Editors Note: In the past blog post “What’s Behind The Bitcoin Craze” , I was sharply critical of Bitcoin. Today, I am making space for an opposing viewpoint. M.P.
Busting Three Myths About Bitcoin
by Lucy Lane
Bitcoin is the buzzword in a vast majority of media circles these days, with Nobuaki Kobayashi (attorney and bankruptcy trustee for former Bitcoin exchange, Mt. Gox) announcing this week that he has sold around $400 million worth of Bitcoin and Bitcoin Cash in the past five months. With his Bitcoin sales fetching an average of $10,105, questions arise as to common myths warning consumers against the potential risks of this non-state currency. In this brief post, we present just a few of the most prevalent myths.
Myth One: Bitcoin is Doomed to Fail
Allegations are often made that Bitcoin is either overvalued, or that it has no inherent value. Bitcoin does have a value, even though it is a perceived one. Investments in precious metals are often made despite the fact that they aren’t backed by anything, yet the value of these precious metals is real because there is a demand for them.
In an article on Bitcoin by Deutsche Bank researcher Jochen Möbert, it is noted that Bitcoin is not overvalued for various reasons: firstly, it does not require refinancing, which removes a big element of insecurity for investors. Secondly, because it is part of a decentralized system, it holds up more strongly to attack. Thirdly, Bitcoin could just be another instance of how technology can change the society and economy. Möbert notes that “valuation of bitcoin is a bit of a challenge: you are effectively trying to determine the value of an alternative monetary system which might change the value of the traditional valuation system itself if it turns out to be a success.”
Myth Two: Bitcoin is Unsafe
Bitcoin can reduce the risk of instability because it is decoupled from government, and is as such not subject to individual policy changes, war, election cycles, and the like. As noted by Forbes, this currency can be seen as “a way to diversify government risk by consolidating currencies into one uniform or international measurement.”
Risks are also small when it comes to gauging cashflow from a potential Bitcoin miner. In essence, by watching out for key metrics (including price, hash difficulty rates, kilowatt per hour paid by the miner for electricity etc.), it is easy to assess how much Bitcoin a data center is capable of mining on a monthly, weekly, or even daily basis.
As for fears of currency being stolen digitally, there are various ways that Bitcoin information can be made much for secure than credit card details. These include printing out a ‘paper wallet’ and leaving no digital trace, and ‘hardware wallets’, which store your private keys in a secure hardware device.
Fears of Bitcoin’s relative infancy and fluctuation are often mentioned, though the technology is already being widely adopted across the world and with demand growing, it may only be a matter of time before it is firmly entrenched in society.
Myth Three: Bitcoin Will Disappear when Regulators Intervene
Breaking news is that the value of Bitcoin has dropped to below $10,000 after the U.S. Securities and Exchange Commission (SEC) announced it would require digital asset exchanges to register with it a few hours ago. “If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration,” noted the SEC in a public statement just a few hours ago.
The extent to which the requirement for registration is tantamount to regulation, remains to be seen. Because Bitcoin is a decentralized currency, it can move from one jurisdiction to another easily. Introducing global regulations at this stage will prove difficult, because different countries are already taking vastly different approaches to regulation. Thus, countries like Canada, Switzerland, or Japan are veering towards the establishment of Bitcoin-friendly environments at the same time that the SEC is showing its power in terms of attempting to safeguard investors against unregulated exchanges.
Since bitcoin is still in its infancy, many myths are likely to arise. Since we don’t know the extent to which this currency change society (as we did not know how programmable computers would vastly change the way we live today when they first appeared in the 1930s), we should continue to voice our concerns and pose questions, while being open to the value of a decentralized currency that can offer greater stability, but can also co-exist with traditional financial institutions and payment systems.