In 2017, Bitcoin did something that almost no other asset ever managed to accomplish. It reached such mind-boggling levels of growth that the percentages of return were measured in thousands. This is proven by the fact that its price in December of that year went all the way up to $20,000 while it was only worth a few hundred dollars in 2016. That means that the investors who were fortunate enough to capitalize during this era stood to gain millions.
Well, after the dust settled, Bitcoin did see a noticeable reduction in its price that soon plummeted down to approximately $3,000. Nevertheless, it soon bounced back and is presently climbing back to $10,000 again. So, what exactly is it that makes this specific asset so lucrative? In other words, what did Bitcoin do that other digital coins were unable to achieve over the past decades?
Successful Decentralization
Although the topic of financial decentralization has been in the works for years, most projects failed to attain it. This is because the technology and research were nowhere near as developed and forward-thinking as they are in the 21st century. In 2008, however, an individual or a group of people who go by the pseudonym Satoshi Nakamoto publicized Bitcoin. This was the world’s first successful payment system that did not depend on financial intermediaries. In other words, the transactions could be initiated by the end-users without the need to go through middlemen such as commercial banks. And even though it took nearly a decade for the markets to truly recognize this potential, this cryptocurrency uncovered an unprecedented technology that could change everything.
The Basics
According to a former Wall Street analyst from the Bay Area, Jon Horvath discusses how cryptocurrencies are an offspring of human brilliance and state-of-the-art innovation. The way that these systems operate is based on people making their own transactions directly to one another without having to disclose so much as their own name. Networks run on their respective coins that are stored in digital wallets via private access codes. So, once someone wants to request or send funds to another person, they can initiate direct transactions by matching their private codes and public address keys. Once they do so, the independent miners who operate on the network will do an analysis to ensure that those same funds have not been used elsewhere. This is done to prevent any instances of using the same private key multiple times and getting to spend the same money more than once.
Nevertheless, the miners merely perform a spellcheck-like role where puzzles are solved, and codes are cross-referenced to verify users’ keys. The names still never get disclosed and the overall privacy is not hindered in any way. Hence why the decentralization has become a hot topic that most financial institutions are dreading. After all, from their perspective, decentralization completely undermines the use of banking facilities as people do not need things like credit or debit cards accompanied by checking accounts.
Purpose and Common Uses
The purpose of most cryptocurrencies is to offer a new way to make payments in exchange for dramatically reduced fees. Obviously, however, investors have found a way to expand on the number of uses of these payment systems. For instance, other than letting one pay, digital coins are being utilized as store-of-value assets that investors trade in the open market. This operates very similarly to the way in which stocks, bonds, options, and other securities are exchanged. Jon Horvath recognizes this as an expected byproduct given that the values of digital coins constantly fluctuate. Just consider, for example, the previously mentioned roller coaster that the price of Bitcoin has been through during the past two and a half years. Therefore, it is completely unsurprising to see people try and gauge the future growth of certain cryptocurrencies in order to make passive gains.
Controversy and Regulation
Sadly, regardless of all their incredible advantages, cryptocurrencies and decentralization are not entirely drama-free. In fact, lawmakers have ensured that the entire market goes through a storm of tough regulations and claims that presume to question its credibility. For instance, many opponents of cryptocurrencies remind of their ability to be used as the means for payment in the black market. And rightly so. After all, the fact that it is impossible to track users who make transactions is an outstanding benefit for those who are rendering illegal fee-for-service offers. This is why China has banned all forms of cryptocurrency exchanges soon after they claimed the spotlight. In the future, Jon Horvath reminds that it is impossible to accurately predict how the sector will evolve. Nevertheless, it is fair to assume that these assets are here to stay!
