Interest in Bitcoin has surged in recent months, mostly due to the fact that this virtual currency is reaching new heights and its value has increased by 400 per cent in just a few months. It has also created new young millionaires and what started as an experiment is now attracting the attention of major investors, governments and even bankers.
Bitcoin can best be described as a peer-to-peer crypto-currency, meaning that there exists no particular central authority that controls this currency. No one can decide to print more of this money. And while electronic transactions are completely transparent and traceable, at the same time, the owners of Bitcoin can remain anonymous.
All this is now possible thanks to a document – published on October 31, 2008 by someone calling himself ‘Satoshi Nakamoto’ – outlining the various mathematical functions required for this system to operate. This is nowadays believed to be a fictitious name which the creator of Bitcoin, a mathematical genius, used so as to hide his real identity.
In the meantime, Bitcoin’s price keeps surging. Back in 2014 when I penned a similar article, perhaps one of the first in Malta outlining how Bitcoin works, the price was equivalent to around $800 – it later went down to $400 and this year kept fluctuating between $2,400 and $2,900 only to cross the $3,000 barrier during early August.
Optimism in this virtual currency by some investors – who are predicting that this virtual currency will keep surging and might even reach new heights soon – has to be balanced with scepticism by experienced financial analysts who insist that any investment that goes up by 400 per cent in a few months has to be a massive bubble, waiting for the inevitable burst and leaving financial ruin behind it.
However markets have always been quite irrational and if Bitcoin starts being adopted as a payment mechanism it might make it into our everyday life. The euro, as a currency, tried to break national barriers within the European Union, succeeding up to a certain extent in making financial dealings easier between two parties in different countries – however Bitcoin is trying to break all international barriers and could be used to send a secure payment from one continent to another, with complete peace of mind and no particular authority interfering or regulating its use.
Due to the fact that individual owners of Bitcoin cannot be traced directly, this virtual currency received lots of negative press, as hackers stole millions of Bitcoin in virtual heists, requested payments in this currency in blackmail attempts and stories kept emerging of how drug dealers were using Bitcoin to get paid online.
Such illicit dealings amount only to a fraction of the overall transactions in this currency and just like any other legal tender or valuable, it can be exchanged for illegal services.
The Maltese Government seems to be monitoring the progress made so far very closely and seems ready to embrace this currency. Our country has always had the ambition to become the ‘Silicon Valley’ of Europe, in a certain way it succeeded by attracting iGaming companies, now it has another chance of repeating this success by being at the forefront of bitcoin utilisation.
Prime Minister Joseph Muscat even went as far as suggesting that Europe should become the Bitcoin continent. Earlier this year, Cabinet approved the first bill for a national strategy that promotes the technology behind Bitcoin, while the Malta Gaming Authority released a white paper analysing how its legal and regulatory framework could evolve to include bitcoin as a form of payment for online gambling sites registered in Malta. This was not only lauded in the international press covering the financial and gambling markets, but is also putting us at the forefront of this fintech revolution.
One main factor hindering more people from utilising Bitcoin is its price volatility
One main factor hindering more people from utilising Bitcoin is its price volatility.
This year alone the price of one bitcoin fluctuated between $2,000 and $3,000. The main reason behind these drastic price variations is due to its perceived value.
While traditional currencies are managed by central authorities that dictate whether fresh currencies are placed in circulation to keep economies stable, Bitcoins enter into circulation in a finite, regular amount until they reach the amount of 21 million Bitcoins. This makes Bitcoin more comparable to rare valuables like gold rather than traditional currencies.
In times of financial distress investors turn to gold as a safe hedge. The same situation occurred with Bitcoin – in fact the first massive gains for Bitcoin can be traced back to the Greek financial crisis which started in 2009. At the time the mainstream media did not take notice of the few tech-savvy investors who managed to purchase Bitcoin in order to use it as financial cover from the recession that was unfolding around them.
The rise in Bitcoin is also directly connected to the fact that more and more merchants are choosing to accept Bitcoin as an online payment facility. Typically banks charge a two or three per cent fee on each credit card transaction, while Bitcoin transactions carry no particular charge for the seller. Most notably Paypal is now accepting Bitcoin as a form of payment, meaning that one can buy anything from Ebay using a Bitcoin wallet.
Anyone wanting to start using Bitcoin can exchange some euro into this virtual currency online, by opening an electronic wallet and storing Bitcoin safely either on the cloud, or on your smartphone. This process may still sound a bit complicated for the non-tech savvy but services such as Coinbase are emerging allowing users to easily exchange any crypto-currency with Euro and vice versa.
The recent introduction of Bitcoin ATMs are taking this concept to the mainstream masses. One such ATM was installed in Sliema and became a news item – nevertheless it has to be stated that such exchanges, unlike online counterparts, carry high transaction fees, however with more competition and technical advances fees are expected to go down.
August 1, 2017 was a very important threshold for Bitcoin as a ‘hard-fork’ was planned for this day. A hard-fork is a technical term given to a software upgrade allowing for faster and more secure transactions in the future.
Uncertainty started building up before this important event, Bitcoin’s price suffered a nosedive just before this planned upgrade only to recover and reach a new record high of $3,200 once it was clear that the hard-fork had been a success and the future of Bitcoin now seems more secure than ever.
International business magazine Forbes announced the Bitcoin was on its way down in 2011, while Wired magazine, always at the forefront of technological innovation, stated that Bitcoin ‘expired’ in 2012. Other financial analysts called Bitcoin a bubble or just a craze, but none managed to correctly predict the huge success it is enjoying now.
What the future holds, no one knows, but if Bitcoin manages to sustain this growth rate, soon we will be using Bitcoin for everyday transactions, perhaps paying for a bus ride, for lunch and groceries.