Bitcoin Frenzy – Is it the next gold or just a bubble?

Bitcoin zoomed past the $10,000 mark on 29th November 2017 from nearly $1,000 on January 1, 2017.

Data available with Google Trends shows people around the world are searching ‘buy bitcoin with credit card’ with Nigeria and St Helena being among top searchers for these words.

It is followed by United States, Canada and South Africa. India holds the 15th position on that list.

Whether or not it’s worth investing in, the math behind Bitcoin is an elegant solution to some complex problems

So Bitcoin is a Digital Currency with no central or regulatory authority governing the same. So simply, no organization

  • decides when to make more bitcoins,
  • how many to produce,
  • where they are or
  • investigates fraud.

Then how does this exactly work? And why are people so bullish about it? And how do people trust such a system?

So Bitcoins mainly work on two major pillars i.e. the public and cryptography,

Assuming that majority of you all have already researched about the blockchain technology let’s discuss how a few built-in checks have resolved a few issues and made this the disrupting technology in the current world.

The total decentralized control of the global ledger has brought in a huge public confidence in the technology.

It is also designed to resolve the double spending problem which was a big issue in the digital currency arena.

It uses cryptography and SHA 256 hash function (Originally developed by US National Security Agency) which helps to determine the authenticity of the transactions.

But again who exactly controls all of this is the question!

Let’s assume we are 10 people playing poker. But we don’t have hard currency and hence we decide that we will maintain a record of who owes whom and how much.

But such a record needs to be maintained not by a single person but at least 4-5 of us to ensure the authenticity of the data.

And at the end of the game we tally all the 5 records with each other and then we finally know the outcome and can easily eliminate the discrepancies.

Similarly, it works in Bitcoins, but why would people maintain data of other people transacting across and invest their time and efforts.

So here comes the built-in reward system for those who volunteer to do this work. These volunteers are called “Miners” and now, here the whole mechanism comes out!

In 2009, Bitcoin had no value. Like tens of bitcoins were equivalent to a bunch of pennies.

And today, 1 bitcoin has crossed the $10,000 mark.

Isn’t it magic?

So the built-in reward system is the reason behind it. Every single bitcoin that exists was created to reward a bitcoin miner. They are tipped with small amounts of bitcoins to add a transaction to a ledger by maintaining high capacity servers and huge electricity costs.

It is worth noting that after every 2,10,000 blocks of transactions, this reward goes down by half.

What started as a reward of 50 bitcoins for miners went down to 25 and further down to 12.5 which a miner receives today. It’ll be only around 6 in a couple of years and keeps decreasing.

Accordingly, the last bitcoin (probably around 21 millionth coin) will be mined in the year 2140.

This idea lays its foundation in the logic of gold being dug out of a mine (It keeps decreasing over the period). And the underlying idea is that keeping it limited will increase its value over time.

But does that mean it is really worth investing? Or is it a big bubble as stated by a few?

So this technology leaves us with a few more questions before we completely trust it.

  1. Who is Satoshi Nakamoto?

The founder of this revolutionary technology has not revealed his identity in public. He is owning more than a million bitcoins as of November 2017. What shall happen if he sells all his bitcoins? Though people might say that the price might correct even if it falls, the major problem is if the founder loses faith in his technology, will the public trust?

  1. What is the underlying in which people are investing?

As we all know that investing in stock markets mean we are investing in the future profits of the company. But if at all company fails, they are backed up by the assets of the company which will be disposed of off to pay the shareholder.

Even the currencies issued by the government has an underlying of the gold and even the public assets of the nation.

So what is the underlying when you invest in bitcoins? Is it worth it? Are you investing safely?

  1. Political and Economic Issues

Do you think the governments will allow the funds to flow so freely within nations thus reducing its taxation revenues from such transactions? Will it be adopted by the nations or will it be declared as illegal? And shall nations allow it without knowing its founder again?

  1. Medium of Exchange

There are 2 basic features of any currency i.e. Storage of Value and Medium of Exchange. Though Bitcoin has succeeded in proving a great store of value, will it even succeed as a widely accepted medium of exchange?

So the founder has just created another equivalent of Gold. Should we really trust him or her or the group? Is Bitcoin the next gold? Is it worth being the next gold? So if you are really sure about the answers to these questions, it is definitely a good option to invest your money in.

Let us know what’s your take on this by commenting below!



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