Is the cryptocurrency Bitcoin a good idea?

Bitcoin is far more than a good idea. Everything is about to change and you have the opportunity to bear witness.

Today, people who have access use the Internet for what it is and at present it is a gateway to a vast information network call the World Wide Web [1]. Both the Internet and the World Wide Web are still in nascent stages. As such they are advancing with constant flux. What’s irrefutable are the indelible impressions that it leaves on all those who interacts with it. Roughly 3.5B people by the end of 2018—a 50% global penetration—are online. Given the rapid proliferation of mobile devices, the second half would take half as much or maybe less time as the first half to get online. The implications of 7+ Billion connected minds will inject significant, sweeping transformation to the digital economy, marketplaces, business, and competition. Most of the people coming online will not have access to banks and banking services. However, we know that they will ultimately contribute immense value to the world. The problem is they have no honest vehicle with which to inject their contribution.

This sets our stage.

In 2008, the group or individual known as Satoshi Nakamoto published a white paper [2] that would usher an entirely new digital era and solve this problem. The white paper detailed a methodology for transferring digital money across the web securely using cryptographic proof instead of trust by way of a peer-to-peer network. In other words, Bitcoin provides a scalable, decentralized, and secure solution for exchange via the web without an intermediary. It accomplishes this by maintaining a peer-held public ledger call a Blockchain where all Bitcoin transactions on the network are recorded and encrypted. The Blockchain serves as an authoritative reference to every transaction and prevents double-spending. With this master stroke, the digital economy is furthermore inclusive and gains entirely new grounds on which to operate. In process, the solution proposed in Bitcoin resolved a number of other key “trust” issues when dealing across the web and also introduced a host of other creative applications.

Today we are still working with the World Wide Web. Tomorrow, smart contracts and cryptographic value chains in Bitcoin’s stead will let us get closer to people and what they output—the World Wide World.

..and so the saying goes “There are 3 types of people in the world. One makes things happen. Another watches as things happen. The last have no idea what just happened.”

As far as Bitcoin and Alts go, don’t be the last one.

Original question: Is the cryptocurrency Bitcoin a good idea?

Well, yes -Bitcoin is an amazing idea, and here is why:

• It is a currency aims to avoid the monopoly of governments and corporations. Bitcoin was looking for decentralization - a system in which users get control over a network and there is no entity of any kind ruling over this currency system. Isn’t that a great idea?
  Currently, there is a handful of central banks that are printing fiat currencies worldwide. These banks often manipulate the markets through their interest rate changes, quantitative easing programs/ tightening measures, promotion of credits and debt, etc. Even the governments cannot control their own money, as the central banks are often managed and controlled by private faces. Bitcoin was meant to fight central banks, and this is a brilliant idea.
• It uses the distributed ledger technology or blockchain, which is a revolutionary system that ensures security, transparency and speed of transactions and exchange of data. Blockchain is a database that is shared among multiple servers/users in many different places. Every update in the system is reflected automatically in all the database replications. If some hackers would intend to attack the database, they would manage to hack up to several servers, which wouldn’t damage the integrity of the database as the rest of the replications would still confirm the real situation. Thus, it’s almost impossible for Bitcoin to get hacked. I say almost because there are some nuances, mostly related to quantum computers and miners’ monopoly.
• It was meant to be a currency that is not prone to inflation. Today, the USD has lost about 96% of its purchasing power since 1913, when the Fed was created.

This is because the Fed always prints money and throws it into the market. Bitcoin cannot be inflated as it uses a special algorithm and its supply is capped at 21 million coins. Currently, there are over 16.5 million coins.

• You don’t have to share your personal information and go through tons of procedures to make Bitcoin transactions unless you plan to do it via crypto exchanges, but they have no direct connection with Bitcoin’s blockchain.

So, Bitcoin is a great idea in general, but in practice, things are a bit different. Even if Bitcoin is said to be decentralized, it’s actually controlled by a few miners, as the top 5 mining pools have about 70% of the hash power. Also, the distribution of Bitcoin shows that there are only a few rich people holding most of it.

Bitcoin has exploded in price because investors used it to generate profits rather than buying it for its functionalities. It became an instrument for many speculators, which damages its reputation as a currency of fairness and freedom.

The idea might be great, but the human factor generally destroys every good idea. Em2 might be a good idea/discovery, but what about the atomic bomb?

My Views on Bitcoin. 25-09-2017

Introduction to Bitcoin:

When I read about Bitcoin, I was amazed at knowing that there existed an electronic currency and that there are millions of users worldwide who are using a medium of this electronic currency called bitcoin. I was shocked to know that in the beginning or the early years of bitcoin, 10000 bitcoins were used to simply order a Papa Jones pizza. I bet the one who ate that pizza must be really disappointed at the price he paid for a pizza which would have been amounted to $39289900 ($39 Million) today. Can you imagine a pizza worth 39 million, he could have bought the entire Papa Jones Pizza chain if he wouldn’t have had that pizza and would have kept his bitcoins intact.

Now, getting a little serious, let’s talk about what I know to be bitcoins (These are my understanding, they may be wrong or inaccurate). Bitcoins is an electronic currency. Now what is an electronic currency? Ok, many of us would be having bank accounts right, now, many of us would be using the net banking facility wherein we make payments online from our bank account to a vendors bank account against receipt of goods or services, in this transaction, we don’t actually exchange cash issued by the central bank, but instead what happens is, the said amount reduces from payer’s bank account and that same amount is increased in the bank account of the recipient, resultantly, the money in the economy remains the same. Do you think that our banks actually exchange cash with the vendors banks, no, this transaction is executed by merely updating the electronic ledgers (Ledger is a record book that records information of transaction between parties, parties in our case are the banks) of the said banks wherein the payers bank reduces the said amount while the recipient bank increases the said amount and in addition, the said entry is also updated in a ledger maintained by the Central Bank. Hence, no real exchange of cash occurs between the two banks, simply their records are updated on a daily basis. Thus, the actual currency that is circulated physically (i.e. in the form of cash) in a country is way less than the currency being circulated in total in a country, usually this physical cash is 10% of the total currency in a country like India. Now, we can say that the currency in non-cash form is a form of electronic cash or electronic currency. Thus, we are already using our own currency in an electronic form if we are using facilities like net banking, debit cards, e-payment wallets etc. Now what is bitcoin, bitcoin is the same form of electronic currency, but the only difference is that it is not available in any form of cash, but is only available in electronic form, which means, we cannot get a paper which indicates that a central bank promises to pay the bearer a sum of 1 bitcoin. Bitcoin is 100% electronic and its existence is purely based on the ledgers or the records that are updated every second like the records that are updated by our banks and the central bank. Because, our banks update their ledgers and the Central bank updates its ledgers, we can fairly and squarely say that, our Central bank regulates our currency by ensuring in its master ledger that no false transactions are recorded in any of the bank’s ledger. Now how does a Central Bank regulate a currency, regulation of a currency is done by passing laws, putting restriction, giving loans, issuing cash, giving credit etc.

So if Bitcoin is an electronic currency just like our money in our bank accounts, then what is the difference between Bitcoin and our currency also known as a fiat currency? What is the difference when both are in an electronic form? The difference is in the following ways:

1.

Transaction Intermediaries: In our currency, when we transact by sending money from our bank account to someone else’s bank account, what happens is that two intermediaries participate in this transaction. These two intermediaries are the payer’s bank and the receiver’s bank. In our transaction, we order our bank to make payment of our desired sum from our bank account to the recipient’s bank account and the recipient bank receives the said electronic payment on behalf of the recipient. Thus, when two people transact, there are actually 4 parties that come into picture namely, the main parties i.e. payer and receiver and the intermediaries the payer’s bank and the receiver’s bank. In the case of Bitcoin currency, what happens is the elimination of the intermediaries i.e. the payer’s bank and the receiver’s bank does not play any role in the transaction. The currency is directly transferred from the payer to the receiver. This is possible because of the blockchain technology (I will come back on this later). There is an advantage of Bitcoin users in this scenario, if a value is transferred from one person to another, no third party, no intermediary, no government, no FBI, no Interpol, no regulatory authority would be flagged in any manner or would come to know about this transfer of value as no third party is involved in this transaction. This makes Bitcoin a heaven for those who wish to evade taxes, who wish to launder money, who wish to store value without hiring a locker or keeping bodyguards around to protect wealth, who wish to sell contraband items like drugs and arms. These people would prefer selling their stuff for bitcoin, as they know that their proceeds are safe with them and that they would not be caught because no authority except the two parties involved knows about their transaction. Let’s say that Mr. A bought a house for Rs. 100000 in 2001 and Mr. A sells that house to Mr. B for Rs. 400000 in 2017. Mr. A receives the consideration in 2 forms, Bitcoins worth Rs. 300000 and a bankers cheque of Rs. 100000. Mr. A will report in his tax papers that he has sold his house in a no profit no loss price of his cost or less than his cost (considering indexation benefits), this will help Mr. A from paying capital gains taxes on the gain of Rs. 300000 received through Bitcoins. Mr. A being conservative would go to a commodities trader and ask him for physical gold against bicoin and will buy gold worth Rs. 300000 against his bitcoins. Thus Mr. A will buy unaccounted gold worth Rs. 300000 and also save capital gains taxes from his sales transaction. The income tax department will not be able to prove that Mr. A has received any other consideration over and above Rs. 100000 in cheque (unless ofcourse they search his home and find unaccounted gold worth Rs. 300000, which Mr. A would say that is of his ancestors and that he would be happy to pay inheritance tax if any).

2.

Ledger Maintenance: We read above that when we transact in our local country currency, we are compelled to involve the intermediaries i.e. our banks. We understood that our banks are needed, because, these intermediaries are the institutions who keep our money in the electronic form by regularly updating their ledgers. Now how do they update their ledgers? Do they do it after every transaction? No, let’s understand this with an example, say that we have total 2 banks in our country namely A and B, and both banks have 1000 customers each who transact with the customers of other banks. What happens is that at the end of the day, both banks sit together with their ledgers and calculate the amount payable by bank A to B and the amount receivable by bank A from B based on the transactions made by the customers of these banks. If the amount receivable by A from B is more than that of the amount payable by A to B, then the net difference between amount receivable by A from B and the amount payable by A to B is the net amount of increase in the books of A while the same is reduced in the books of B and vice versa. This ultimate net transaction is recorded in the books of the Central Bank which keeps the records of the banks in a country. In the bitcoin transaction, the reason we don’t need banks as intermediaries is because, the ledgers are updated by the nodes or miners who verify and authorize a transaction. The updated ledger of bitcoin users is declared and the updated ledger of all bitcoin users is informed to every bitcoin user after every transaction. This means that no bulk or net settlement is required in the bitcoin universe, why is it not required is because every bitcoin wallet holder is like a bank of our system and every transaction between users is like a transaction between two banks. After every transaction, the records are added in the public ledger which is in the public domain. Every transaction is systematically updated in such a manner that no duplication or double use of balance happens by any user. E.g. A has 10 bitcoins and A transfers 5 bitcoins to B and 10 bitcoins to C. Now the technology is so designed that after the first transaction from A to B, the ledger of A is updated to 5 bitcoins by reduction of 5 bitcoins in his balance and the ledger of B is updated to 5 bitcoins by increase of 5 bitcoins in his balance. After this first transaction by A to B, the updated balance is verified and is declared as an update to the public ledger that is being maintained in the hands of every bitcoin user. After this update, the second transaction of A to C of transfer of 10 bitcoins will be rejected as every public ledger will declare that as per their updated records, A does not have sufficient balance to transfer 10 bitcoins to C, as the updated ledger clearly indicates that the balance of A is merely 5 bitcoins after the first transaction from A to B. This settlement system is extremely precise and is so accurate that A won’t be able to do any kind of fraudulent transaction over and above its balance. This idea and execution of accurate public ledger maintenance is the blockchain technology.

3.

Privacy: In our currency, the electronic form cannot be privatized from the eyes of banks, regulators and the government. If we have a bank account, our bank knows how much money we have in our account and what transactions we do using those money, our government knows it, our government is informed by the banks for every transaction that surpass a certain amount as the banks are legally bound to report so. A person holding more than a specific number of bank accounts is also flagged and the government is informed about the same. Bitcoin is way more private for its users. Every bitcoin user is provided with a public key and a private key to their bitcoin wallets. These keys are alphanumeric codes that are unique for every wallet. A user may have as many bicoin wallets as they want, hence there is no restriction in the number of accounts that a user wishes to maintain. And no one can know from the public key about the owner of the bitcoin wallet. The privacy of bitcoin is one of the many reasons why people doing illegal business prefer it to be a utensil of value, they very well know that the first rule of doing an illegal business is to not get caught, and they try all the measures to secure their privacy, one such preferred measure is to accept bitcoins as a medium of cash because of its privacy feature.

We read about the introduction of Bitcoins and the basic understanding about bitcoins that I have. We also came to know about the advantages of bitcoins when we tried to find the difference between bitcoin as an electronic currency and our fiat currency as an electronic currency. Let us move on to why I feel that BITCOIN is BOUND TO FAIL and why I feel that such failure will be another lesson for the world to know how gullible the people are.

1.

Advantages of Bitcoin: As I described before the advantages of Bitcoin makes it a utensil of value for people who wish to pursue illegal businesses. This will in long run invite government intervention and regulations to keep a check on circulation of these utensils. Bitcoin is too private to be owned and hidden from a government that has an army and a defense budget going into billions of dollars every year. If bitcoin will come in the way of government’s motives to curb crime, it will not take more than a signature of the president or the prime minister to pass a regulation to ban this crypto currency, resulting into the downfall in its price. Because of its grave advantages, a government might presume that whosoever holds bitcoins or deals in bitcoins is involved in any kind of illegal operation and may try to point all the holders or traders of bitcoins to instead prove their innocence.

2.

National Currency Vs. Global Currency: When a country issues currency, the said currency is owned and regulated by a powerful institution known as the government. Apart from regulating its currency, government has power to impose taxes on people. This power of imposing taxes is the power that can nationalize the efforts of the people of the country. Governments take several measures to ensure that the currency of their country is valued according to the needs of the country. They control the interest rates to ensure required liquidity so as to keep the economy stable and growth oriented. Bitcoin is not regulated by any central government but by a software that mathematically controls its supply. The supply is predetermined and the time is also predetermined. A fiat currency has the backing of a powerful government behind it, the people who are in power in the government have their interest in the economy being stable, this self interest will ensure that the government takes necessary steps to keep their currency stable in value. If the economy plunges, it becomes hard for the people in power to get re-elected. Thus the entire system of fiat currency is designed in the manner that its volatility can be controlled to a certain extent. Bitcoin on the other hand has no governing body. Its value is purely based on the number of users using it and the pre-determined supply. Imagine if all the Bitcoins ever mined are bought by 1 person, will it hold its value? No. That 1 person will be the most unluckiest person for he would have spent a fortune in accumulating something that is not backed by any powerful agency and it has no secondary market. To be frank, Bitcoin is an illusion of value, it’s just a number in an application and this number derives its value because many people think that it’s valuable. It’s not gold, silver or diamond which will find its value in the secondary market, if not in the primary market. It’s not a legitimate currency issued by a powerful country and backed by the same. It’s simply valuable because so many people have made a huge investment to become miners and these people feel that they are doing a valuable job running their machines.

3.

Heaven to Money Launderers and Tax Evaders: As we read earlier, the advantages of bitcoins are majorly exploited by people who are involved in illegal operations of any kind or who wish to evade taxes from gains in transaction. Bitcoin is heaven for them. Taxes are the only sources of revenue for the mighty government. Taxes are the only source of income for government. When the Government will realize that a tool is being used that is causing their treasury to remain empty, it will start its witch hunting and this will be a deadly witch hunt. You may kill a few solders and you will be spared but you try to take away power from the powerful and you shall see the fury like no other. If I can evade 25% of capital gain on Rs. 300000, it amounts to Rs. 75000 and all I have to do is take my receipts in bitcoins and to avoid any speculative loss simply sell it against gold or any other financial instrument off-shore or I can help someone else evade his taxes by buying his property using my bitcoins. Now my profit of Rs. 300000 in a property in India is a meager token amount, the real gains goes into crores, imagine if the gain is no just 300000 but Rs. 30 million. Thus, this 25% of tax evasion is compounded with every transaction that involves bitcoin as a medium of exchange. Governments around the world would soon realize this and would in no case tolerate this. China has started realizing and so will other countries.

4.

Threat of new Crypto currency: Just as we learnt above, that the value of Bitcoin is derived because so many people agree to the value. As other software developers realize the potential, they may develop such other cryptocurrency based on the same blockchain technology. This will lead to introduction of so many different cryptocurrencies and people will keep on shifting to every new currency that has low value initially but will have the potential to become big just like bitcoin. This will lead to busting the bubble of bitcoin crashing its prices due to the shift. This crash will result in distrust of people on such cryptocurrencies and will eventually lead to the crash in every crypto currency. As I am writing this, I found that there are atleast 100 crypto currencies in the market in existence. Bitcoin, Ethereum, Ripply, Dash, Litecoin are few (https://coinmarketcap.com/). The bigger this list gets, the riskier, these kinds of instruments become. If a software developer can create a valuable commodity, just by writing a programme, then there are millions of coders and software developers who can make a million cryptocurrencies.

5.

Mining community: An important reason for bitcoin being so valuable is because of the mining community. Miners are the people who play the role of Nodes who verify and authorize transactions and thereby help sustain and update the public ledger. Miners are like the Central Bank for bitcoin users. Now for the purpose of authorizing and verifying a bitcoin transaction, these miners have to deploy huge computer processing power to solve difficult mathematical equations so as to approve a transaction. So as to deploy a processing power, these miners have to buy and invest in huge GPU (Graphics Processing Units or lets say, expensive processing units) and these GPU’s require a lot of electricity to function. All this adds to the cost of mining process. These miners bear these costs because, as a return against verifying the transaction, they get a fractional bitcoin as their processing fees. For miners to make profit, these fractional bitcoin should have a value more than that of the cost they bear. However, the supply of these fractions is limited in such a manner that only 12.5 bitcoins are issued every 10 minutes. If the number of miners increase, the fractions reduces as the supply is limited, and these fractions will further reduce because, every 4 years, this supply would be halved so as to create an artificial scarcity. The only reason why miners continue to mine bitcoins is because its value keeps on rising, making the fraction mined to be profitable. If the value of bitcoin plunges, this fraction earned will no longer remain profitable and the miners will be losing money for the cost they incur to mine a bitcoin. Personally, I feel that the GPU makers are playing a big fraud on the customers of their products. If mining would be extremely profitable, then the manufacturer would use the products to mine bitcoins himself rather than to sell the processors. It’s common sense that if a tool can make me earn a substantial sum, the tool maker would not sell the tool, but would use it, if I get the plates to print money, would I be fool enough to sell those plates?. Also, if a group of miners feel that the value of bitcoin is stagnant, they may shift to mining some other cryptocurrency which is new and still a bit cheap.

6.

No Fundamental Value: Bitcoins don’t have any fundamental value, not even an artistic value. A painting of a famous artist is valued because art curators value that art, the day majority of these art curators shift to some other art, the value of their curated value drops to a great extent. Still, a painting has a form, it can be seen, touched and felt. There exists no such base for bitcoins. It’s value will remain and grow until its users or believers remain in greed, ignorant, avoid rationality and remain stuck to delusion. The day majority of these users come to their senses and rationality and realize that what they are holding onto is merely a number in an application, they will start selling their bitcoins consequently crashing the currency. Only those who come to their senses early and will exit early may save their money. Once panic selling starts, the fall will be drastic and no government will be able to bail out anyone, they will simply laugh it off. It being a global currency will have the same impact in every country. If a person invests in gold and if the gold market in a particular country deteriorates, then the owner of such gold has the opportunity to get a good value of his gold in some other country, however, this will not be the case for bitcoins, once panic selling starts, every country will start dumping their balance and the one who will be stupid enough to buy then would be the biggest loser. Many of the believers of Bitcoin have not heeded to the lesson of 2007-08 housing crises. The CDO’s (Collateralized Debt Obligations) had a base of the inherent real estate that was mortgaged, this real estate was physical, tangible and though it was inflated in value, it still had an inherent value. There was one more instrument called Synthetic CDO’s which had its base in CDO’s, if the CDO’s failed, the Synthetic CDO’s would also collapse, now this base was less tangible, less physical, and had less inherent value. Bitcoins are even worse than the synthetic CDO’s because they don’t have any base at all. The survival of bitcoin can be purely because there is no clause of interest payment to the holder of the Bitcoin and hence there is no chance that Bitcoin would default. The only return that a Bitcoin as an asset can provide is the return of capital gain in its value and the return of taxes evaded using it (Which is substantial btw, though illegal). If I can evade 25% of capital gain on Rs. 300000, it amounts to Rs. 75000 and all I have to do is take my receipts in bitcoins and to avoid any speculative loss simply sell it against gold or any other financial instrument off-shore or I can help someone else evade his taxes by buying his property using my bitcoins. Thus, this 25% of tax evasion is compounded with every transaction that involves bitcoin as a medium of exchange. Governments around the world would soon realize this. Thus with bitcoin being a medium, an illegal tax evasion is the only return that a user can get apart from its appreciation in price. A country with higher income taxes and capital gain taxes will be the place where bicoins will be most preferred and valued and that country would lose a lot of income because of this currency. Though this tax return is high, it is basically, tax evasion and though it sounds like a smart thing to do, it’s more like stealing from the government.

7.

No Security: Government security is not available to protect gullible investors of bitcoin. There is no gold deposit reserves, there are no diamonds, there is no receivables of debt based on which this currency is issued, the only security is mutual trust of users and this kind of security is an extremely weak kind of security.

8.

Competition to powerful nations: Every country and the managers of country wish to be in power in all forms including the economic form. If a government of the country is robbed of its power to control the economy of the country, it would not let it happen, it would fight it till it defeats its enemy. If one person holding power declares that a certain currency would have no value from the next day, that currency would not have any value from the next day, this is power demonstrated by the PM of India during Demonetization. If POITUS would declare the same about Bitcoins, they will face the same death.

9.

Imposition of regulations: So as to not let bitcoin become a safe heaven for money launderers and tax evaders and to prevent its treasury from being robbed, Government will either ban the cryptocurrency or will draft laws and regulations to regulate the same in the hands of its users. These regulations will destroy the advantages and the only reason why Bitcoins have its value i.e. of tax evasion and privacy that are currently inherent in Bitcoins. Once these advantages are destroyed, it will be hard to gain anything out of Bitcoins. People will shift to fiat currency which would atleast give interest and which would have an advantage of being backed by the government, resulting into the grave fall in demand of bitcoins. Resultantly, Bitcoins and all other cryptocurrency would crash. If a government regulates gold, then the holder has an option to sneak into some other nation and sell that gold, what option would a bitcoin holder have??

10.

Inheritance issues: What if a person dies with so many bitcoins in his account but in his will forgets to mention the private key to access the wallet by his heirs? Apparently there exists no way to verify that a wallet is of a person other than through his private key. If a person dies or loses his private key, that value conversion vanishes with the death of a person. For money in a bank account, an heir can claim funds and if proved to be an actual heir, a bank is obliged to give the money to such heir. No such process is apparently available for bitcoins. Also, a private key is a long alphanumeric password extremely hard to remember. The only option is to write down the private key in a piece of paper, laminate that paper and put it into a locker and keep the key with oneself till one dies and then in the will, give the location to that locker with the key.

So when will the Bicoin crash?

Bitcoin will crash when the governments of world will start realizing that their coffers are being depleted due to the use of a crypto-currency. OR Bitcoin will crash when the masses would realize that they are buying something that does not have any inherent value other than the value of stealing from one’s government through evasion of taxes. OR Bitcoin will crash when the miners will feel that the price of Bitcoin is saturated and will not go any further and that there is no point in investing in more powerful GPU’s, instead, it would be profitable to shift to a new crypto-currency which is in its infancy stage. OR Bitcoin will crash when the believers would think rationally again and would realize that the illegal benefits that they are reaping could cause them to face jail time. Sooner or later, Bitcoin will crash and it will crash along with other crypto-currencies crashing like hell.

Can Bitcoin survive? What is the summary?

Bitcoin may survive if there is an authority that would assign gold value to bitcoins in circulation. Bitcoin may survive if bitcoin founders clearly give a minimum value to it by creating a gold or silver reserve for bitcoins in circulation. Any crypto-currency with an inherent reserve of value will survive if that inherent reserve is traditionally accepted as a reserve of value like gold or silver or platinum etc. Such crypto-currency may have a value more than the inherent reserve because of the illegal returns (returns of tax evasion) attached, but, when the crash starts, the only crypto-currencies that would survive will be the ones having such fundamental base as being backed by a gold reserve or silver reserve, because such currencies are not backed by any nation or any government.

The block-chain technology on the other hand will not just survive, it will flourish like anything. Governments will realize that they can have an alternative to banks transacting on people’s behalf and this may influence them to issue their own government backed crypto-currencies (obviously with the required conditions so as to not misuse them to evade taxes, eg. Only one account per person). This will be a big hit for the public as the public will not be in need to approach banks for digital transactions, it will save a lot of processing fees. This will be a big blow to the banking sector and for processing companies like visa, master-card, rupay etc., banks will lose current account holders, people will prefer transacting in crypto-currencies issued by the country. Then, the most powerful institution would again be the government. No bank would be able to influence such crypto-currency except the government.

Congratulation!!! you have read 13 Pages of a word file, I am sure that you will not put in your hard earned money into this crypto-currency.

I can be wrong and I have been wrong in the past. These are merely my views.

Yes and no, actually. As Bitcoins are technically just a collection of bits, it’s value is basically none at all. You can compare it with diamonds, which are basically made from carbon and are available in large quantities on this planet while they have almost no function. Well, fine powdered diamonds can be used for sandpaper and small splinters can be used as glass cutters but that’s basically it. And those things aren’t expensive.

So why will people pay huge amounts of money for diamonds anyways? Well, because the diamond market has turned it into a huge hype. They promote it for engagement rings and expensive jewelry and because they keep the number of diamonds that are available in the markets low, they can basically ask for very high prices. But if all diamonds would be sold on the market today, you’d get one for free with every bottle of milk you buy.

The same applies to Bitcoins. They are valuable because people are willing to invest in them. And like investing in diamonds, you will have to sell them for a higher price if you want to make any profit so you depend on bitcoins to be scarce. Fortunately, the number of bitcoins is limited and the mining for bitcoins is becoming much harder these days and becomes less profitable. This means that the bitcoin currency is reaching it’s highest potential as it becomes more difficult to mine them.

People are also losing a lot of bitcoins as they’re basically just data. People might have their bitcoin wallet on a mobile phone or hard disk that crashes. Or they forget the password to their account. Or their wallet gets stolen by someone who doesn’t understand how it works and thus deletes it. And people die without telling others about their bitcoin wallet. So, as a result, the number of bitcoins available is slowly decreasing again. And no one will be able to recover those lost bitcoins. So bitcoins become more valuable these days.

That is, for as long as people are willing to trade with them.

Fortunately, this is the Internet and trading in bitcoins is a great way to make profits. Especially on the Dark Web the use of bitcoins is popular as it allows transactions outside the view of any government. Trading in bitcoins is difficult to detect and would e.g. allow you to buy drugs, porn and weapons online without leaving any trace. (Well, the weapons, porn and drugs will be traced, though. But not the payment.) But bitcoins can also be used for any legal transactions. All it does is hide the fact that you’re paying someone or that someone pays you. Thus the trade in bitcoin becomes interesting for people who want to hide their payments. (E.g. for tax purposes.)

However, many people have already lost the contents of their bitcoin wallet for various reasons. A common one are bitcoin brokers that handle many wallet accounts who go down, tits up, chapter 11. Or brokers who have all their wallets emptied and the contents stolen. Plenty of bitcoin brokers ended up being hacked or worse, had employees who emptied all the accounts and disappeared.

The best approach is to have your own wallet on your own hardware and keep multiple backups of your wallet ans passwords! Or just don’t invest in bitcoins to begin with as bitcoins are more and more related to crime. Many ransomware makers are using bitcoins as a means to get paid by their victims. Chances are that the bitcoin market might be forced to disappear by law enforcements all over the world, just to stop criminals. It would be a crazy law, but law enforcement is known for doing some crazy things to stop criminals…

It is worth pointing out that bitcoin is a digital currency that there is no regulation. Unlike U.S dollar or other official currency are issued by the central authority that the value of current is protected from government regulation, there is no central authority to control the transactions of bitcoin. Therefore. it allows freeing movement of the value of the online market. Moreover, the price of bitcoin is not stable that its value increased about $6000 early in 2017 to nearly $18000 end of 2017. The more the value bitcoin increases, the more the bubble happens in advance that leads to some financial crisis like 2008 financial crisis.

What counts is that it becomes the new payment system recent years. It will adversely affect not only on the sustainable growth of economic market but also on the people who invest in this digital currency. Additionally, since no central bank protects the bitcoins, it is easy for the hacker to steal people's bitcoin. Additionally, Bitcoin does not seem to be an official payment on most of the business because it is new and no one guarantees for the value.

In fact, bitcoins do not have any real value as silver or gold that its value replies on demand and supply economics. Therefore, some experts mention that bitcoins are linked to Ponzi Scheme that an investment is a fraud when it pays investors with money collected from new investors. As a result, when no new investors, bitcoins will be collapsed. There are some countries they ban to use this digital currency such as Russia. If one day Bitcoin becomes the illegal currency, you will lose your money

Since there is no one control the Bitcoin, it is easy for people to use Bitcoin for illegal activities. It is worth pointing out that the less regulation Bitcoin get the easier people take an advantage to make private and irreversible payments. Depend on how the people use Bitcoin for an illegal purpose, it will make the bitcoins unethical.

I highly recommend you to read this book: Digital Gold by Nathaniel Popper - New York Time Book Review Editor's Choice if you want to research more about this digital currency or plan to invest in Bitcoin. This book will give you the landmark digital money and financial technology that has spawned a global social movement.

You can visit my blog: Life Between Us where I share my experiences about life, travel and food. Hope you find my post helpful.

Well cryptocurrency is making too much noise these days. With cryptocurrency being young, and the market being historically volatile, there is no yes/no answer pertaining to the wisdom of investing in cryptocurrency. Here are number of pros and cons and friendly advice.

How to invest in cryptocurrency:

If you want to invest in cryptocurrency, and not just buy/sell/trade, then you have a few options. Generally new investors can choose between the GBTC trust sold on the stock market, a cryptocurrency IRA (we don’t want to recommend one until we have reviewed them), or an exchange-broker-wallet hybrid like Coinbase/GDAX (which allows customers to buy/sell actual cryptocurrency). Each option has its pros and cons, but notably only an exchange-broker like Coinbase/GDAX allows one to trade and invest directly in cryptocurrency.

General advice:

The best advice is to be prepared to lose every penny you invest in cryptocurrency, it probably won’t happen, but it could, and you need to go into the cryptocurrency with some stored up resilience. If, with that warning, you want to ease into cryptocurrency investing. Consider taking no more than 1% of your investable funds, and then get a toe wet with GBTC or coinbase. Keep it simple to start, and then consider easing in to other options like online cryptocurrency exchanges or even cryptocurrency mining. Also, consider dollar cost averaging. This will help you buy the average price of an otherwise volatile market. Sure, you can jump right in, but if you time the market wrong, you could be in for an unnecessarily tense roller coaster ride.

TIP:

The least risky coins are generally the coins that have been around the longest and have the highest market cap (and highest volume). Essentially anything other than Bitcoin, Litecoin, or Ethereum is more risky than those three, and of those Bitcoin is clearly the current top coin in terms of longevity, market cap, and volume and it is notably also the most expensive.

The Pros and Cons of Investing in Cryptocurrency

There are a number of pros and cons to consider in terms of investing in cryptocurrency. Some of the important pros and cons of cryptocurrency investing can be summarized as:

CON: The cryptocurrency market has been very volatile since its inception. The price of Bitcoin can swing up or down hundreds of dollars in a day, and the price more than quadrupled in 2017. We’ve already seen one bubble and bust back in 2013, and currently in 2017 bitcoin looks like it is in a classical bubble.

PRO: There is a giant upside to investing in cryptocurrency. That is, the cryptocurrency market is still young and the many optimistic of investors are projecting future prices that would make buying any of the major cryptocurrencies a good bet. If Bitcoin goes to $6k, $7k, $15k, or say $600K+ like some notable investors suggest, $4.2K is going to end up looking like a great price, regardless of what happens in the interim.

CON: Even if cryptocurrency is a good long term bet, we don’t know if Bitcoin (or any of the top coins) will be the one that sticks around. This is even more true for the countless less popular coins with smaller market caps. Thus, there is risk in betting on a given coin (even if cryptocurrency is here to stay and the best prices are ahead).

PRO: Even if cryptocurrency is in a bubble, the trend could very well be toward cryptocurrency being an important medium of exchange and value storage in the future. If the current price is lower than the highest price we will ever see. That makes it a good long term bet. Meanwhile, for day traders, cryptocurrency is a very risky (but potentially rewarding bet).

CON: Those with low risk tolerance have an added risk, that is getting weak knees and pulling out at a loss while the market is correcting or slumping. If you bought Microsoft at the height of the .com bubble, it seemed like the end of the world unless you waited 17 years. 17 years later you realized your profit. Microsoft was never a bad bet, it only looked like one after the bubble pop to those who bought at the height of the bubble. In other words, if Bitcoin is like the Microsoft of cryptocurrency, then an investor needs to be prepared to take a loss or sit on a loss for a while if the market goes down. That all takes a certain type of mentality and expendable funds. In other words, there are psychological factors to consider alongside economic ones.

CON: Regulators of major countries like the U.S., Russia, and China can have big impacts on cryptocurrency. The U.S. shutting down the Silk Road caused a crash in 2013 (popping a bubble that didn’t recover until 2017). In 2017 China began talking about banning ICOs (crowdfunding for new coins) and gave signals of disapproval (bringing the price of a Bitcoin from $5k to $4k in a matter of hours). Currently cryptocurrency trading is legal in the U.S., Russia, and China , and the U.S. and Russia have been fairly friendly toward cryptocurrency but keep in mind governments can influence the price (even when all other signals are good).

PRO: Since the market is volatile, if you time your buys and sells right, you can buy high low and sell high often. That is, there is a ton of money to be made.

CON: The only way to trade cryptocurrency on the stock market is to buy GBTC, which trades at a premium. The simplest way to by cryptocurrency for a novice aside the stock market is via a company like coinbase, and they charge a premium for that (much lower than GBTC’s, but still notable). Meanwhile, the lowest fees are on the open exchanges of the internet, and where their fees are lot their risk and complexity is higher than GBTC or coinbase. Between premiums and fees and finding a seller, all options for trading have costs that eat into any potential gains. Those can be hard to calculate.

If we are in a bubble, and if that bubble pops, then after that cryptocurrency specifically the major ones still standing becomes are great bet. The only reason for taking extreme caution is the current potentially high price. If the price goes back down to 2015 levels, then the amount of pros will increase. Likewise, if government favors cryptocurrency over the next year, it will help add more pros to the list. The unknowns and high price and volatile market make it risky, but there is lots to be excited about despite all that especially from a long-term frame.