Why is everyone so fussed about Bitcoin and co?
words by Yolisa Mkele
Over the past week or so, tech billionaire and Bond villain in disguise Elon Musk has had Investor Twitter losing its mind over Bitcoin in particular and cryptocurrency in general. From something as simple as adding #Bitcoin to his Twitter bio and using his following on the social media platform to encourage the sale of Dogecoin, to pumping more than R200 billion of Tesla’s money into Bitcoin, his influence over the price of tech stocks has once again imbued these currencies with trending social media and news status. The thing is, for those of us who may not know very much about the world of stocks and the like, one simple question keeps floating across the mind. Just WTF is cryptocurrency?
Well, according to Forbes.com, “cryptocurrency (or crypto if you’re cool) is decentralised digital money, based on blockchain technology”. For the everyday person what that basically means is that cryptocurrency is a form of money that is not controlled by any central authority (unlike traditional money) and that uses blockchain technology to permanently verify and record each transaction. Trying to explain blockchain is a little like trying to demystify the quantum mechanics of Dark Matter, but according to Forbes, at its core blockchain technology in crypto is a freely available ledger that records every transaction. When used in a decentralised format, as most cryptocurrencies do, no one can alter a verified transaction, which happens instantly. In essence fraud is impossible.
Bitcoin was the first of the cryptocurrencies. Birthed by the mind of Satoshi Nakamoto, the presumed pseudonym of the person or persons who wrote the paper that served as Bitcoin’s primordial ooze, the aim of the currency was to create “an electronic payment system based on cryptographic proof instead of trust”. Apparently he/she or they were fed up with the idea that the value of all “real” money is essentially make believe. Once Bitcoin came into being, others like Dogecoin, Etheryum, Litecoin and thousands of others followed suit and it was not long before their values in traditional currency were rising and falling like a drunk wearing rollerblades.
At its genesis, cryptocurrency was supposed to be a way to democratise money and allow people to purchase everyday goods. That hasn’t happened. Despite the fact that Tesla has announced that you will soon be able to buy some of their products using Bitcoin, one cannot really buy everyday goods. In a piece written for Fortune.com, former Bitcoin acolyte Alex Pickard explains that essentially, Bitcoin is only really good if you want to buy extremely expensive items because of its high transaction costs.
So why are people going so nuts about it? In short: wealth hoarding. Most major investors these days are not looking at it as a way to move away from traditional currency and buy their groceries with crypto, but as a haven to accumulate more wealth in the same way that some still do with gold.
With the value of a Bitcoin having grown from about $4000 (roughly R57,000) at around this time last year to more than $40,000 (more than R570,000) as of last week, it is easy to see how alluring it is.
There you have it folks, crypto in a nutshell. Now the next time, you get approached by a finance bro at a socially distanced braai, both you and them will have a topic you can passionately bore all nearby listeners with.
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