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Bitcoin Used To Be Innovative

What could have been world changing has become a commodity

29Nov

Bitcoin recently passed another milestone. A single Bitcoin is now worth over $10,000, which is a huge jump from only 7 years ago when it was worth just $0.06. In 7 years Bitcoin has increased by 16666566% and this huge increase (in 2017 alone it has grown 903%, from $997 on January 1 to over $10,000 in November) has seen a huge influx of investment in the cryptocurrency.

These huge investments in Bitcoin are the only reason for the price rocketing so high. It is the definition of a bubble. Essentially the value of Bitcoin is that Bitcoin is valuable, and that's it. Bitcoin is deliberately finite, with a total of 21 million being created, after that no more will be made, so, much like Gold, as more people own a larger amount, the value increases as the chances of owning more decreases. However, unlike gold, Bitcoin is intrinsically useless unless you want to buy specific things with them that you can equally get through regular currency, which the vast majority of people don't want as it can only be used in a tiny proportion of places.

Bitcoin, Ethereum, and any other cryptocurrency currently experiencing a boom started out as an innovative idea of a decentralized currency, seen as kind of punk currency outside the realms of traditional financial organizations. However, what we are seeing with this huge rise in Bitcoin value is the exact opposite - it is now less of a currency and far more of a commodity, making the potential for innovation considerably less.

This increase in value has also meant that people who genuinely want to use it to buy things in a similar way to regular currency or try to use it for new ideas would actually be stupid to do so. Holding the currency and then transferring it to regular currency makes a huge amount more sense than spending it, as in the last 30 days alone the price has increased by 77%. So rather than spending Bitcoin, people are simply hoarding them. During a time of huge demand this then further increases the price and further increases the likelihood of hoarding.

With Bitcoins being hoarded and their value increasing to more than 12 times the price of a gram of 24 carat gold, the ability to use them innovatively decreases considerably and at this point they are nothing more than a commodity to be bought and sold rather than used. One of the key elements to innovation is openness and access to the materials needed to make something work, so a genuine marketplace where Bitcoin is used as intended simply wouldn't work because the only thing that people seem to want to trade their Bitcoins for today is real money.

It means that the only people who can afford to use Bitcoin are people investing in it - the same people who view it as nothing more than a commodity. This ironically means that the actual useful value of Bitcoin diminishes as its monetary value increases. We are seeing that the 'success' of Bitcoin is nothing to do with transactions, pushing e-commerce forward, or moving financial power away from incumbents. Instead, its success comes from those who invested in it and made huge profits. The other element of Bitcoin that makes it innovative is the ability to trade it openly through decentralized ledgers, something which needs tech expertise and computing power.

In order for Bitcoin to operate there needs to be people 'mining' which essentially means clarifying the trades being done. According to a post by Wes Finley, a Bitcoin trader, a Bitcoin miner that he previously used in 2013 would make around 2.48 Bitcoin per month clarifying these transactions. In today's money that would be around $24,800 mined per month, but today the same amount of computing power produces just 5.6 cents per day or around $18.2 per year, so the very people who need to work to make this hugely profitable cryptocurrency work have very little reason to actually make sure it does, unless they already own Bitcoins. Even then, because they hold little value in terms of actual transactional currency, their interest lasts only until they sell their Bitcoins for real money, then their motivation for keeping the system going is gone.

However, this is just the reality in which we live today, Bitcoin genuinely had the opportunity to have a huge impact on the world, but because of the 'value' it has, the potential is unlikely to be fully harnessed. It is always going to be the problem when the 'success' of something is not measured in what it's actually done, but in how much money it has made for people within it. Unfortunately Bitcoin did not really have the opportunity to do everything it had the potential to do before this became the case, but hopefully in the future we can avoid making this same mistake again. 

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