It’s hard to go outside these days without hearing the word “Bitcoin” mentioned at least once. Bitcoin is a virtual currency (cryptocurrency) that is created online and unregulated by the government and banks. Only a limited amount of it has been created online, and every transaction of each Bitcoin is documented by a network of independent computers (using Blockchain technology), which replaces the traditional middlemen that have, thus far, regulated our money.
Emerging in 2009, Bitcoin was initially valued at a near .008 cents. It skyrocketed to .08 cents in the span of five days, setting an upward trend for the next few years. Recently hitting highs of over $19,000 and currently stabilizing at $16,000, could Bitcoin be the currency of the future?
Here are three reasons to stay away from Bitcoin and three reasons to embrace it as a currency.
Doomed to fail, bit by bit
Risk > Reward
Many see the overall rise in Bitcoin prices as a bubble, due to its volatility. In finance terms, a “bubble” is when the price of an asset far surpasses its fundamental value, implying that its preliminary spike in value will eventually crash and burn. For example, in 2008, the U.S. housing bubble popped, leading to an economic crisis, which became the Great Recession. In this vein, where Bitcoin prices have already begun to drop, experts warn that they will only continue to fall. Also, Bitcoin takes money and power away from institutions that are used to being in charge – namely, banks and governments. It’s reasonable to assume that given all of the revenues they stand to lose that they won’t take this lying down, and they have all the resources in the world at their disposable to combat the success of virtual currency.
Getting your hands dirty
Attempts to regulate Bitcoin are underway (for example, the IRS is treating Bitcoin as property and taxing it as such). Meanwhile, Bitcoin is both decentralized – meaning it has no central role of management or authority – and unstable. Some may see its decentralization as a good thing, but this opened it up for black market trading. In fact, over 10% of Bitcoin transactions happened on The Silk Road, a hidden online service (which is now defunct) that allowed for trading drugs, illegal substances, and other illicit activities. Can we really allow ourselves to use Bitcoin if it’ll pave the way for criminal activity?
A shocking amount of energy
As of now, Bitcoin has the potential to become an environmental disaster. While it may seem like it saves resources, the Bitcoin Energy Consumption Tracker currently shows that Bitcoin consumes 37.16 Terawatt hours per year, and that number is only going up. To put that in perspective, that’s more energy than over 160 countries use per year, and one Bitcoin transaction uses more energy than your house does in a week. Currently, the amount of energy it takes to “mine” (create) and use Bitcoin is unsustainable in the long term.
Who wants to be a millionaire?
Cutting out the middleman
Bitcoin has allowed people to put their trust in technology instead of third-party mediators like banks and civil-law notaries. This is because it relies on blockchain technology, which is a complex mathematical model that instantly creates a virtual chain of recorded transactions when Bitcoin is transferred from one place to another. These transactions are easily verifiable, and will eliminate the possibility of human error, steep transaction fees, and long wait times when transferring money. In other words, Bitcoin makes the whole process of using money more efficient by cutting out the middlemen who have had to oversee every transaction that takes place thus far.
Leaving paper in the past
As businesses like dating, shopping and travel sites have been moving from the workplace to the web, it’s only logical that currency should do the same. Some may be hesitant to adopt a technology that they don’t fully understand, but time is marching on regardless. When cloud technology first came around, many were put off by the idea, yet now it’s a given to use email, social media and online applications to store our memories and information. Similarly, people were skeptical of hospitality services like Airbnb, but it had close to 40 million users in the U.S. alone by 2016. Bearing in mind that the amount of available Bitcoin is limited, it may benefit to jump on the bandwagon instead of being left in the dust.
It’s here. Get used to it
Bitcoin is catching on, regardless of any personal aversion to it. It is already considered as one of the world’s top 30 largest currencies and is becoming more and more mainstream, with several colleges beginning to accept Bitcoin as a form of payment. In fact, Goldman Sachs is planning to the first Wall Street bank to set up a Bitcoin trading operation. Even the U.S. Federal Reserve is hinting at creating their own cryptocurrency, proving just how relevant Bitcoin already is to the future of currency.
Laypeople are also making money off of it; for example, anonymous Mr. Smith invested $3,000 in Bitcoin a few months after it was created, and now spends the $25 million he made flying first class around the world. Erik Finman dropped out of high school after investing in Bitcoin at $12 a coin. He then started his own company at the age of 15 and is now boasting millions in investments. Like it or not, Bitcoin has already made its mark.
Bottom line: Bitcoin seems to have an enormous amount of exciting potential, but it may not be able to sustain itself as a currency – or an investment – for long. Have you thought about buying Bitcoin? Should people invest in it or stay as far away from it as possible?