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By Kendall Jenkins on 2021-07-18 12:46:00

The year 2020 may be the year in which the dream of cryptocurrencies fades. This doesn't mean that cryptocurrencies perish entirely — far from it. But there has been a reckoning for those financial romantics who encouraged Bitcoin and the other digital currencies in the last decade. The idea of a future in which digital currencies free money from the seizures of central banks and other corporate giants is quickly vanishing. It is not that these currencies will have no role for money in the future. It is very difficult for governments to control the encoded blockchain technology they support, and it is doubtful that they will ever be removed. In all cases, they serve a legitimate function as a geopolitical hedge — witness the rises in Bitcoin and cryptocurrencies, for example, after the recent escalation of hostilities between the US and Iran.

But 11 years from the great beginnings of Bitcoin, cryptocurrencies remain far from replacing the banking system. At the time of writing, all of the Bitcoin in circulation is valued at $133 trillion; the market value of all the gold globally is around $8 trillion compared to the world's major currencies. 

There is no Fresh Hope

The so-called Bitcoin maximalists envision a day when their chosen money climbs to the highest level. They point to the 'Halvenation' Bitcoin anticipated in May – when the quantity of new coins is halved every four years – as the next event that would push price ups. But Bitcoin and other cryptocurrencies have a long-term promise in the peripheries of the financial system. The odds of a new Bitcoin are becoming slimmer: Ethera was the primary competitor many years ago before falling back on a fraction of the Bitcoin price.

More significantly, the existing system is being faced with a far larger threat—as shown by Facebook's efforts to release its Libra digital currency from the ground. JP Morgan has already issued a JPM coin for large institutional customers, and many other major banks are prepared to do so. Other technology titans like Amazon, Google, and Apple are rumored to see their competitor currencies launched.

Their concept is what we call stable coins — a kind of crypto hybrid that lives on blockchains yet is linked to common currencies. However, these corporations, apart from their link to the status quo, would challenge sovereign money.

You wish to opt-out from the cumbersome system in which you have been obliged to operate and to provide your consumers with its transaction costs and foreign payment delays instead.

Big businesses don't lean behind Bitcoin et al. because cryptocurrencies today have at least as many disadvantages as the mainstream system. For example, prices are too unpredictable to be a real store of value, yet they are not especially remarkable in processing financial transactions.

It has dawned on the business giant that they may make money part of their brand according to their goods or services — part of the client experience. Sell products and services to consumers, sure, but give them a new financial system to take care of the shopping.

Bitcoin works for itself

Bitcoin was developed in 2009 as an online payment method peer-to-peer that does not need a trusted central intermediary to authenticate and regulate transactions - such as banks or the payment gateways. Since there is no intermediary, the system limits double-spending. Users across the globe are granted access to network connections for their computers and are paid with Bitcoins for their processing power. This network system, also named blockchain, serves as a public record that documents all Bitcoin transactions, removes ability from the intermediary (banks, cards, PayPal), and gives it back to the individual who carries out the transaction. This reduces transaction costs and complete management of money so that central authorities cannot impose transaction restrictions, freeze accounts or reverse payments.

Decline and Rise

Bitcoin has experienced ups and downs since it began by Satoshi Nakamoto in 2009. In 2011, Bitcoin fell below $2.00 a few months before hitting $31. When Bitcoin hit $1,000 in 2013, it dropped to $300.

So, when Bitcoin hit over $20,000, it only made logical that it fell to $7,500. (at the time of writing this).

Does it imply that Bitcoin is going to soar again? Most likely. Most probable. Ran Neuner, a Bitcoin specialist, told CNBC that he expected that the market will float for a time and eventually rebound. Sadly, there's no way to determine if he's right.

Investment Moment

While many think Bitcoin is going back up, some who see cryptocurrencies as a whole feel they are going another way. Bitcoin alternatives, called Altcoins, have invaded the market. Many of them provide Bitcoin variants, such as other economic models, mining algorithms, and some have more or less anonymity than Bitcoin itself. In certain instances, these cryptocurrencies are worth the investment and maybe more precious than Bitcoin.

Where Bitcoin quadrupled its value in months, other currencies such as Cardano were 30 to 40 times higher than their profit. Given this, 10,000 USD invested in Bitcoin between 1 December 2017 and 31 December 2017 would produce slightly more than 4,000 USD in profit. The same amount invested in Cardano currency would have a gain of more than $54,000.

A Flaw in Consensus

I have just stated that any significant modifications to the Bitcoin source code need an incredibly high community agreement. This is a strength, but it may become a vulnerability, as we saw in 2017 during the Bitcoin debate over scalability. Too much discrepancy in the Bitcoin community may, therefore, eventually punish the Bitcoin Blockchain. This difficulty in arriving at an agreement for Bitcoin's own future and the danger poses for Bitcoin's hard fork is the price I believe must be paid for having a digital currency without a totalitarian leader.

Economic Failure

The second point frequently made by its opponents is a possible economic failure of Bitcoin. This argument considers that an unintentional person might modify Bitcoin's source code to alter existing economic laws. This would clearly be difficult and would take much effort by an entity that would damage Bitcoin. In fact, it would be hard for just a few individuals to make such a hack.

Indeed, significant modifications to the source code of Bitcoin Blockchain need considerable community agreement. This modification could not go undetected and would have no opportunity to be accepted and subsequently implemented without backing a majority of the community.


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