Over the course of the last two months, the value of Bitcoin, the largest decentralized cryptocurrency, has shot up from $4,000 in early November to a peak of almost $20,000 in mid-December. The meteoric rise of bitcoin has led to fierce debate over whether Bitcoin is the currency of the future.
By: Ziad Buchh
For starters, Bitcoin is hardly a currency. Currencies are defined by their ability to be used as a medium of exchange, meaning that it can be traded for goods and services, a store of value, meaning it can be put away and saved with the security of knowing the value will be around the same, and a unit of account, meaning it can be used to assess the value of any given good or service. Bitcoin struggles in all three departments due primarily to its volatility. Few places accept Bitcoin currently, and recently, giant platforms such as Steam, a digital game distribution platform, and Microsoft have dropped support for it due to its instability, making it a poor medium of exchange. And with the almost daily fluctuations in value, Bitcoin comes nowhere near fulfilling the store of value and unit of account requirements. The bottom line is Bitcoin is way too unstable for it to be used as a reliable currency.
Bitcoin is being treated by investors primarily as a commodity, whose value is invested in similar to stocks. But even in this role, it is a risky investment. Among others, one of the primary problems is that a good percentage of people invested in Bitcoin dont even know how it works. The sharp rise in the value of Bitcoin can be attributed to the hype machine that is causing people to jump into investing, chasing profits without understanding how it works. Bitcoin’s current value is a reflection of the hype built around it, instead of its actual value as a currency. This has all the calling cards of a speculative bubble being formed, which will eventually burst, costing investors massive sums of money. Whether approached as a currency or a commodity, Bitcoin presents too much uncertainty for it to be trusted as either.
By: Muhammed Zouabi
Cryptocurrency and specifically Bitcoin have been all the rage for the past couple of months. But what has everyone so excited? Well to make a long story short, cryptocurrency is an online currency not tied to any government or country. Because Cryptocurrency is not controlled by any government, it cannot be produced like other paper money is produced. The limited nature of Bitcoin makes its value very high. This is a very simple explanation of what cryptocurrency is, but why is it valued and useful? Simply put, it is an alternative to using other forms of currency, which is extremely useful in counties that are not economically stable. Countries that are facing economic struggles such as Venezuela and Zimbabwe can use bitcoin as an effective day to day currency because the value of their countries currency is too inflated. To put in in perspective, 35 quadrillion Zimbabwean dollars exchanges to about 1 US dollar. It’s ridiculous to justify its usage as a currency. That’s where cryptocurrency comes in. Because it’s not controlled by the Zimbabwean government, it cannot be inflated to unusable values.
Many fear what they do not know, and so many turn away cryptocurrency as a scam or fad. Such notions are dispelled when you understand how it all works. There are only 3 things needed for a transaction the sender, the receiver, and the amount being sent. The sender and receiver both have public addresses that keep their personal information anonymous. Once a transaction is requested it is added to a block chain or ledger. The way it is confirmed is by people, called miners, that volunteer their time and energy to solve problems to confirm the transaction. Once a new block on the blockchain is added, they are rewarded with bitcoin for maintaining the ledger. Because there are multiple people trying to maintain this ledger, multiple copies exist and are cross listed with each other to make sure nothing fraudulent occurs. Once the transaction is complete, it is added to the ledger, and cannot be changed.
This can be done any time and any place, which makes it so attractive to people that live in economically depressed countries. Countries with bad economies is not the only place where bitcoin can be used, many only vendors and some businesses accept the currency. The value of the currency is somewhat controversial because it only holds as much value as the users give it because it has no intrinsic value like the gold that backs up paper money. The lack of physical backing has caused bad press leading to the very quick rise and fall of the value of bitcoin making it extremely volatile. One bitcoin could be valued at 12 thousand dollars in the morning and then later valued at five thousand dollars later in the day. I’m not suggesting to invest in bitcoin to gain from it rising and falling value, but rather pointing out how it can be useful as what it was intended for, a currency free from any single entity controlling it.