Bitcoin Today: International Threats and Opportunity

On September 1st, the value of Bitcoin, an online digital currency, hit an all time high of $4,950.72. Bitcoin has skyrocketed in value almost 870% in one year since September 1, 2016.coindesk-bpi-chart (1) While this peer to peer online currency has only been in circulation since 2009, created by an unknown individual using the name Satoshi Nakamoto, it has reached a current market capitalization of $66.1 Billion (as of 9/18/17). Bitcoin claims to offer a number of advantages over traditional currency, specifically not being processed through traditional banking platforms leading to lower processing fees.  All transactions are blockchain, recorded on a public ledger held within the cloud. This allows everything to be constantly up to date and leads to total transparency within Bitcoin exchanges. This is all accomplished through mining, what Bitcoin explains “is distributed consensus system that is used to confirm waiting transactions by including them in the blockchain.”

Currently, the largest threat to Bitcoin is the aggressive actions taken by the Chinese government in order to stop the trading of the digital currency. The Chinese Government has stated that it plans to close all commercial Bitcoin exchanges operating within China and has gone further saying that it will be pursuing a comprehensive ban on all trading channels including peer to peer platforms. This would be a MAJOR blow to Bitcoin as a whole and has already had a massive impact on Bitcoin’s value. It plummeted from it high of close to $5,000 USD on September 1 to just above $3,000 earlier this month. The Chinese government feels that the decentralized currency is a direct threat to their official currency, the Yuan. The graphic below displays the massive share the Chinese market has on the Mining and trading of Bitcoins. Wall Street Journal- Chinese Bitcoin Use Clearly, the Chinese are the leaders in Mining, or verifying transactions, in which miners are rewarded with new Bitcoins for their work in confirming transactions. This loss of usership will have a massive impact on the market and with a downturn in the number of miners transaction times and costs may rise making the currency less desirable. A sharp decline in volume of daily trading per currency occurred in early 2017 as China has attempted to close down the markets.

As recently as this morning, reports have been written suggesting that central banks should introduce their own forms of digital currency in order to, “to counter the risks from the explosive growth in bitcoin and other virtual currencies,” according to the Bank for International Settlements. If sovereign central banks opted to create unique national digital currencies similar to Bitcoin it would allow them to take advantage of the block chaining but also mean that individuals money could be held outside conventional banking establishments allowing individuals to bypass them altogether leading to the potential for massive losses in revenues for banks.

While it is important to highlight the potential gains for consumers by utilizing cryptocurrencies, it must be clear that they pose a risk to the conventional financial system as a whole and have large implications for the international monetary policy evidenced in China already.

Despite the threats to Bitcoin, it is apparent that it has enormous global opportunity. A poll published by Lendedu.com stated that while 78% of American have heard of Bitcoin less than 14% of those polled have ever owned the currency. One thing is very clear-cut about the currency, Americans do not know much about it. Close to 50% of those interviewed stated that they were unsure if Bitcoin is legal (it is FYI, 10% believed that it was illegal.) This information displays the vast opportunity to expose Americans to Bitcoin, educate them on the potential benefits of the currency to consumers yet allow them to be leary of the potential bubble of Bitcoin. JPMorgan Chief Executive, Jamie Dimon called bitcoin “fraud’ that will ‘blow up.” Investors believe the currency is extremely overvalued, with one expert saying it its value should realistically be cut in half.

While saying that investors are leery of the crypto-currency would be a massive understatement, the potential benefits this type of financial system cannot be understated. In today’s highly digitalized global society, the benefit of the speed of Bitcoin is a huge asset to the currency. Its utilization of blockchain, recording all transactions on the cloud, if properly protected give it a unique advantage in transparency. These aspects coupled with the low transaction costs make it very attractive for international transactions as doing business across borders with financial institutions involved can quickly become very expensive. The use of Bitcoin could facilitate small scale global trading at never before seen levels due to the ability to remove the costs and time of traditional banks. One specific area I could see Bitcoins being extremely useful in is crowdsourcing and what Amazon calls Human Intelligence Tasks. The use of Bitcoins could allow transactions to occur instantaneously making accomplishing simple tasks much more efficient.

For those interested in learning more about Bitcoin, check out the original paper by the founder here. 

Sources

  1. https://www.wsj.com/articles/china-widens-bitcoin-crackdown-beyond-commercial-trading-1505733976
  2. https://bitcoin.org/en/
  3. https://www.coindesk.com/price/
  4. https://www.wsj.com/articles/biting-back-on-bitcoin-central-banks-chew-over-introducing-cryptocurrencies-1505729052
  5. https://lendedu.com/blog/bitcoins-role-in-the-american-economy/
  6. https://blogs.wsj.com/moneybeat/2017/09/13/red-hot-bitcoin-down-for-sixth-straight-day-looking-suddenly-bearish/

 

9 comments

  1. Government regulations can have such a big impact on companies, or in this case a digital currency. If China does go through with this ban it will be interesting to see how the valuation and survival of Bitcoin is affected. If the impact is as big as expected, it may be easier for other digital currencies to come in and compete with Bitcoin.

  2. Really great, thorough post on a cutting edge topic. Well done! Bitcoin is clearly in a bubble, but it’s always hard to say how long these bubbles will last or how high they will go before popping.

  3. Very interesting post on a topic that has been on the headlines frequently in recent days. China’s proposed ban of crypto-currencies was really out of the blue (as they have tended to be in the past), but I think that Bitcoin’s price could recover back to levels near $5,000 after this temporary setback. The trend towards “digital assets” is only just beginning, and I would think demand for it will continue to grow as supply remains relatively stable.

  4. Great statistics on Bitcoin ! Truly Bitcoin has many advantages to use in business and it brought us a new version of “money”. However the risk behind is that it is hard for governments to control it and we don’t know how it will affect the economy. I guess this is part of reasons that Chinese government blocked it. Also, I have heard several other digital currencies transactions in China under a “grey” area.

  5. Hi, Matt! Great post. It was informative and clear on a subject that I find tricky. I loved your choice of video- it enhanced the quantity and quality of content you fit into this one post. I find the statistics about how much false information and how little the average person knows about Bitcoin very interesting. Overcoming this information gap seems like a major hurdle in the way of Bitcoin’s future path to success.

  6. Really interested to see if large companies like Amazon or Facebook will try to launch crypto-currencies. I know they already have semi-currency like Facebook Credits and Amazon Coins, but they are only used on those platforms. It seems logical that a large tech company could also try to act like a large digital bank.

  7. Nice post about a tough subject. One of my former roommates is really into digital currency and was a very active cryptocurrency miner (though not for Bitcoin, the processing requirements are very high) and made some decent money off it. I agree that the repercussions for Bitcoin following the China ban could be pretty steep. Bitcoin and other cryptocurrencies tend to be volatile and can be harmed quite easily by a large move like that. The video did a good job explaining this challenging topic. I was surprised to hear that they are encouraging businesses to use Bitcoin, I wonder which businesses are using cryptocurrency and how they are finding it. Cryptocurrency has been and will continue to be used for a lot of online (sometimes illegal) transactions, but it appears to be becoming more mainstream. There is even a convenience store on Comm Ave in Brighton that sells and accepts Bitcoin!

  8. Fascinating post. I truly didn’t realize how much China could impact the value of the currency, but it makes complete sense. I wonder what the implications of banks making their own crypto currencies are. While I don’t foresee any other digital currencies taking Bitcoins place right now, could a fragmentation of the market eventually render Bitcoin just one of many popular crypto-currencies? Regardless, I’m excited to see how digital currencies will become integrated in physical society/purchases.

  9. […] Source: Bitcoin Today: International Threats and Opportunity […]

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: