Several guys asked me to write thoughts on the topic of blockchain and cryptocurrencies, and there really is something to understand here.
If you want to delve into this topic in more detail, then I advise you to read the book The Age of Cryptocurrency by Michael Casey, which almost more than half of which I have read myself.
A few years ago, even my grandmother started talking about bitcoin and the glorious currency that is on the rise. The hype around bitcoin was born very quickly. There were many reasons for this, and the most basic is the lack of understanding among people what kind of technology it carries with it. It was clear that it was difficult, everyone was talking about what was cool and that this was a new breakthrough, and everyone ran to buy it, just like they recently bought toilet paper in stores from the category of “I don’t know why, but it’s very necessary.”
On the one hand, it is sad that many who now hear about bitcoin or cryptocurrencies have a negative attitude towards them. Although it is quite reasonable, since the price of bitcoin burst like a soap bubble and lost more than half of its value in just a few days. In fact, behind cryptocurrencies and bitcoin is a cool technology promoted by IT steampunks as a blockchain.
What is blockade?
I suppose it will not be very interesting for the audience reading me to understand the blocks and encryption methods. For this reason, I will try to simplify the descriptive part of the technology as much as possible. At its core, blockchain technology allows:
1. Encrypt all information entered into the system
2. Validate it
3. Keep it open to everyone, but at the same time no one can understand anything that is inside
4. Keep information unchanged. It is impossible to change or delete records entered in the blockchain.
What do all these things together give? They allow you to get rid of the need to participate in the transaction 3 parties, states or banks. When you make a payment to your relatives, your transaction involves the bank and all the employees of the operational department (have access to information) in addition to you and your relative. If you were making a deal with bitcoin or any other cryptocurrency, then you would not need intermediaries. A working offline system would verify your transaction and complete the transfer. At the same time, no one would ever know that you did it.
You probably already had time to think about the fact that just such secrecy is for the benefit of not the best sections of society. And you will be right. The trade in weapons, drugs and other things successfully flourishes within the Bitcoin blockchain (any other cryptocurrency can be here). But banks and the state do not like it not for this reason, but because the data in it is closed and it becomes almost impossible to manage such a currency or society. (More about blockchain here)
The further fate of bitcoin
For this reason, almost no state is in a hurry to legalize or put them on a par with other currencies. And for this reason, the technology was liked by developers who were carried away by the steampunk direction - to make society independent of the state or the power of moneybags.
Unfortunately, the fate of bitcoin will remain deplorable, like other cryptocurrencies. Those in power will not allow any cryptocurrency to replace electronic money. It even has a perfectly good economic explanation. Even if we imagine that bitcoin would become the main settlement currency, then in any economic crisis, such as now, the whole world would be seriously affected. The currency would be uncontrolled and the state could not influence the existing methods (monetary or fiscal policy). A free fall in the exchange rate would devalue entire industries and bring total chaos to society.
Therefore, the life of cryptocurrencies is utopian and, in general, quite finite. The technology itself will develop further and will most likely be applied to music or photography, where it will be necessary to check and hold copyright for creations. As for payment systems and currencies, the blockchain also has quite serious shortcomings, here is the last example for you: it takes about 15 minutes to complete a transaction with bitcoin. You are standing in the store and waiting to buy your melted ice cream.
Is it worth investing in bitcoin?
We return to 2017 again, when all the people around were wondering that it was time to buy bitcoin. There were also those who invested at the very top and then sat in deep red for 2 years, but just before its new leap they got out, but now they bite their elbows. All this is similar to tulip mania in 1636, when a whole house with its own plot could be bought for a tulip bulb. Bitcoin is also not so long before this mark.
I would like to share my thoughts on bitcoin. Let's first of all consider its practical component. Money is a means of payment and its popularity is ensured by trust, the number of market participants and the regulator that vouches for this currency. Bitcoin does not have two of these three important components: a guarantee that there is no air behind it and the number of participants who used it as a settlement currency. There may be a contentious “trust” that has emerged amid the pandemic and the fact that it is now a safe haven for investment, but in my opinion this is only a temporary and ephemeral feeling. This currency does not inspire any confidence in me, and here's why:
The technology is really very cool, just like the idea itself to use encryption and many computers as an option to check and save transactions, while eliminating the need for a 3rd person (bank or regulator) who would check and save these transactions. But look what a thing, the technology assumes that you should have 2 components: your e-mail (public key) and your password (private key). Your password is the most important access to your "wallet", based on this password you know how many coins you have and can make transfers.
Moreover, in order to make transactions, you need to install a special terminal, connect to the system, enter a private key, and then you can make payments. This is very difficult for the average user today. Cryptocurrency exchanges appeared, which sought to simplify settlements with users and make it possible to trade bitcoin for other currencies. But simplicity is not about the blockchain system.
I also recommend that you take a look at our article about how to start investing.