Bitcoin, the two sides of the cryptocurrency

26-06-2017 | Redacción CEU

Bitcoin is the cryptocurrency par excellence. Have you not heard of it yet? For some, it is the opportunity to revolutionize the financial system, for others, a passing trend that can bring very negative consequences for the world of finances. Who is right? Could bitcoin really become the currency of the future?

 

Since money became our currency of exchange, it has always had someone to back up its value. Otherwise, how were we going to exchange fifteen sheep for twenty pieces of metal? That was where the figure of the ruler, sovereign or supreme leader appeared. It was necessary that someone gave value to that currency or its exchange would not make sense. Later, the role of the intermediary, patron or oligarch came into game to support exchanges, make loans and, in the end, turn those coins into papers that were valuable for the whole world. We could talk about history of the economy for a long time, but to save the speech, today these roles are played by governments and banks, the two pillars of the monetary system. But, what if are they no longer needed? Are we at the threshold of a new system?

The paladin of the financial revolution

Over the past few years, a multitude of criptocurrencies have appeared. No doubt, on the top of the list is the bitcoin, a young knight –he is only eight years old– that gets into one of the most hostile and complex territories of our enormous planet, the financial world –unfortunately, money and war have always been linked–. For many people, bitcoin is an undecided warrior with little strength. His courage and boldness at the beginning of the battle will not compensate for the lack of depth and constant hesitation that he experiences. For others, he/she is an invincible paladin who has come to stay, conquering and expanding a new financial system.

This cybercurrency has a great attraction, its decentralization. The virtual coin does not need any government to back it up, nor to control it. But not only that, it does not need a third actor either. The role of the intermediary can disappear because bitcoin works thanks to an open protocol that is based on the blockchain, a database distributed and with a source code that anyone can read, designed so it cannot be modified –here is where the enthusiasts of the criptocurrency jump of joy–. Out of controversy, what is clear is that the entrance of bitcoin into the market has been very strong. The numbers are bullish and their exchange does not stop growing  –at the time of writing this article its value is almost by 2600 dollars per bitcoin–.

Should I throw away my wallet and invest all my money in bitcoins?

With bitcoin, a cellphone with Internet connection becomes our bank. The technology replaces the third parties of trust, banks and bankers –who kindly provide us this service for money–. Times are shortened, shares are transparent and you do not have to wait two days for a transaction to take place between two accounts. So... it seems like a wonder! But just by entering a little in it, you will realize that there are all kinds of opinions about this subject. The debate runs a wide spectrum. Some have even pointed out that there are nonhuman forces behind the appearance of this currency. Others would invest until the last cent of their savings in the virtual currency. As the debate is wide, this is a summary of the two sides of the coin.

Bitcoin, the two sides of the cryptocurrency

What is valuable today, may not be tomorrow

One of the main characteristics of bitcoin is that it is tied to the market. In other words, it is governed by the laws of supply and demand. There may be other mistrust, but its volatility is undoubtedly the one that has stopped many people from investing in it –we have not thrown away the wallets yet–. For example, in China when the government began to legislate on them, its value fell in an accelerated way. Although there are more and more people who trust betting on bitcoin, some analysts point out that this skyrocketing growth may be the precursor of the cybercurrency bubble.

What do governments think of a currency that they do not control?

Technology and legislation do not dance at the same rhythm. The technology dances to zumba rhythm and the legislation stayed in the walls. Therefore, laws are always one step behind. Governments are still reluctant about making decisions and legislating and they take different paths. Precisely, the future of the currency depends on how they behave, or this, at least, is what some experts advocate. Many people believe that governments will never let that the control of the currency does not lay on them and also that the world's largest economies have the power in their hands. Others, less critical, assure that money will turn virtual and no matter how much they want to stop this trend, they will not get anything against this attack to their power. The Internet cannot be stopped.

The archenemy of banks and Western Union

The bitcoin money is transferred from person to person, without border distinctions and in real time. Intermediaries like Western Union or banks are not necessary. Transactions can be made between any country, with a peer to peer system. Not only it means an attack to the government power, the third parties on the line could also be in danger. However, some experts say that the bank services cannot be replaced by the criptocurrency –or perhaps bitcoins could offer loans?–.

Can bitcoin be hacked?

On one side, there are the defenders of the impenetrability of the bitcoins and their inability to be falsified. On the other side, those who consider that invincibility facing the hack is as strong as the effort made by the cybercriminal to break it. In fact, private accounts or bitcoin exchange platforms have suffered hacks with the respective achievement of the fall of cybercurrency.

The bad people’s money

The cryptocurrency provides anonymity. One of the big criticisms that this new market suffer is that criminal organizations can use the virtual currency to launder their money. The bitcoin defenders claim that this same thing happens with money that circulates in cash and that no part of the market can escape this. What can be affirmed is that there is still poor development in the control of this activity.

Although there are many fronts open on this subject, the great debate is about whether the criptocurrencies could replace the physical money or not. Bitcoin is still in an experimental phase. In some places, like Silicon Valley, its use is widespread and some people start to get part of their wages in bitcoins, but there is still a long way to go. At present, no one can offer a right answer to this question. Bitcoin has come to make us  think over money. 

If you want to get involved in the bitcoin world, we advise that you learn everything you need about them first. We recommend our Advanced Program in Digital Finance FINTECH,and if you are looking for greater knowledge from a business perspective, the Executive Master Degree in Finance.