Bitcoin: A Currency Meme?

Nyama explores the ins and outs of the infamous cryptocurrency bitcoin

Wikimedia Commons

As a reaction to the 2008 global financial crash, some speculators predicted that avid capitalist nations would turn their gaze towards a communist future, as a by-product of this however, came Bitcoin (BTC), a cryptocurrency designed to remove bankers from the equation of peer-peer transactions.

An anonymous programmer going by the pseudonym Satoshi Nakamoto proposed an idea on a popular cryptography website that could change how we spend money in the modern day. He wrote of a system where instead of a bank validating or annulling recorded transactions in a centralised ledger, all of the users would record all of the transactions unanimously.

This would remove the “middle-man” (the bank), as fraudulent payments would be easily illuminated in the records and rejected by the community. But what distinguishes bitcoin from normal currency is that it’s not controlled by a bank, person or government: no central entity can censor, corrupt or regulate its usage. This naturally attracts all sorts of people, using and abusing the veil of unregulated transactions to pay for illegal activities or substances, however, it also embraces the common needs of the people, such as buying pints at a bar or paying tuition fees.

The value of Bitcoin is only worth as much as people wish to value it, like all centralised currencies. It is based upon a neutral agreement of value, that relates not to some physical thing (e.g. precious metals) as the Gold Standard did, but to market value. However, unlike centralised currencies there is a limited number of Bitcoin (21 million to be exact) mathematically written into the currency. 50 Bitcoin every 10 minutes used to be produced in 2009 when it was first established as open-source software, however, it depreciates by half every four years up until 2140, where the last bitcoin will be distributed.

At time of writing, 1 bitcoin was valued at over $8300 (£6269) and on June 1st this year the same amount of bitcoin was valued at $2301 (£1738). So if you purchased 1 bitcoin during the summer, you could have profited nearly $6000 over five months. This is evidently a substantial increase which has grabbed many investors’ attention. This increase could suggest a growing confidence in the currency and a shift towards more unconventional forms of payment. The success of Bitcoin sprung many other cryptocurrencies, such as Litecoin, Namecoin, Swiftcoin and Ethereum.

But is it time to gift a friend Bitcoin for Christmas? JPMorgan boss Jamie Dimon thinks otherwise. He argues, quite harshly, that bitcoin is only useful to the felonious or those living under Kim Jong-un. Speaking in a conference in New York, he claims that “you can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.”

Impassioned by his distaste for Bitcoin for he even went as far as smearing his daughter, claiming she “thinks she’s a genius now” for profiting from bitcoin. The Financial Conduct Authority (FCA), also show similar views to the CEO, warning investors that they ought to be prepared to lose all of their money, if they invest in ICO (initial coin offerings) for other cryptocurrencies similar to Bitcoin or Ethereum.

Despite the negativity from some experts, Bitcoin is valuable for many people and is used as a neutral currency. For instance, the London property developer The Collective, is allowing its tenants to pay their deposits in Bitcoin. They plan to “spot convert” the bitcoin, meaning that they will hold the financial burden of the Bitcoin while the tenant finishes their stay, refunding the Bitcoin at the original value when the tenancy finishes. Thus, for the Collective, they could imagine to see a profit not just from renting apartments, but also from growth in their Bitcoin deposits too.

Reza Merchant, CEO of the Collective, claims that you can expect people to be able to pay for life essentials as investors and savers become more trustworthy of the cryptocurrency. For some, life essentials such as beer can be purchased with Bitcoin at the Pembury Tavern in Hackney, London. To do so, one simply needs to take a snapshot of the QR code at the till and you can cryptocurrency your way into a pint of Guiness. Other things you can buy with Bitcoin are: 3D printers, wedding events, private jets, a bike bell, kebabs, taxi fares and a course designed to teach the basics of computer programming. Given the variety of the currencies use, you can see how bitcoin has infiltrated the market and with around 270,000 transactions a day in Bitcoin, the currency has become common enough to reach a market capital of 134 billion.

But what does that mean for the future of cryptocurrencies? Although many businesses do offer payment in Bitcoin they are still in the minority. In order for Bitcoin to achieve its economical dreams, it would need widespread acceptance amongst consumers. Yet, for the majority, Bitcoin still remains under a bed of questions, as it yet needs to be explicable in simple terms and easily accessible (e.g. ATM-like Bitcoin Machines).

But with popularity, you can expect an increase in attempts being made to hack Bitcoin Wallets that contain your virtual money. Furthermore, the greater the popularity, the more regulation or scrutiny the government will place in order to detract users away from decentralised currencies. (This has already been the case in China, which has led to exchange platforms and OKCoin prevent Bitcoin withdrawals for a whole month so as to comply with money-laundering regulations). Relevantly, Bitcoin would need to maintain user anonymity, but without permitting tax evasion or the purchasing of illegal items or activities.

Although, Bitcoin has reached levels most would not anticipate in 2009, I do side with the CEO of JPMorgan. There are too many powers weighing against Bitcoins long-term, widely spread success. That’s not to say Bitcoin will not grow over the next few months, because for me, the question is not “when” but “how big” will the loss be. Unfortunately, as Bitcoin has paved a pathway for other cryptocurrencies to flourish, it is the foundation that will eventually drag the other cryptocurrencies to oblivion. If Bitcoin falls, all will fall. However, hopefully the government or central banks can learn something from Bitcoin; hopefully we can gain an insight into how we can improve current banking, but overall, on another pessimistic note, we will probably not.