Satoshi Nakamoto, the creator of Bitcoin, is still a mystery that many are trying to unravel, but as The New Yorker pointed out “turning away from the question of Nakamoto’s identity is a way to deny the fact that bitcoin, like all technology, is ultimately, imperfectly, human”. 1
It all started in 2009 when Mr. Nakamoto invented the so called first decentralised digital currency and released it to the market as an open-source software.2 It is identified as ‘decentralised’ because all its transactions are overseen by a network of computers and has no central bank, nation-state or regulatory authority backing it up.3 These computers are called “miners,” and Bitcoin’s transaction-clearing process is called “mining.”
Bitcoins don’t exist as a physical currency, but instead are traded tokens to which value is assigned says BBC.4 It is a digital key stored in a digital wallet which can be linked to bank accounts. While using the digital wallet, investors need to trust the providers since they can easily be hacked.5
Individuals can pay using Bitcoin by bank transfer, mobile transactions or with a Visa or MasterCard. There are also bitcoin ATMs, which allow for bitcoin to be exchanged for cash and vice versa. 5 A growing list of firms accept Bitcoin, including eBay, Amazon, Apple’s app store, Virgin Galactic and many more.6 Bitcoins can also be bought and sold in return for traditional forms of currency which also makes it an attractive to settling international transactions. 7
For many, Bitcoin is considered safer than some bank accounts because there is a sense of control over a person’s wealth. In 2013 Cypriots savings were confiscated triggering a deep distrust of the banks and causing a Bitcoin price surge. Two years later, Greeks were also subjected to chronic capital controls restricting access to personal funds held in Greek banks. 12
Bitcoin has also been in the news not only for its disruptive character but also for its mostly undetectable nature and potentially illicit use. Unlawful activities are possible when funds can be relocated across the web without a trace, such as buying and selling drugs and money laundering. 8
Amid the torrent of scepticism, the value of a bitcoin has grown and fluctuated greatly, from pennies in its early days to more than $260 in April 2013 to a current peak of around $4,000 in 2017! 9 Although Bitcoin’s success has been observed with great enthusiasm by its advocates, it has proved to be highly volatile; its price dropping dramatically in the past and leaving investors penniless. Back in May 2017 it fell by $400 in a day. 13
FCA has urged caution towards investing in Initial coin offerings (ICO’s)* saying to investors that they “should be conscious of the risks involved…and prepared to lose your entire stake” due to Bitcoin’s “..high-risk, speculative” nature. 10
Jamie Dimon, the head of JP Morgan has also condemned bitcoin calling it “a fraud”. His argument lies in the belief that a currency can’t be invented out of “thin air” and needs to be backed by a government otherwise sooner rather than later it will “blow up”. 11
So, is it just a phase we are experiencing or something that will eventually die down, or is it opening the door to a new norm? It certainly revolutionises the way private property is perceived and we can speculate about the many ramifications of the future of cryptocurrencies that may follow..
Just as with any investment, it is always prudent to research and understand the concept and nature of cryptocurrency before deciding to take the plunge.
Always seek independent advice. This blog has not been approved as a financial promotion by Cogress Limited. We are not responsible for the content of external websites. Potential investors must rely on their own due diligence prior to investing.