Crypto-currency is the biggest creation of the digital age, asides the Internet. And Bitcoins and numerous ICOs are gaining increased acceptance worldwide, especially in China and South-Korea. Cryptocurrency has made the storage of wealth easier and expanded world economy outside of the traditional means of commerce – paper money.
JP Morgan, the multi-national powerhouse of banking, stated recently that a simple flaw in the ideology behind Bitcoin, the world’s fastest growing cryptocurrency, would soon lead to its ultimate downfall and huge loss of investor gains. This is perhaps the latest in the long line of doomsday prophecies that have trailed the rise of Bitcoin since its inception, with the bank claiming that Bitcoin will not be able to effectively deal with a liquidity crisis in the event of an economic shock.
This is apparently based on the fact that during economic shocks, central banks usually pump money into the economy to address spending shortfalls in the public and private sectors. But Bitcoin does not have this luxury due to lack of a central control and a cap on the number of the digital currency that can be produced annually.
Since its inception in 2009, Bitcoin seem to represent a paradigm shift from the normal paper economy and a threat to the existing order of economic hegemony by bankers. The Bitcoin is the first digital cryptocurrency and payment system based on peer to peer transactions without an intermediary. The basic fact that it operates a decentralized system unlike paper money represents a major shift from the natural order and means of wealth storage and transfer.
Bitcoin can be likened to a brand new economic ideology and world order almost like the BRICS economic bloc that consist of emerging markets challenging the present economic power of the Breton-woods countries. Bitcoin transactions are verified by network nodes using a process known as cryptography and recorded in a ledger called Blockchain. What makes Bitcoin so appealing is the fact that it negates the total need to carry around physical cash, as it is a decentralized system devoid of any form of middle-men and it is free from the restrictions of the normal banking system with paper money.
P-Morgan is of the opinion that one of the hallmarks of a well functioning market is the ability to provide liquidity when necessary. The role of central banks as lender of last resort is the ability to use fiat money to provide emergency liquidity from the outside. Advocates of the digital currency disagree with the banking giant however, many of them believe the standing of JP Morgan is based on the assumption that paper money can be printed anytime there is an economic crisis to stabilize the economy; they believe that does more harm than good.
Some others like Aaron Lasher, who is the chief marketing officer for Breadwallet, a crypto-currency tech company, think the present world economy is based solely on fiat money which is printed on the whims of bankers. Banks have zero incentives to manage liquidity risk because it costs practically nothing on the part of the bankers to print paper money. This according to Bitcoin enthusiasts ensures bankers sustain very minimal loss while taking on huge risks.
The CEO of Bitmex, a peer to peer crypto trading platform, gives a very valid argument in countering the position of JP Morgan on the future of digital currency. In his opinion, if printing more paper money could really solve liquidity issues in the economy, then countries like Venezuela and Zimbabwe would not have a collapsed economy right now but would be the most prosperous economies in the world. He adds that paper money only delays the inevitable; without the ability to print base money, credit extending institutions will be evaluated by the market solely on its ability to responsibly originate loans.
Bitcoin has evolved since its inception in 2009, with various brands mining their own digital currency with the use of Blockchain technology. The Bitcoin fork which produced Ethereum and Bitcoin Cash in 2017 did not deter the spread and acceptance of digital currency as the price of Bitcoin soared to almost $20,000 dollars. It slumped in late 2017/early 2018 hovering between $3000 and $4000, exciting market inspectors and speculators who described the rise of the digital currency as a bubble which would lead to heavy investor losses when it burst.
Market analysts from ICOTokensNews however disagree with the ‘bubble’ perspective, saying trends from 2010 has always shown Bitcoin rising high towards the end of the year during the holiday season and crashing early in the year before picking up momentum in the beginning of the year.
Established brands like Gemini, Burger King and Peach Aviation have introduced Bitcoin into their daily routine through development of digital apps, which enables customers to pay for goods and services with the online money. Bitcoin banks already exist in China, some parts of Japan and South-Korea where people can pay for goods and services with Bitcoin and also convert them into paper currency.
Many Chinese billionaires prefer to store wealth in Bitcoin because it is free of the restrictions of a central Bank, unlike paper money. Chinese authorities have also complained of Bitcoin being used to launder resources due to the fact that financial transactions in a Blockchain wallet (digital cryptocurrency bank) cannot be traced because of the peer to peer nature of crypto.
Cryptocurrency continues to rise amidst cries of caution and warning to investors about the collective and personal risks it poses. Venezuela recently launched its own cryptocurrency based on its natural resources of crude oil called the Petro, the latest in a series of attempt to evade economic sanctions and revamp its dwindled economy. Critics claim that the plan will not work because the digital currency is supposedly backed by non-existent crude reserves, hyper inflation and centralization. Whatever happens to Venezuela, it is a big step which other nations will soon follow suit.