this past month, or even what a cryptocurrency is, I want to establish what gives modern currency its value in the first place. Something I feel people take for granted is the incredibly delicate system that is the global economy these days. We’ve transcended so far past having an economy based on gold, silver, or anything really, other than debt and faith. What gives the U.S. Dollar value isn’t a pile of gold in a safe somewhere, it’s the fact that every nation in the world trades with U.S. banks and takes U.S. dollars and gets U.S. credit and debit. Every major currency is a fiat currency these days, sheerly having value because the government that owns it says it does. I think people ignore this reality because applying too much thought on the matter would provide crippling amounts of anxiety. Realizing that if one nation, like China for instance, suddenly decides to stop recognizing the U.S. dollar for the value the U.S. states it has, that the dollar would dive into a complete and utter free-fall that would not only sink our economy but also the economies of many other large nations. Fun to think about right?
Whenever people make fun of Bitcoin, saying that people can’t just invent a currency, I ask them to think about how every other modern currency came into existence, and compare it to the rise of Bitcoin. Cryptocurrency gets its value because its considered valuable by enough people, those people buy it, invest in it, use them, and possibly even mine some, and circulate them through the economy, giving them more value. The relative recentness of Bitcoin to other valuable items is a useless point, as oil wasn’t a valuable commodity until the invention of the internal combustion engine, although it would be laughable to say that oil isn’t valuable. Think about the fact that a sticky, harmful, black substance that was stuck in the ground was useless for millennium, and now the U.S. will kill millions of people just to get their hands on it. Think also about the U.S. Dollar in its first years, and how the American Founding Fathers had to create a new currency that its citizens could use, despite not being seen as a legitimate nation by parts of the world. They had to take debt from other existing economies and convince the former colonists to switch from the Spanish Peso and the Continental Currencies and believe in the value of the U.S. Dollar. What difference then is there in Bitcoin that somehow makes it less worthwhile than other currencies? (hint: there are none.)
History of Cryptocurrency
Now in case you’re reading this and have no idea what a Bitcoin or a cryptocurrency is, here’s a quick rundown. Bitcoin is not only a new currency, but also an information and data architecture system. Unlike the U.S. Dollar or the Euro, the Bitcoin transcends past simply being a token that signifies recognized monetary value. Every Bitcoin contains a ledger of the Bitcoin architecture and software system, which is how the system self-regulates itself and why it’s so valuable. Another distinguishing factor that makes Bitcoin so valuable is that it is a finite currency. The bane of any other currency is that the government it belongs to can print infinite amounts of the money, instantly devaluing the bill in your hand in a matter of seconds. The amount of Bitcoins that can be mined is instantly being halved, with an overall cap, which means that it gets algorithmically harder to create more Bitcoins, ensuring that the ones that currently exist retain their value. Finally, Bitcoin is independent of any government, which means that if a large economy collapsed overnight, Bitcoin would not suffer because of it. We’ve seen the value of Bitcoin in nations like Venezuela, where savvy citizens were able to exchange all of their native currency to Bitcoin, and once the socialist-driven collapse happened, these people were able to purchase food and supplies from abroad due to having a valuable currency. This is why large governments and business elites hate Bitcoin and other cryptocurrencies (cryptocurrencies and altcoins are other digital based, nation agnostic currencies like lite-coin and Ethereum), because they empower the normal person. Instead of having to rely on Joe Dictator or Sally Dictator for monetary support, a Chinese programmer with a spare computer can spend all day mining Bitcoins and have a valuable currency that has value because of the support and belief of the other people who use it. Think about the value the printing press had when it came about, and how scared it made the religious and political elites. No longer could they control the flow of information as people for the first time began to read religious texts and laws for themselves. How then, is a citizen run, global digital currency any different then, as it takes financial power away from banking elites and government run fiat currencies? I’m not over exaggerating when I say that Bitcoin is empowering to people, and this alone is half the reason I’ve chosen to invest in it.
The Current Dilemma With Bitcoin
That all being said, cryptocurrencies have faced a lot of difficulty these past years, as governments like China ban their use and large banking institutions advise the masses against using them. This reminds me of when CNN told the American people on a broadcast that reading WikiLeaks was illegal, and that only the media was allowed to read them and then relay the information to the public. While these decisions have affected Bitcoin in the past, the currency has always bounced back, stronger than ever. Just the other week, Bitcoin was up to $3000 a coin, and alt-coins like Lite-Coin were up to $50 despite being below $10 just the month before. The demand for cryptocurrency has only risen, especially as more nations believe that socialism is actually a good idea and as the normal economy gets affected by landmark events like terror attacks and Brexit. These are normal volatile bumps that are to be expected in a new currency, and should only be monitored to see when ideal times are to buy in. (Like maybe right now…)
All cryptocurrency has taken a dive this past month because of a massive split between the people who live in this digital world. There’s essentially two camps right now, one camp are the Bitcoin miners (miners are people who create more Bitcoin by using their computers to perform complex algorithms which then create more, although at a decreasing amount) and the other camp are the software developers and Bitcoin providers. Bitcoin miners can be seen as the purists if the Bitcoin, wanting things to stay the way they were promised when they dumped thousands of dollars into expensive computers in order to mine. Compare them to the real life miners of today, and how angry they were at the green push these past years, shutting down mines and essentially leaving rural areas unemployed. The other side in this debate are the software creators, who have realized that the Bitcoin software that I previously mentioned needs an upgrade. This upgrade will allow Bitcoin to process more transactions and store more data, thus increasing the worth of the service that makes Bitcoin both unique and valuable. The Bitcoin banking systems and general community surrounding it are all supportive of this upgrade as it benefits the consumer and the future of the currency. The miners are essentially on strike right now, and are claiming that they will refuse to appeal to these upgrades, thus continuing to mine and put out old coins in the ecosystem, damaging the value of the entire currency. The upgraders have held strong against these threats, deciding to push forward, half out of stubbornness, and half out of the knowledge that there’s no way the miners would actually let all the hard work they’ve put into Bitcoin go to waste over a feud.
So What Now?
It really is a shame to see this little hiccup in cryptocurrency communities, who have up to now been united in the cause to bring financial freedom to so many. To sacrifice years of work over a petty squabble irritates me, but such is the world of currency. There’s a reason why greed and religious morality are typically at odds with one another, but here’s hoping the digital world provides a means to get over the typical issues. In terms of what these issues mean for the future of Bitcoin, my advice is to not be worried. All of the negative articles on financial sites remind me of the same doomsday tone that’s been parroted for years now. Use this small period of decline as a way to get into coin if you haven’t yet, using trustworthy wallet sites like CoinBase. Buy alt-coins as well, as they will only grow in value and don’t suffer as many drops and crashes as the main Bitcoin does. As I’ve stated above, investing in Bitcoin is not only a way to make money, it’s a way to invest in a global source of financial liberation for millions of people. Once you’re in, be sure to “hodl”, a humorous term that means that once you get a cryptocurrency, you should just hold onto it as the value will only continue to grow for years to come. People who were tempted to sell at $2000 last Christmas kicked themselves when coin was $3000 last month, and I bet the people who sold then will kick themselves when coin is $3500 in months to come. My goal with today’s blog isn’t to force everyone to become an economist and avid investor, but rather to arm everybody with the basic knowledge necessary to not buy into the fear facts revolving around a cool new technology. Whether you decide to invest in a cryptocurrency or not, I hope I at least opened some people’s minds towards the benefits such a system provides, and if you already knew about them I hope I could at least explain what the latest fuss was around it. There’s a whole new world opening up for us out there online, arm yourself with the right facts and you’ll be surprised by how many new opportunities there are to empower yourself. Don’t look this renaissance of personal liberty in the face, if you ignore it it’s just a matter of time before those who rule us try to take them away.