The most talked-about investment in 2018 and 2019 was bitcoin. As we have moved on from the hysteria caused by the cryptocurrency let’s evaluate its position. For those who are new to cryptocurrency, we will explain what they are and why they exist.
A cryptocurrency is essentially a new form of currency. It was created because people were unhappy with the current monetary system, and for good reason. Today due to inflation all of our money is constantly losing value. What you earn today is worth a little less tomorrow. In addition, it was felt that money today was not so secure. With business becoming more and more digital, people felt that something more secure was required.
This is why cryptocurrency was created. Cryptocurrency is any currency that is traded online and usually has a technology called blockchain at its core. Blockchain is the most impressive part of cryptocurrency as it is what makes any currency secure. Blockchain essentially acts as a decentralized ledger. Imagine for a moment that you have 200 coins. A banker writes this down in a book. If someone steals that book you have no real proof that you have 200 coins.
With blockchain, that note is stored on every computer in the system, so it can’t be hacked. Not only that but the life of those 200 coins is stored on every computer. If you give your 200 coins to Sally and she gives them to James, there is a clear record. Therefore if Bill turns up and says I have 200 coins I want to buy that bicycle, people could easily see that there is no record of Bill ever being given 200 coins and that he is lying. Some have gone so far as to say that blockchain is hacker-proof. Although this is already being proven false.
Today there are over 2,000 types of cryptocurrency in the market. With many businesses trying to get theirs off the ground. Some are for very narrow use cases. A supermarket may create its own cryptocurrency so that you can purchase goods from its store. However, some are trying to replace the existing currencies we have in the market. Bitcoin is the most famous example.
Bitcoin took off because people felt it was the dawning of a new age for currency. They thought it was the end of the control of banks on the money supply. However, when people saw how quickly it was growing they started acquiring it simply to profit from the growing price. This caused a bubble. People were buying it simply to sell it at a higher price. The intrinsic value no longer had anything to do with the price and the bitcoin value has since fallen off a cliff. Bitcoin was once a good short term investment but no longer. If you want to invest in crypto now it should be trying to pick what one will go crazy next (a bad idea) or because you believe that over time it will replace money (very long term).
The extremely chaotic value of bitcoin shows that the price of the currency is at present too unstable to form a currency for a market. While it was once claimed to be inflation-proof it is not hysteric proof and if is being purchased to be stored and sold for a higher price, it is not a useful currency.
The reality is that cryptocurrency will become more and more used as time goes on but it will take a long time to replace actual money, if it ever does. However, there is considerable value in the underlying technology blockchain. This can be used in a wide variety of industries to improve security and information. Imagine if you purchase meat in the supermarket. We can now use blockchain to know exactly what farm that chicken was raised on, where it came from and when it all took place. There is a future for cryptocurrency, blockchain, and bitcoin. It is just not the one that got people so excited in 2018.