In the outgoing year, the cryptocurrenciesmanaged to truly shake the entire financial world. Despite the fact that in theautumn, bitcoin celebrated its ninth year of existence, and financial institutionsare considering cryptocurrencies and introducing their own investment projectsfor more than a year, only in 2017 the digital sphere has reached a decisiveturn of its development and has become world-wide. We observed the peak ofICO’s popularity, and the spectacular growth of bitcoin, and the increasingpopularity of block-technologies with their integration into entrepreneurship,and the formation of bitcoin as a full-fledged means of payment, and thebeginning of futures trading bitcoin.
Undoubtedly, the mostimportant result of the past year is the insane increase in the prices of manycryptocurrencies, in particular bitcoin. On November 27, the world woke up onthe doorstep of something new: for the first time in history, the cost ofbitcoin jumped over $10,000, and immediately rushed toward $20,000, so that itcould be overcome without excessive effort and suddenly go into correction. Attentionis drawn to the fact that many still believe that cryptocurrencies are a hugepyramid or a global bubble. Only so long as the pyramid has not collapsed, noone can assert anything with absolute certainty (Data retrived from https://coinmarketcap.com/ ). As fortoday, the capitalization of bitcoin is almost $200 billion, and the indicatorsof the entire cryptocurrency market exceed $570 (SeeAppendix 2). That is, in 2017, the bitcoin performance actually increasedby 1500%, and the capital turnover of the whole sphere was compared with theindicators of Microsoft from time to time.
We can see that bitcoin is the mostrecognizable cryptocurrency in the world of blockchain. However, if we gofurther into this topic, we can understand that other cryptocurrencies alsohave great potential, and bitcoin domination has fallen to 30%. (Data retrivedfrom https://coinmarketcap.com/ ). It isworth paying your attention to ripple, ethereum, neo, tron, litecoin, etc., as operationswith ripple tokens go faster and are cheaper. For a transaction with the BTC,you will have to pay a commission of about $30, whereas an operation with XRPwill cost a few cents. Currently, Ethereum can process almost three times asmany transactions as bitcoin.
Ethereum also has a low transaction fees. “Ilook forward to the year 2018, at least in the sphere of Ethereum, about whichI can speak with the greatest certainty, will be a year of action. This year,we will embody all the ideas related to scalability, plasma, proof-of-stake andprivacy, over which we have been methodically working and which have improvedover the last four years. Everybody in the Ethereum space recognize that thewhole world is watching our work, and we are ready to meet our expectations”(Vitalik Buterin, 2017). Vitalik Buterin, the man who created the Ethereumblockchain-platform, said that the cryptocurrency is the future ofcybersecurity and the economy, and with the right approach, the “ETH”will equal the bank cards.
While the blockcain is running too slowly for themost common applications. Bitcoin processes slightly less than 3 transactionsper second, Ethereum – 5 per second. Uber makes 12 trips per second. Blockhainneeds a couple of years to equalize with Visa. Seeingsuch advantages of the blockchain, we immediately ask ourselves whether thecryptocurrencies can become the mainstream money? In Sweden, the populationalmost completely abandoned cash. The country has the lowest level ofcirculation of banknotes for the last 30 years of observations. It is notsurprising that the Swedish Central Bank is thinking about replacing the kroonwith the cryptocurrency.
Many currencies in sub-Saharan Africa have depreciateddue to hyperinflation, distrust of the population to local institutions andoutages. As a result, in the Congo more than 90% of deposits and loans aredenominated in foreign currency and the government of Zimbabwe completelyrefused coinage in 2015. Bitcoin can also be useful in regions wheregovernments impose strict restrictions on the use of foreign currencies fromother countries. Thegovernment of Japan spends huge resources on transportation, collection, andaudit of paper money and J-Coin can be used to minimize costs. Furthermore, TheJapanese government legalized the use of cryptocurrency as a means of payment,additionally, countries like UK, UAE, Venezuela, India have plans to issuetheir own cryptocurrencies, tied to their currencies. Nevertheless,The Chinese government and South Korea intend to introduce stringent measuresto control the cryptocurrency market. It is forbidden to involve bothtraditional money and cryptocurrency (http://www.
independent.co.uk/, Aatif Sulleyman, 2018). Furtheremore, The Swiss Bank, Credit Suisse, publisheda study of the cryptocurrency market and found that 97% of all bitcoins areconcentrated in the hands of 4% of users. Concentration ofwealth in a small group of users – whether individuals or exchanges – meansthat several key players can have a huge impact on the bitcoins market. As aresult, the market has become very prone to manipulation. Thus, for the mostpart, we can explain the sharp jumps in the bitcoin rate, which closed the yearby 1300% growth with a capitalization of $320 billion. Such a concentration ofwealth reflects the situation in the global economy as a whole.
Thus, accordingto estimates, 1% of the world’s population owns about half of the world’swealth. According to analysts, this indicates the use bitcoin exclusively as atool for savings like gold. As a result, bitcoin turned into a net asset and overthe past year, BTC has grown from $700 to $18 thousand (Data retrived from https://coinmarketcap.com/). Theincreased interest in this currency from investors, including CBOE GlobalMarkets, which announced the launch of bitcoin futures, seems to leave littlehope of its real conversion into currency.
Moreover,we can add a scandal with tethers and Bitfinex: tether transactions assume thatthey are going to act fast and cheap and the price of this currency is going tobe stable as the US dollar, in theory. However, tether to dollar relationshipsseemed to be weak, because 45-50 millions tethers were issued in just one weekin November. It is hardly to imagine that these newly made currencies represent$45 million dollars, which throws out the admission about the tether’s realvalue. On the one hand, there is no problem with that, if only these currenciesinvolved are truly backed up by dollars – there is no risk in this system.
Onthe other hand, the problem occures when you start thinking about how well doestether backed up and it is really hard to rely on the assumption that Bitfinex hasadequate “resourses’ to back them up. Therefore, if these “resourses” aren’t dollars,it could be a problem. At themoment, the real cost of bitcoin is $ 0. The main problem is how bitcoin works.With its help, you can conduct a very limited number of transactions, inaddition, it takes a huge amount of electricity. People will be more willing tospend inflation-prone money issued by the state, and bitkoyny will prefer tosave. If no one will pay with bitcoins, then they will never become a realcurrency.
The meaning of the currency – in stability. Probably everyone willagree that, ideally, we would like to have more or less the same dollar on aFriday and Monday. And although it is possible to make some money on it(otherwise there would be no forex), any economist will tell you that thecurrency is not an asset. However, the precious metal is an asset and bitcoin,it seems, has become his digital alternative.
Basedon the fact that while the “internal” cost bitcoin is zero, explainsthe high volatility of the cryptocurrency. Provide bitcoin real value can onlytwo scenarios. Thefirst involves using crypto currency for illegal money transactions. However,even if some criminals get a cryptocurrency, then they convert it into thecommon one.Thesecond scenario for the appearance of bitcoins own cost implies using cryptocurrencyas an alternative to gold. However, this requires that all recognize the”internal” value bitcoin, as it is recognized in relation to gold.
Bitcoinexpects one of the extremes – or success in replacing gold as a universalmeasure of value or a complete failure and even if bitcoin becomes widely usedas a means of payment, investors will have to forget about the astronomicalprofitability of the currency. To conclude, evendespite all the problems and negative feedback on bitcoin and altcoines, theycontinue to grow at an incredible rate, and are a good opportunity toinvestment.