Bitcoin is not really valuable, it is just a number on a computer next to your name. It is just an illusion, not backed by anything or anyone. People who buy into it are credulous fools. This is the sort of thing we hear crypto-sceptics preach all the time, including very prominent people in the world of finance, such as Warren Buffett.

The funny thing is, they are technically right. Even though a euro coin or banknote is a tangible, physical object, the value that they represent is not. Euros are not backed by anything other than the faith of those who accept it as payment: the only difference is that, for the moment, the illusion of ‘normal’ (i.e. fiat) currency is more widespread than that of cryptocurrency. Indeed, most of the money in circulation in the world, over 96 per cent of it, is not physical, but stored abstractly in electronic form.

The reason financial crises like the one from 2008 happen in the first place is the result of the flaws in the illusion of fiat currency, particularly those who keep up the charade: banks and governments. When people put money in a bank, the bank relies on the fact that most people will not want to take it out right away, this allows it to give out loans with the money you invested (effectively creating money out of thin air, since on paper, your money is still in the bank). Cryptocurrency aims to be a ‘digital gold’. It is scarce (there can only ever be 21 million bitcoins) and it needs to be ‘mined’ (digitally). Unlike fiat currency, it does not depend on institutions which are prone to corruption and manipulation. It has the potential to become the new gold standard.

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