Governments fear that bitcoins may replace domestic currency and then they will lose their control over money supply. Some fear that bitcoin is a Ponzi scheme.Those who favour bitcoin claim that its mysterious originator has guaranteed that its quantity will never exceed a limit.
The creation of each Bitcoin token is an elabrate process based on blockchain technology which involves ‘miners’ who solve a mathematical puzzle each time.
We can treat bitcoin as a commodity rather than money. As a commodity, it is a store of value. Had there been no coin in the name bitcoin people would not have noticed.
Bitcoin are dressed in libertarian cloak, though it is a facade. Bitcoin is produced by humans and the operation is monopolistic limiting its supply. Though a private monopoly, it could be compared to government monopoly of the currency issue.
Since then monopoly issue gets modified, as a number of other cryplocurrencies too have emerged. They are oligopolies.
Because of its exchange value, it resembles fiat currency. It is not a means of payment and gets translated back into currency so as to spend it. It is however, a store of value. Its limited use as a means of payment and its slow mining assure that it will not substitute the national currencies. It could be compared to gold which is a store of value.
However, if these tokens command trust, they could become acceptable as means of payment. It presupposes unfettered entry and competition.
Cryptocurrencies in 2018
Cryptocurrencies rose in 2017, but took a big hit in 2018. There was a huge price dip in cryptocurrencies — bitcoin, ethereum and litecoin. The end of the year is called ‘the winter of crypto’. Some say it is the ‘trough of disillusionment’, but then every new technology experiences such a trough, The underlying technology of blockchain, however, as decentralised technology did not lose its popularity.
The computing power needed to mine a bitcoin or other cryptocurrency is now sometimes costing more than that coin is worth. Mines or electricity-needy data centres are shutting down. As the demand for bitcoins declined, bitcoin’s algorithm has adjusted, and the coin is easier to mine now.
Hodler is the term for cryptocurrency investor who has decided against selling out despite massive losses. A user misspelled hold as hodl, giving rise to holder, or those who has decided to hold on to cryptocurrency.
New Cryptocurrencies
Cryptocurrency start ups such as Bitcoins have not succeeded much. These days internet messaging companies have been introducing digital coins. Prominent among these are Facebook, Telegram and Signal. They desire to enable their users to send money on the messaging systems across international borders. Facebook is working on a project where the WhatsApp users could send the amount to friends and family instantly. Telegram has an estimated 300 million users worldwide. It is working on a digital coin. Signal is an encrypted messaging service, and is also working on its own digital coin. The messaging services have very wide reach. They can make the digital wallets available for cryptocurrencies in an instant to millions of users. Most of these companies are working on digital coin. That could exist on a decentralized network of computers, independent to some degree of the companies who created them.
The current designs being discussed generally do away with the energy — guzzling mining process that Bitcoin relies on.
Messaging companies too are likely to face the same regulatory and technological hurdles which Bitcoins have faced. As there is no central authority to regulate, the system is likely to be exploited by criminals. It is also difficult to handle significant number of transactions due to design constraints.
Facebook is examining the use of blockchain for records that is shared on several computers rather than relying on one big central player like PayPal or Visa. Facebook’s coin is likely to be pegged to a basket of currencies. Facebook is in the process of integrating its properties Messenger, WhatsApp and Instagram, thus expanding the reach of its currency across 2.7 billion people.
The issue is the proportion of control Fb itself will exert over the digital coin. If each transaction is to be monitored, there is no need for blockchain. It is then a centralized system like PayPal. If there are exchanges, it will take some burden off. Exchanges will hold the digital coins and vet the customers. If Facebook does not retain control, it is difficult to make money simply out of transaction fees. Besides, it is easier for the criminals to exploit it.
Singnal’s project is called Mobilecoin.