After Bitcoin appeared, the world slowly entered into a new era of investing characterized by a focus in cryptocurrency. People started buying coins and realizing unimaginable gains. In fact, the speed by which these assets increased in value was enough to raise questions about its legitimacy. Now, after the dust settled and people had time to adapt, what seems to be the true nature of Bitcoin? Moreover, are the claims of fortune and glory true or simple exaggerations of a Ponzi-sized scam?
Some individuals believe that the government should not be involved in all sectors. By all means, almost everyone can agree that too much regulation is unnecessary. But same individuals tend to forget the downfall that happened in the 1930s. After the terrible stock market crash, which happened mostly due to a lack of regulation, millions of people lost everything. In 2018, the world is facing a similar issue. Why? Because cryptocurrencies like Bitcoin remain free of mandatory regulation.
To better capture the issue, imagine a comparative scenario that deals with stocks. If companies could conduct initial public offerings (IPOs) as effortlessly as Bitcoin is traded, many investors would suffer. Just imagine how far-reaching the consequences would be if people had no protection whatsoever. When put that way, most readers would agree that certain layers of safety must exist. And still, the masses are jumping onboard with cryptocurrency absent assurance of their capital’s safety in a decentralized market.
Decentralized and Unsafe
Most commerce platforms continue to operate via a centralized network. Meaning, there is a middleman that connects the buyer and seller. Simultaneously, that middleman is the reason why scam and theft are minimized. Centralized networks exist and are successful because the central system protects users. For example, when somebody orders an item from eBay, the seller must ship it to them. If they fail to do so, the buyer can use eBay to recover damages.
With decentralized platforms like the one that Bitcoin offers, people have nobody to fall back on. Although certain protective measures exist, they are nowhere near as developed as the safety methods on centralized networks. Meaning, when a user sends Bitcoin to another user for a product or service, they are opening themselves to fraud. If the seller fails to fulfill their duty, the buyer will have minimal options to recover lost coins.
Pump and Dump
Arguably, one of the scariest things about blockchain-based cryptocurrency is the “pump and dump” system. Meaning, it seems to operate as a way for people to inflate prices and then simply sell out of nowhere. Consider the roller coaster that took place during 2017. Bitcoin started the year with a value of less than $1,000 per coin. A little under 12 months later, it hit nearly $20,000 per coin. Now, six months after the fact, it is trading at less than $8,000. That means that it went up in value 20-fold just to plummet and lose over half of that value. All within 18 months!
One of the easiest ways to explain such a pattern is with the pump and dump theory. The Bitcoin seems to grow in value as long as the wealthy do not hit a certain mark. Then, they sell all of their coins and pocket millions of dollars. As a consequence, the value plummets. And, sadly, it looks like this scheme is working very well. Just consider the fact that there are now 1,500 registered cryptocurrencies in the world.
The Actual Value
As Dante Michael Anthony Vitoria notices, Bitcoin supporters often cite three distinct factors that make it powerful. First, it is claimed to be a growing means of payment. Then, people also claim that it is used simply as the store of value. Sadly, as Dante further notices, neither of these two concepts are applicable. To consider Bitcoin as a growing means of payment is wrong. Even without much consideration, this statement is simply not true. At the moment, no large retailers are actually accepting Bitcoin. If one was to try and purchase something at Walmart or on Amazon, these coins would not get them far. In fact, no cryptocurrency would. This is why, on his popular podcast, Dante’s Inferno, Dante Michael Anthony Vitoria cleverly refers to the currency as “Bit-Con”.
So, the “means of payment” factor actually more accurately applies as a shortcoming. Then, there is the store of value portion. In reality, one could possibly make a bold statement that cryptocurrency stores value well. The only problem is that such statement would have to be made last year before the prices collapsed. At the moment, Bitcoin is a perfect example of volatility. By taking into account that it lost almost $12,000 within six months, one should realize that it is a horrible store of value. That is because it is impossible to store value with an asset that constantly loses value and is not backed by any real world commodity like gold. And even when it does not, the unpredictability makes it a bad investment.