A few years ago if you had to mention bitcoin during a conversation, you would only receive strange looks in reply. People would probably label you a strange geek-nerd mix and try to change the subject.
Nowadays most people have heard of bitcoin, as it has been making headline news every week – Bloomberg and CNBC constantly mention its price, and an increasing number of people decide to invest in it after hearing stories of people who managed to multiply their initial investments ten-fold within just a few months.
Last year saw a massive growth, with prices starting out at around $1,000 for one bitcoin and ending the year touching the $19,000 mark. No other investment came even close to breaking these records. Economists and bankers have been calling bitcoin a bubble and many have been predicting its imminent crash and downfall.
After the Christmas period, bitcoin suffered a crash but has since recovered and is trading at around $12,000 to $13,000 mark in January.
We have heard stories of people who bought bitcoins for a few cents when they were introduced back in 2010 and nowadays can consider themselves millionaires. People are erroneously thinking that bitcoin’s massive surge will continue unabated and we have heard stories of people who sold their possessions or worse still took loans to buy bitcoins – such speculation is more comparable to gambling rather than to investing.
The sudden rise of bitcoin’s popularity has pushed the currency’s image as a get-rich-quick scheme – but irrational investment is pure speculation, highly risky and goes completely against what bitcoin’s vision as a cryptocurrency was.
Bitcoin’s original function was to facilitate online payments, without a need for a central authority, such as banks, to authorise or assist in the transfer of money. Bitcoin was intended to allow people to send money to each other as easily as we send an e-mail. It was like a dream come true for people who don’t share our financial liberties, those living under oppressive regimes could finally save money without worrying whether the government would steal their savings. People could transfer any amount without incurring any charges and best of all no one could control this new money, no one could decide to print more, thus driving up inflation.
Bitcoin was intended to become a world currency which helped the poor who had no access to traditional banking as we know it and stop exploitation.
However, these ideals soon started to fade, and people started to use it for all the wrong reasons. Money launderers and criminals noticed that it was easier for them to transfer payments for their criminal endeavours using this new electronic currency and its anonymity made it more attractive.
Luckily, today authorities worldwide started to catch up with illicit bitcoin transactions and illegalities are being tackled – this means that bitcoin is no longer the sole remit of people who used it in the early days to buy drugs over the internet. Bitcoin is becoming legitimate.
Unfortunately bitcoin has met another obstacle which is hindering it from being used as a currency for the exchange of goods and services. Its number one enemy is price volatility. Bitcoin’s price fluctuates a lot, sometimes even up to 10 per cent daily and no business can afford to have such unpredictability – therefore the number of merchants who accept Bitcoin as a payment is still small.
Bitcoin is mostly being used as a store of value nowadays and has become more comparable to gold, rather than to currencies like the euro or US dollar. Most people buying bitcoin are using it as a long-term investment rather than to buy anything. This has contributed to its breathtaking rise in price during the past few months.
Some governments are legitimising bitcoin. Japan is at the forefront, recognising bitcoin as a legal form of payment, currency and store of value, while other countries are following suit, Estonia’s government is making it easier for bitcoin related startups to open up shop and even providing them with tax incentives. Denmark, which is already one of the most developed countries in the world in terms of living standards and technology, is trying to eliminate cash in favour of digital currency and is incentivising research into bitcoin and its use among the general population.
Such speculation is more comparable to gambling rather than to investing
Malta seems to be moving in the right direction as well. During the past few years our country has earned a central position on the iGaming platform thanks to the introduction of business-friendly policies and legal frameworks.
We could repeat this success and take a central role in bitcoin use if we start embracing cryptocurrencies and businesses operating in this niche.
During 2017 a number of positive official statements were issued in this regard. In May, Prime Minister Joseph Muscat announced that a wide-ranging national strategy was to be introduced which would allow Malta to become a leader in this industry. Dr Muscat went as far as to suggest that Europe should become a bitcoin continent.
Yet the road to success is still paved with a few obstacles. A few months ago the Malta Financial Services Authority issued a statement labelling bitcoin as an “unregulated digital instrument” and stating that services in relation to virtual currencies are currently neither regulated by law nor authorised by the MFSA and recently one major bank in Malta stopped people from transferring money to and from exchange platforms.
However things took a positive turn once again as the government set up a task force which is expected to propose a framework leading to the formation of an ideal ecosystem for those willing to invest in blockchain technology.
In the meantime some other countries are growing wary of bitcoin’s influence on their economy and are trying to suppress its use in one way or the other.
China’s central bank issued a memo suggesting that authorities ban centralised trading of virtual currencies and South Korean authorities are also discussing the possibility of banning bitcoin use even though this is practically unenforceable.
Globally, analysts are looking at 2018 as being a break-it-or-make-it year for bitcoin. Some experts are stating that bitcoin is in a bubble right now and will soon explode leading to drastic price drops. Some state that this might have already happened, as bitcoin lost some of it’s value since Christmas 2017 but is now recovering.
The truth is that no one knows for sure – however we can make some educated guesses based on trends. It is obvious that society is becoming more cashless and some form of unregulated and decentralized payment system might in the future be competing with the central banking system, whether it’s bitcoin itself or some other comparable technology, cryptocurrencies are here to stay and a financial revolution might be on its way.
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