Bitcoin’s rise in the midst of Economic Problems Signals new Roles for Blockchain Coins
The return of Bitcoin’s value for the first time in the last three years, even in global economic uncertainty, at the level of $ 1,000 and above indicates that it is gradually occupying the long -term reserve position. At the same time, other blockchain platforms create the necessary conditions for the existence of transactional currencies.
Markets evolve into cycles. Not surprisingly, after three years of a speculative bubble in late 2013, Bitcoin is again attracting attention. Critics and mainstream media have buried the virtual currency countless times, but Bitcoin seems to firmly refuse to die.
This time, Bitcoin’s rally to $ 1,000 occurred in completely different circumstances. Bitcoin and the blockchain ecosystem have matured significantly. There were many major trade instead of a huge, poorly organized and insecure.
Yes, yes, we are talking about Malfada Mtgox, which has already served as a single shopping center and became a single fiasco point. Awareness is now much better and liquidity is much greater.
The increase in bitcoin value was fast (and volatile, to say the minimum). But at the time of publication, it does not show signs of bubble – a rapid and inconsequential increase, with periods of two -digit daily jumps, culminating in a marked increase and a ruthless fall.
The State of the Global Economy
There are reasons behind Bitcoin’s rise beyond purely speculative interest. Like the Bitcoin ecosystem, the global economic crisis has also “grown” in the last three years. Now we have a better understanding of the problems we are dealing with and how bitcoin fits the overall.
China has been an important player in the Bitcoin ecosystem, providing almost 70% of all bitcoin mining (the process by which bitcoins are created and confirmed transactions on a distributed network) and up to 90% of all negotiations.
The Chinese government devalued Yuan as a measure to improve the competitiveness of the national economy with high state participation. And in the scenario of strengthening the US dollar, this has changed the focus of Chinese speculators’ attention to Bitcoin.
In addition, Bitcoin has become a popular and reliable way to avoid government -imposed monetary controls. If you need to withdraw money from China, have several options, one of them is Bitcoin. Therefore, the jump in demand is not surprising: rich Chinese are looking for ways to save on their economies, and invest in Yuan.
China has a huge impact on the global economy. What happens here next year will reverberate around the world. To what extent will the Chinese economy slow down? How will the problems of the vast and opaque parallel banking sector resolve?
How will relations with the United States and President Trump, which is more hostile to Chinese imports and labor than the previous government? What will China do with the huge dollars reserves? All of these questions must be answered.
This year will be held the 19th National Congress of the Communist Party of China, which will form a new government and reelect five of the seven members of the Permanent Committee of Politburo, the highest government of the country’s government. All of this generates great uncertainty, and the struggle of potential power candidates will have serious economic consequences for the world.
Bitcoin offers hope for the fearful Chinese middle class. In general, any form of uncertainty serves Bitcoin as a “safe investment”, either the need to move abroad funds or protection against forced currency and inflation conversion.
Bitcoin has never been a good value reserve, but with the increase in market capitalization and awareness, volatility dropped dramatically. And for a long time, it showed good growth, while Yuan just fell.
The level of uncertainty in the Chinese economy is high, but things are even more interesting in other countries. The euro zone is in a situation that seems increasingly looking like prolonged stagnation. Only successful quantitative flexibility measures prevented deflation and total depression. No changes in the currency block are expected.
The increase in the popularity of right -wing and populist parties throughout Europe shows that dissatisfaction with the political and economic status has reached the rupture point. Anti-nomineclature candidates achieve results that once seemed inconceivable. The presidential elections in France, which will be held in May, will show the actual situation in terms of public feeling.
In Italy, which was spared the recent resignation of Prime Minister Renzi after a referendum on the constitutional reform was not supported, the situation with the oldest bank completely inoperative, Mount Dei Paschi, was not resolved.
The state prepared a rescue plan and managed to protect small investors (which, according to European law, should have received only a small part of savings).
However, it is unclear whether these measures will be sufficient and, in addition, there are enough banks in the country with similar problems. Even Germany, the eternal bastion of financial stability, has problems with Deutsche Bank.
It seems that the problems with US regulators have been solved, but this whole story hides a very unpleasant picture with the overexploitation of bank assets. Add to this the unpleasant situation with Brexit … and it is clear that nothing is clear.
Bitcoin’s role and limitations
Let’s look at Bitcoin from the perspective of the broader economic context. Like gold, it has a finite supply that cannot be tampered with. Unlike gold, it can be easily bought in any quantity and transported through borders with few or no obstacles. Strictly speaking, it did not deserve the reputation of “safe assets”.
Obviously, the price of Bitcoin tends to correlate inversely with the price of traditional investment options, and economic turbulence of great magnitude tend to give a boost. However, it did not prove to be a reliable value reserve in the past due to its high volatility. Of course, there is still a certain volatility.
However, it has weakened a lot in the last three years, thanks to the increased popularity of Bitcoin and Blockchain and the emergence of new exchanges. Bitcoin is no longer negotiated randomly. There are rules, institutional interest, a stock market negotiated is formed.
This is why some large investors are showing interest in using bitcoin as an alternative to the traditional value reserve like gold. Firstly, this applies to investors who have been planning investments for many years and have experienced daily price changes without problems.
There is another point that makes Bitcoin an excellent value reserve. Bitcoin cannot be taken from you. If used correctly, Bitcoin really belongs to you as the currency on the seats cannot belong to you. The money in the bank can be taken from you unilaterally: through bank actions or at the request of the government – these are the characteristics of some forms of forced transfer or “scraping”.
But if you are holding your bitcoin at an address that only you have the private key (and this address is not in your bag), it is protected by the laws of mathematics and physics that underlie the universe.
Therefore, despite changes in Bitcoin’s exchange rate compared to the dollar, it has quite tangible advantages: it cannot be acquired by the state or by third parties. This feature has become even more attractive in an era of forced currency conversions and economic rescues.
The general image is reinforced by the internal problems of Bitcoin. So far, the is not suitable for use as a transaction currency. Bitcoin protocol simply cannot provide the required bandwidth.
There is an ongoing active expansion work, including the promising segwit technology or separate Segwit. Segwit will make it possible to compact a large number of transactions in a batch or “block”, thus increasing performance without any change in the root program.
Development and adoption have been slow, and Bitcoin’s decentralized nature means it will not be easy to reach consensus among stakeholders. While these tasks are being resolved, Bitcoin’s transaction performance remains insufficient for its active use in money transfer or e -commerce.
Blocks are usually full, so a high rate must be paid to ensure that the transaction is accepted. This, of course, increases Bitcoin’s attractiveness to miners and increases its value.
In a way, it doesn’t matter if Bitcoin’s transfer rate doubles, encompasses or even centers. Support for the role of a popular transactional currency is not yet enough – the amount of money that circulates around the world is simply very large. One way or another, the current role of Bitcoin is to serve as an efficient value reserve.
Blockchain and Transaction Coins
The situation with Bitcoin gives hope for the development of other Blockchain currencies. The last three years have been a period of rapid development in the field of cryptocurrencies. To date, many cases of use are being formed.
Bitcoin becomes a value reserve and the settlement currency as other cryptocurrencies (and other currencies) are exchanged for it. But the work to create interoperability with other markets seems to be walking not to one, but to several different tokens of blockchain.
However, no protocol will be able to deal with the load of many transactions, so it makes sense to introduce specialization. Austrian economist Friedrich Hayek predicted something similar, more like a market for competing currencies than a government -backed money system. The best currencies – those that best serve companies and consumers – will naturally rise. In the end, only a few winners will remain.
We are too early in the history of Blockchain to guess who will be among the winners. At the same time, we are in the initial phase of formation of the “basic soup” of the currency contest. Companies launch and announce new digital currencies that are becoming popular in their fields.
Gamecredit positions itself as the main payment method in the $ 100 billion game industry. Game credit allows you to avoid significant costs and problems by pumping and moving money between the game’s economies. Incent is being launched as a motivational currency.
There are coins to maintain anonymity, it is used to some extent in the drug market on the Dark Web (a free market that does not recognize legal restrictions). Coins aimed at entertainment, such as dogecoin, are great for social media users.
Cryptocurrencies are created to be used as local currencies in specific geographies such as Bristol or Berksheers pound. There are coins aimed at the employment sector or operating based on time bank principles.
The desire to bring these applications to the market resembles the gold race. Blockchain is still at an early stage of development and there are many opportunities.
But it is worth remembering that in every search for gold there are holes – people who think masters, regardless of the success or failure of any particular initiative.
It is logical to suppose that software platforms that allow users to create and release their own exclusive digital tokens with the least effort and without having to go into technical details would be a great victory.
The world is changing very quickly and there is no doubt that the global picture will change too. Individual coins will appear and disappear until some favorite coins climb from the bottom.
But Bitcoin seems to have established itself firmly in a niche of its own: not as a means of exchange, but as a safe digital store of finance, far from the threats of devaluation, inflation, forced currency conversions and other dangers of the unhealthy world economy.