The Crypto-Craze: What’s the Rave About Bitcoin?

Monetary exchange used to be simple. It began with trading of basic commodities, often using the barter system and later evolving into using gold and silver. Gold remains a standard form of investment currency but this did not stop the evolution into country/region-specific currencies made up of notes and coins. In most parts of the world, notes and coins still dominate as the prevailing currency. But change is happening fast. Today, the evolution has embraced digital currencies which is at different levels of maturity globally. Cryptocurrency can be added to this list.

It is fair to say that cryptocurrency is dominating the headlines and those that know little about it are intrigued as to what it is and wonder whether it is legitimate. Bitcoin, in particular, is a frequent name that pops up every now and then. If Elon Musk is raving about it on his social media platforms, as well as including it on Tesla’s balance sheet, then there must be a reason behind the intrigue and demand. But what exactly is the big deal with cryptocurrency?

BITCOIN’S BEGINNINGS AND PRINCIPLES

Bitcoin was created in 2008 by Satoshi Nakamoto, an anonymous person (or people) using a pseudonym. No one knows the exact identity of this persona, with some claiming they are Japanese and middle-aged, which only adds to the mystique of the cryptocurrency and its beginnings. It is secured by a software encryption, and was released as an open-source software in early 2009, which means that the software was released through a distinct license that allows end-users to legally access the source code.

Bitcoin is underpinned by free access accorded to everyone to read or view its source codes thereby making redundant the need for an intermediary. It’s almost like a list, but more commonly known as a “public ledger” that is accessible for all users and is grown through recording transactions. Bitcoin has three unique aspects that separates it from a regular currency:

• It has no intrinsic value, which means it is not backed by any gold or silver
• It does not have a physical form and only presides on a network
• Supply is fixed and is not controlled by a reserve bank

Another important feature of Bitcoin’s decentralisation is the use of blockchain. In short, blockchain technology is a publicly distributed ledger that documents transactions on a peer-to-peer network. Recorded data is stored in bunches of information, or “blocks,” and when the blocks are completely filled they are chained together, hence the term “blockchain.”

A transaction can be added to a blockchain if the parties involved consent to the completion of a transaction (e.g. a transfer of Bitcoins). In this instance, banks and other similar third parties become insignificant, as time and costs are reduced when parties can readily perform transactions between each other without a broker having to facilitate a transaction.

This is just the basic information surrounding Bitcoin, but in reality there are more complex elements at play. What is more important to analyse are the reasons behind Bitcoin’s popularity and astronomical value.

UNDERSTANDING BITCOIN’S PRICE AND VALUE

From the outset, what stands out about Bitcoin is its volatility. This comes from a number of factors. For instance, there is a large amount of uncertainty surrounding Bitcoin as news and events that occur can heavily sway public opinion. For example, in November 2020, PayPal announced that all USA users could buy and sell Bitcoins using PayPal, which inspired many PayPal users to invest in the cryptocurrency. Also, the market is still growing, so it is expected that stabilisation would not be achieved for a long time.

As mentioned earlier, Bitcoin differs from regular currencies with its fixed supply. There is a finite amount of Bitcoins, and this is unlikely to change, which means that normal supply and demand rules dictate the market: since there is limited supply that is considerably outweighed by demand, it is only reasonable that prices will continue to soar. Just like how people value decades-old collector’s items in mint condition because so few exist, the lack of Bitcoins in circulation reflects the notion that rarity begets value.

Another thing to note about value is that it is created by people’s decisions and perceptions. Something possesses value because people are prepared to exchange it for other items of value. If no one wanted Bitcoins, they would have no value. But over time, the market for Bitcoins developed through early adoption by new users who helped make it fit for use, and people began to collectively decide that it had value, as the trust and faith put in Bitcoin made it worthwhile. Even now, websites are beginning to adopt Bitcoin as a form of payment to use in addition to credit cards, Paypal etc. Hence, the more people use it, the greater its value becomes.

POINTS OF REFLECTION

But what most likely attracted people to use Bitcoin in the beginning was its distinctiveness. It did, and still has, the aptitude to become to cash what email is to regular mail. It defies the system, ignores the laws of governance and has no overarching puppet master. Its software and technological components make regular banks look primitive, and in a time where banks continue to lose the faith of the people, the overarching message appears to be: why not give it a shot?

We’ve now reached a point where Bitcoin’s value has hit $1 Trillion, and represents a little over 61% of the entire value of all cryptocurrencies. To obtain one Bitcoin would set you back approximately $71,000. Many celebrities and similar public figures are beginning to buy into the hype; from Elon Musk and Jack Dorsey, all the way to Snoop Dog and Floyd Mayweather.

Granted, Bitcoin has created a buzz of overwhelming proportions that doesn’t look like fading from the spotlight anytime soon. It has convinced, and continues to convince many that it is where their money should go. And from all the noise, I myself might be inspired to invest in Bitcoin, and share this news on my social media profiles for everyone to see.