Bitcoin has done his duty, bitcoin may go

June 17

Five reasons to wish bitcoin dead. Or changed at least.

«Bitcoin is an innovative payment network and a new kind of money», read Bitcoin.org the peering system site. The creators of the network basics, the cryptocurrency protocol and BTC apparently believed this when the first block was generated and half a hundred bitcoins came to life, January 3, 2009. Nine and a half years have passed since and we cannot say that this was truly fulfilled. Will it though?

For cryptocurrency to become new money bitcoin and most of the 1600 altcoins (probably more, but we shall stick to CoinMarketCap statistics) that have been created up to date must go. Whereas so-called shitcoins disappearance is quite natural because the reason for their creation reminds us of the title of a book written by Linus Torvald («Just for Fun»), whereas gradual retreat of altcoins currently having real value can be connected to new more interesting projects’ emergence, the thought of the great and powerful bitcoin’s «death» (shift to the backstage probably)  would undoubtedly seem blasphemous to some.

But so it should be. Bitcoin has become prisoner to its own fame. Having ascended to the pedestal it has barely changed since 2009. Its current titles of digital gold, main cryptocurrency, etc. only harm itself as well as other representatives of the vast diversity of cryptocurrencies.

Why is it so?

We believe there are at least five reasons.

The first one we have already named. Bitcoin has not become a payment means as it had been predicted. Nor has it become better than fiat money. Nor has it become more convenient than Visa or Mastercard, though technically they are at disadvantage if compared to blockchain.

With a connection to the internet anyone can send and receive bitcoins without regard to his physical location. Bitcoin undeniably works that way. Nevertheless given the global network extent the quantity of shops and services that are ready to accept bitcoin (or other cryptocurrency, frankly speaking) is vanishingly small.

How could this be if neither borders nor distances affect bitcoin? The answer is before our eyes (even if we set aside the legal issues and oldschool economists’ point of view) and one does not have to explain it long. Low transaction speed and high volatility account for everything and are reason for bitcoin being far from becoming new kind of money. As a matter of fact let’s imagine that bitcoin is accepted everywhere. At any shop. Literally.

The result is obvious. The shopkeeper and the customer are waiting for at least 10-15 minutes for the payment to go through. And as the price is changing once a minute the shopkeeper will have to change the price-tags at the same rate. Yeah, the picture is absurd and bitcoin was not meant for such settlements in the first place, but the absurd as it is,it illustrates why bitcoin has not become new money to be used for buying goods and services best.

The second reason. Expectedly or not (for we do not know the bitcoin creators’ true plans as we do not know their names) bitcoin has become a savings mean and trading instrument. At least it was half a year ago and no one could say what will the situation become in the future. Mike Novogratz, for instance is sure that the changes for the best are imminent, JP Morgan Chase CEO’s opinion is quite the opposite.

No, bitcoin is not a financial bubble (at least because the bubble blows up and then bursts only once), but who knows for sure that the current situation at the cryptocurrency market is not a result of ten or twenty major players’ shorting.

Anyway even if this possibility is low enough this is against the expectations of those who consider cryptocurrency a new economy foundation instead of another financial toy for exchange brokers, investment banks and Wall street funds. Most of crypto enthusiasts wouldn’t want bitcoin to be the likeness of CDO. That is a naive example but Steve Eisman could have told what’s to become if it.

The third reason. It so happened that bitcoin is now nearly synonym to cryptocurrency. And that’s bad enough. The bitcoin price falls and down go nearly all the altcoins. At once.

You can’t imagine the situation when one of the industry leaders’ shares priсe would affect shares of all the other companies in the industry. Say, Apple, Google, Facebook or Samsung Electronics cap went down and with it all the IT market goes to hell? That is an improbable situation but at the cryptomarket it happens all the time despite Ripple Ethereum or EOS being a mile away from bitcoin.

This problem is of psychological rather than economical nature. An average private investor does not understand and does not want to understand that capacities of Ethereum and Ripple differ greatly from Bitcoin’s capacities. Most of the cryptocurrency exchange players distinguish Ethereum, Ripple and Bitcoin only by their abbreviations and are happy with it. This attitude, quite appropriate at Forex can’t work out at the cryptocurrency market in the long term. Buying and selling cryptocurrencies keeping in mind bitcoin means you look only in one direction.

Is bitcoin responsible for this? Directly, no but indirectly it is rather so.

Not only private investors consider the cryptomarket from this point of view. States represented by financial regulators do so as well. And this makes the fourth reason.

Last year’s bitcoin rally resulted to some extent in the authorities of the majority of countries, who preferred not to notice cryptocurrencies before, beginning to regulate and protect from scam, as they said, the investors and in essence, the central banks for whom cryptocurrency poses serious risk of monopoly breaking, because to any central bank head an alternative source of emission is the worst nightmare. How about the monetary policy? How about the refinancing rate? How about starting and stopping the printing press?

In the new economic reality all this can become not very important, specifically if you remember that in some countries inflation, that in principle should be controlled, reaches such hight cryptocurrency volatility could not dream of. Disregarding the fact that state-issued currency is backed by international reserves and cryptocurrency materially is not backed by anything.

Even more irritation is caused by anonymous cryptocurrencies. The formal reason is money laundering and terrorism financing. But if you look at it from another point of view, why should anyone apart from two users know about the transaction? Money and its use is part of personal space. We wouldn’t allow our neighbor look into our wallet even if we know that it doesn’t hold illicit profits.

And lastly bitcoin as the first cryptocurrency, namely its deficiencies has affected the social acceptance of cryptocurrencies on the whole. Cryptocurrency is not trusted. Of course hugely caring officials are to blame here. As an example remember the Polish counter-advertisement campaign started by the National bank and Financial supervision commission. Other causes stand in line. Some of them quite reasonable.

The rest of the claims against bitcoin, say, the concerns that miners are using to much electrical power seem not so important. They do pay the electrical bills after all.

Bitcoin was the first to open up new opportunities. But the time has come for it to change or step back.

DY
Yakovlev Denis
@yakovlev
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