2017 went out with a volatile bang in the world of cryptocurrencies. As Bitcoin and other cryptocurrencies entered the mainstream, and as the bubble burst, questions about what it means for the future of money as we know it.
As we learn more about what this knew currency tech has to offer, be careful about investing in cryptocurrencies or opportunities that accept cryptocurrencies as payment. Don’t skimp on due diligence for fear of missing out.
Just before Christmas of 2017, Bitcoin – a cryptocurrency that’s been around for the better part of a decade – suddenly exploded into the public scene and reached around $20,000 USD per coin after a climb of thousands of dollars in value a day. Then, it plummeted to around $1100. Now, it’s climbing back up slowly as it has historically.
With the rise of Bitcoin came the rise of get-rich-quick and invest-now-or-miss-out mentality which caused countless people with little or no understanding of how cryptocurrencies work forking over thousands of dollars into Bitcoin. Alongside the Bitcoin craze came countless scams including malware on Bitcoin wallets, fraudulent cryptocurrencies and investment opportunities that can only be purchased using Bitcoin that appear, rise in value and then vanish, and more. These scams capitalized on the urgency to purchase of Bitcoin participants, and lack of understanding how cryptocurrencies and how investment in them work. As a decentralized currency, those who fell victim to Bitcoin scams could report the crimes to the FBI’s Internet Crime Unit, but have very little hope of ever seeing their Bitcoins again.
When the slump occurred, millions of Bitcoin owners who banked on the rise of the cryptocurrency to get rich found themselves in a panic. Again, Bitcoin has historically experienced these periods of extreme growth, crash, then gradual ascent.
Start – bitcoin scam examples, but we’re going to look at the big picture here: what is the big lure of bitcoin?
This cryptocurrency is a decentralized currency. That means it doesn’t gain its value from a central authority like a bank or government. It is also an annonymous currency so you can spend Bitcoin without your purchases being tracked. Bitcoin utilizes a blockchain to transfer value, so its users trust in the technological process and that is what makes or breaks confidence in the currency.
We rely on technological processes we don’t fully understand to possess and transfer value all the time. Every day, we literally use plastic cards to purchase real tangible items. When we use our credit cards, our bank checks to make sure the funds are there, and then transfers them to the recipient. To make this system work, users place their trust in a bank – a centralized authority. With blockchain technology, transactions are verified by Bitcoin miners, which are powerful computers. Then, the transaction is encrypted and added into the block chain.
For example, say you and your friend both have Bitcoin wallets. You are represented as a block, and your friend is represented as another block. Your blocks are not connected. If you want to send Bitcoin to your friend, the transaction is represented in the tech as a block, which gets broadcast to miners who then approve whether or not the transaction is valid. If it is approved as valid, that block gets added to the chain to connect you and your friend and complete the transaction.
The difference is banks and governments can settle disputes as a third party. We have seen that trust in the value of cryptocurrencies wavers when confidence in a perceived centralized institution declines. For example, when Vitalik Buterin, founder of cryptocurrency Ethereum, was said to be dead (which he is not), Ethereum owners pulled out to the tune of $4 billion.
Now that cryptocurrencies have entered the mainstream and so many people have skin in the game, it will be interesting to see how the pillars of Bitcoin – decentralized and annonymous – reconcile with users’ confidence in the currency itself.