Bitcoin, the cornerstone of the cryptocurrency market, is currently inching towards a new record value, but what is really driving its growth, and can it be sustained over the long run.

Bitcoin, the original “cryptocurrency”, has been on a wild ride since its creation in 2009.

Earlier in 2024, the price of one Bitcoin surged to over $70,000, this is a massive increase since a drop during the pandemic and a recent decrease where it fell to half that value in just a few weeks.

Values of other cryptocurrencies such as Dogecoin have risen and fallen even more sharply, but still hold a value position. Dogecoin is particular has seen value fluctuations often based just on Elon Musk’s tweets.

Even after the recent falls in cryptocurrency prices, the total market value of all cryptocurrencies now exceeds $2.78 trillion in 2024. To provide some context, in 2021 the total combined market value of all cryptocurrencies was $1.5 Trillion.

Virtual Objects

This is a staggering increase in the amount valued for virtual objects. Virtual Objects that are nothing more than computer code called “blockchain”.

Blockchain is a system in which a record of transactions, especially those made in a cryptocurrency, is maintained across computers that are linked in a peer-to-peer network.

As BRICS looks to create a cryptocurrency platform its appears this may be the wave of the future but should you be using and investing in them?

Do the massive swings in cryptocurrency values pose a risk to investors in the short term? It may hard to imagine a plummet of an asset expected to double by year end Does this signal bigger troubles for the global financial system and the US Dollar.

Bitcoin was created by a person or group named Satoshi Nakamoto that remains unidentified to this day. Blockchain was created as a way to conduct transactions without the intervention of a typically required trusted third party, such as a central bank or financial institution.

Satoshi Nakamoto created Bitcoin in 2009. The name "Satoshi Nakamoto" is the pseudonym for the person or group who introduced the concept of Bitcoin in a 2008 white paper. Nakamoto remained active in the creation of Bitcoin and blockchain until 2010 but has not been heard from ever since. 

Emergence of Cryptocurrency

The emergence of cryptocurrency came amid the 2008 global financial crisis. Which when presented shook trust in banks and even governments, during a time when people were already weary of both groups.

Bitcoin enabled transactions using only digital identities, granting users some degree of anonymity. This made Bitcoin the preferred currency for criminals, including recent ransomware attacks.

It powered the shadowy darknet of illegal online commerce much like PayPal helped the rise of eBay by making payments easier.

While Bitcoin’s roller-coaster price fluctuations garner global attention, the consequence and implications of finance and digital assets will set off a new generations which has already begun, for better or worse.

As the acquisition and use of cryptocurrencies grows in popularity, daily use for transactions is still not feasible. Bitcoin is still a cumbersome, slow, and expensive transaction to use as a common currency.

It takes about 5-10 minutes to validate most transactions using the blockchain process and the transaction fee is not efficient like that of most financial institutions.

Bitcoin’s Unstable Value

Bitcoin’s value is relatively unstable which makes it an unviable medium of currency exchange. It is as though your $10 bill could buy you a burger on one day and a burger shop on another day (and vice versa).

Moreover, it has become clear that Bitcoin does not offer true anonymity. The government’s success in tracking and retrieving part of the Bitcoin ransom paid confirms it can be traced.

The hacking collective DarkSide in the Colonial Pipeline ransomware attack has also heightened doubts about the security and non-traceability of Bitcoin transactions.

While Bitcoin is not a viable currency yet, it has certainly become a speculative investment. This is interesting since the asset literally has no intrinsic value and is not backed by anything such as gold or a government bond.

Bitcoins army of unpaid brand ambassadors, claim its value comes from its scarcity, like gold.

In fact, Bitcoin’s computer algorithm mandates a fixed cap of 21 million digital coins, where nearly 19.7 million have been acquired so far.

Bitcoin Supply and Demand

However scarcity in itself cannot be a source of value. Just because something is rare does not necessarily mean it has value, unless enough people demand it. This is called the supply-demand principle of economics.

Bitcoin investors seem to be relying on the “greater fool theory” which is based on the principle that all you need to profit from an investment, is to find someone willing to buy the asset at an even higher price.

Despite high market valuations a collapse of Bitcoin and other cryptocurrencies would unlikely to destroy the global financial system. Banks for their part mostly stayed on the sidelines.

As with any speculative bubble, naive investors who come late to the party are at greatest risk of losses. Governments around the world have an opportunity to caution retail investors, to let them know at the very least they act at their own peril.

Bitcoin can be considered innocuous, especially if used by bad actors. Transactions or Complex Puzzles are processed by “miners” which use large amounts of computing systems. The miners do this in return for rewards in the form of Bitcoin.

By some estimates, the Bitcoin network consumes as much energy as entire countries like Argentina and Norway, or even El Salvador which has made Bitcoin the country’s primary holdings.

This does not include the mountains of electronic waste from specialized machines used for mining operations that burn out rapidly and are discarded in landfills.

Whatever the eventual fate of Bitcoin, its blockchain technology is truly ingenious and groundbreaking which is why its miners, currency owners, and investors only see its value rising.

Bitcoin has proven that networks of computers can be harnessed to securely conduct payment transactions instead of requiring banking networks.

Payments can even be made within and between countries, without relying on avaricious institution systems that charge set fees.

Innovation of technologies that make payments cheaper, quicker and easier are better for everyone. A global payment network such as that of the BRICS nations project would benefit consumers and businesses alike, facilitating both domestic and international commerce.

Social Media and Crypto

Like all technology it is not without its risks and implications. Meta the parent company of Facebook had planned to issue its own cryptocurrency called Diem. Which it had intended to make digital payments easier for its platform users, especially with its Facebook marketplace. However Meta’s experiment with the cryptocurrency, Diem, is shutting down.

The Diem Association, which runs the project, announced the sale of assets of the cryptocurrency venture to Slivergate Capital Corporation for $182million. Launched as Libra in 2019, the project quickly ran into opposition from policy-makers. Source

The prospect of multinational corporations issuing their own unbacked cryptocurrencies worldwide is interesting and highlights the need for global industry regulation.

Such currencies won’t directly threaten the U.S. dollar, but a BRICS currency could wipe out the currencies of smaller and less developed countries.

Blockchain technology is also making many financial products and services available to the masses at lower cost, directly connecting savers and borrowers using digital assets.

These developments and the possibilities created by new technologies have spurred central banks to consider issuing digital versions of their own currencies. 

The Irony of Bitcoin

The identifiable Irony of Bitcoin, is that rather than truly democratizing finance, and bringing access to the simple investor in fact the use of Bitcoin seems to have exacerbated inequality.

Unequal financial literacy, digital app knowledge, and digital access may result in sophisticated investors garnering the benefits while those less skilled to become the losers in the game.

Less sophisticated investors may be dazzled by the new technology and willing to take on risks they do not fully comprehend. Computer algorithms can also worsen entrenched biases in credit scoring and financial decisions, rather than reducing them.

The ubiquity of digital payments can also destroy any remaining vestiges of privacy in our day-to-day lives as opposed to the sue of cash.