When confidence in a currency is lost, investors turn to another currency or, say, gold. In the examples of countries that have been well shaken by the financial crisis, we can see how their population has turned to invest in Bitcoin.
Bitcoin has been one of the most prevalent topics until recently. The main reason is the skyrocketing value of this cryptocurrency, denominated in U.S. dollars, in 2018. However, there are other reasons why Bitcoin is getting attention.
Basics of Blockchain Technology
Cryptocurrencies are created by special algorithms as a result of technological advances in cryptography, that is, encryption and are digital means of payment. However, while Central Banks are behind the creation of conventional money, cryptocurrencies are decentralized, outside any national or international control. Due to cryptography, the role of the intermediary becomes redundant and each transaction is cheaper, faster and more secure, while participants, let’s say in the Bitcoin trading platform, will remain almost anonymous.
The whole process takes place thanks to the use of blockchain technology, a unique way of storing data, first used just for the sake of Bitcoin. Blockchain records and verifies all transactions, so that data is publicly available and can’t be subsequently modified. This process requires powerful computers and high energy to run them, to solve complex mathematical problems. Although about 80% of Bitcoin has already been “dug up”, there are indications that it may take up to the year of 2140 to harness this potential.
Will Large Economies Implement Bitcoin and How?
The implementation of this technology is planned by significant institutions, such as the largest U.S. electronic stock exchange or the English Bank, the UK’s second-largest bank and the second-oldest in the world. Still, the mysterious Nakamoto (Japanese who created Bitcoin) has set the blockchain as an open platform, like Wikipedia. Blockchain can be used without anyone’s permission or payment of the usage fee. So, the plan is to use this technology to verify land ownership or health insurance.
However, the Bitcoin trade – or rather the attempt to get rich in this way – is unmatched for the time being, although other currencies, such as Ethereum and Litecoin, are approaching it. Slots are more and more common occurrences through which Bitcoins can be exchanged for any conventional currency with British cities leading the way. It’s accepted as a payment method by some major companies, such as Microsoft and Tesla.
It’s interesting how the world economies are treating Bitcoin/cryptocurrencies, and not just the most powerful ones. Some of them, like Russia, are already resorting to national currencies of this type. Estonia, the European country most prone to digitalization, has tried something similar before but has been strongly opposed by the European Central Bank to protect the euro.
The United States legalized Bitcoin in 2013, and as the world’s leading economic power, is the main ground for testing both Bitcoin and blockchain options. Denmark and Sweden have decided to throw paper money out of use, so it’s not surprising that cryptocurrencies are favored. In these and other countries, there are more and more Bitcoin-related startups.
Bitcoin’s Relationship with the Traditional Financial Market
When confidence in a currency is lost – and the U.S. dollar was the most stable during the 20th century – then investors turn to another currency or, say, gold. In the examples of countries that have been well shaken by the financial crisis, we can see how their population has turned to invest in Bitcoin. In addition to the desire to bring capital through the trade of Bitcoins, cheap electricity as an important resource in the production of Bitcoin could be another reason for its penetration.
Cryptocurrencies could become increasingly connected to traditional financial markets, but also be threatened, according to many analysts. The reason for this isn’t their existence and use per se, but rather it’s considered to be an artificial raising of their value, which fluctuates considerably even on a daily basis. Therefore, there’s a definite introduction of regulation in this area, for now at the level of the UK and the European Union, as well as Italy, which is likely to impair the anonymity of transactions.