This month is a point in time when Bitcoin faces the global heavy weight champions such as the China bans, Jamie Damon’s (JPMorgan CEO) de-legitimizations, Ray Dalio bubble shout-out ($150B Hedge fund manager), Singaporean banks which are rumored to halt activities to crypto related companies and other anti-cryptocurrency “echoers” who join in. All together ambushing Bitcoin and creating a series of semi-coordinated attacks targeting Bitcoin in matter of days, nevertheless, resilient enough to stand proud?
Crypto currencies have been gaining high popularity lately, enough popularity that the champions of the old system can’t ignore it anymore. The fact that those heavyweights have to address cryptocurrency, and go in an all-out offence against Bitcoin makes one wonder, what are they all so afraid of? If they had nothing to fear, would they even bother to address it? Their reaction may suggest a number of reasons, in my opinion – countries and banks are afraid to lose control as there is something real here.
Most critics try to de-legitimize Bitcoin with several accusations, some more solid than others. Blockchain technology is a new way of thinking, yet to be perfected, but it will get there. In light of such accusations the blockchain community should examine itself. But not only does it do so, the community is one of its own biggest critics.
Initial Coin Offering – ICO
Last week Vitalik Buterin a co-founder of Ethereum and a prominent figure in the blockchain community mentioned an ICO bubble. In Q2 2017 companies raised $800M via ICOs; many companies are overvalued, raising too much money only for product development; some ICOs are not legit and don’t offer any value; there are even ICO scams, phishing websites and advertisement, hacking and sorts that takes place in the industry. Not only are there many victims, this situation harms the honest companies that offer real value. Most companies wish to use an ICO to create something new and not in order to “abuse” the system for personal gains.
In Sept. 2017 more than a hundred ICOs will take place, each ICO creates a new currency or token, there are well over a thousand currencies at this time. There is no doubt that the system is saturated. Some headlines even compare it to the 2001 dotcom bubble, the information technology bubble. Companies were overvalued as excessive speculation happened between 1997 and 2001 when it all collapsed. Eventually the dotcom bubble did not kill the internet or information technology. The current ICO market behavior can’t last, it has to shape and evolve into a legitimate and sustainable method of raising money. But meanwhile we are sailing in a stormy sea.
Bitcoin, why does it have value?
A major claim against crypto currency is that it has no real value behind it, a pyramid that will lead to nasty situations. What does “real value” mean? Does Bitcoin have no value? Is the value justified? Real life value of anything is as high as someone is willing to pay for it. Apparently, a growing number of participants around the world are willing to pay good value for Bitcoin, so in a manner of speaking Bitcoin does have value. You can even google stories about cars and houses being purchased with Bitcoin, not to mention the fact that people are paying millions of dollars for Bitcoin every day. So it is not an opinion, it is a fact indicating that enough people are willing to take risks in order to evolve and promote and depends on Bitcoin and blockchain technology instead of the old banking/financial institution dependent system.
Bitcoin and other digital currencies might be overpriced and questioning the value of a single Bitcoin is justified. You can find supporting and criticizing arguments and theories regarding the value of a single Bitcoin. Some suggest it is overpriced with no reason behind it, while others claim that the price of Bitcoin is still very humble and will keep on multiplying itself in coming years as more fortune finds its way to cryptocurrency market, and there is only a limited number of Bitcoins available and distributed – what we know as printing money is not possible in Bitcoin.
There is a saying “Don’t throw rocks if you live in a glass house”. These saying points out another fact, which is that most of the criticism aimed at Bitcoin, may be applied to the critic itself. In a recent CNBC interview with Ray Dalio, the founder of a $160B hedge fund, who claims that “the Bitcoin price rise is driven by people thinking simply that they can sell it at a higher price, so it is a bubble”! Such a critic coming from one of the largest hedge fund managers in the world is surprising taking under consideration the fact that he does exactly the same: buying and investing based on the belief that in the future such investments will be worth more. Ok, there is a difference; he invests in companies that he thinks have growth potential for commercial reasons. Bitcoin, and a only a limited number of other cryptocurrencies, have growth potential due to rising acceptance rate and demand, those coins represent real value and have valid commercial applications.
Bitcoin is not backed by Central Banks or Governments
Government/bank backed fiat currency (i.e. USD) outperforms Bitcoin? Another claim against Bitcoin is that no government or central bank backs it. Should we not examine how many times banks and countries got in trouble in recent years? Bitcoin was claimed dead over a hundred times and yet, has always recovered on its own. It seems fiat currencies do not provide a satisfying solution, maybe even the contrary. Just to name a few examples: the subprime crisis, Greece, Venezuela and Zimbabwe.
Case study: Venezuela suffers 2,000% inflation in recent years and the Venezuelan Bolivar is continuously eradicating its value. An article published last month stated that the Venezuelan Bolivar has less value than the play-money in the game “World of Warcraft” it is an in-game purpose only “gold”, not even a cryptocurrency. Imagine you could gain a steadier income by gathering gold on an online game and sell it for a higher value than your own country’s currency value. Needless to say the Venezuelan population suffers tremendously with direct relation to this condition.
Conditions are aligned for the “perfect storm”. Crypto mining became a growing phenomenon as an alternative but reliable method of income and payment in Venezuela. However, instead of supporting attempts to ease the situation – the government showed hostility towards crypto mining. Locals say the trend keeps growing but deeper in the shadows. The country fails to provide a solution and is scared to lose control over the monetary system while the citizens are pushed to a corner with no options. Why not let them mine and earn a living?
Control over our wealth
Just a last example to show really what little control we have over our money, in Tel-Aviv if you go to the bank and ask for a bank transfer in order to buy crypto – they will decline your request. What the duck? It is our money! Let us do with it whatever we wish! In Israel it is not illegal, the banks may allow bank transfer to buy crypto in their discretion, and the central bank of Israel does not impose any restrictions on the banks that prevents them from allowing clients to transfer money to BTC exchanges. We are so used to it that we can’t even see that “control” anymore. But banks actually have full control on our wealth.
What does the future hold?
On one matter everyone can agree on, Bitcoin’s journey is a roller-coaster. Change in the monetary ecosystems as we know them is here, the change will take place one way or another. We can find voices for and against crypto but from my point of view we have passed the point of no return. How decentralized or which parties will have control and what type of control on the new ecosystem is yet to be determined. Different market forces who support or oppose this ecosystem will define it as time progress. Cryptocurrencies will not disappear into thin air, people vote with action and show confidence in Bitcoin by investing in it. So am I.