For over a decade now, the zealots of Bitcoin have been preaching the end of government backed money and the rise of cryptocurrency. That future has not yet come to pass. But recently, the oldest and most notable cryptocurrency, Bitcoin, made the news when it surpassed $30,000 in value.
So, does this herald the imminent downfall of centralized monies?
But before we get into that, let me take a step back and answer a fundamental question: what the heck is a cryptocurrency?
I will preface this by saying I am no expert in “the blockchain,” the new-ish digital infrastructure upon which Bitcoin, and indeed all cryptocurrency is built. But that’s also a part of the problem. See, crypto relies on a lack of expertise among its user base to generate interest.
To truly be an expert in the field you would need to be an expert in about a dozen other fields from game theory to mathematics to computer science. Here are the basics, and the bare minimum you need to understand.
Bitcoin was first introduced to the world back in 2009 by either a person or a group of anonymous people calling themselves Satoshi Nakamoto. It works like this. Bitcoin software is downloaded and ran on a computer generating a “blockchain” in a process called “mining”.
These individual blockchains are part of a public record of sorts within the Bitcoin software. They both track how many bitcoins are mined by whom, and exist as complicated mathematic formulas that make forgery nearly impossible.
One big thing to understand about Bitcoin, and all cryptocurrency, is that they are not regulated, and therefore inherently volatile. Unlike government issued currency, like the dollar, no entity controls crypto.
For instance, in January 2018, Bitcoin and other cryptocurrencies crashed—hard. Bitcoin itself lost nearly 65 percent of its value within a month. Can you imagine if you woke up one day and found out every dollar you owned was now worth 65 cents? And that there was no one backing that value there to pay you back your losses?
Additionally, there is a hard limit on how many bitcoins will ever exist in the world. Eventually, the last bitcoin will be mined. Maybe that’s when the currency will really takeover the world. Of course, most predictions say that final coin won’t be mined for another 100 years.
That’s the other catch when it comes to the blockchain, with each new one that is mined, it makes the next one that much harder to extract.
All of this volatility and ephemeralness add up to a currency that is less money and more highly risky stock investment. Bitcoins are only ever worth as much as someone is willing to pay actual money for them.
Sure, there are a handful of legal goods you can purchase online with Bitcoin—and a wide assortment of illegal ones—but no one is paying off their mortgage or even buying a weeks worth of groceries with crypto unless they sell out for cold, hard cash.
And in that way, crypto has failed to become the shining, anarchist, decentralized digital currency of the future. In fact, I’d argue it has turned into another highly unstable form of wealth hoarding. Its adherents dragons seated upon digital hoards proclaiming that they have found the secret means to thwart the government, all while their online “money” is measured in real-world wealth.
The chances of us using cryptocurrency to pay our bills or buy a hamburger from McDonalds anytime soon are practically zero, and, as history has already shown, the great pillar upon which Bitcoin sits has a shaky foundation that is easily kicked away.