Richard Van Staten published in Entrepreneur Magazine. The frenzy around Bitcoin is at a fever pitch, and the reasons are obvious. Its value has skyrocketed over the past year, making millionaires out of early adopters. In its wake, thousands of would-be investors and coin creators are getting in on the action.
A quick primer for the uninitiated: Bitcoin is the most well-known and highly regarded of digital assets known as cryptocurrency. It’s presented as an alternative to traditional paper money, with speculative investors buying and selling fractional amounts of Bitcoins (which, as of this writing, are valued at over $6,000 per coin, way down from last December’s high of $19,783) with hopes that their value will rise. Its blockchain-backed anonymity and rocketing valuations have inspired a mass of imitators, each hoping to be the one that truly breaks through and replaces traditional money.
Possibly the most impressive thing about crypto is how heavily major banks, accounting firms and even consumer corporations have bought into the craze in the near decade since. These big-name endorsements certainly make Bitcoin and other cryptocurrencies seem like a sure bet, but a cursory look beneath the surface reveals a lot of false promises and hype, with a need to dig a little deeper in order to see the real benefit of the crypto craze.
The BS of Bitcoin
It’s not only the idea that Bitcoin will replace the existing currency system that’s extremely questionable. The entire idea of investing in cryptocurrency is where the real swindle happens.
Investors, probably more so than any other group of people, are in love with the idea of getting in on the next big thing before it blows up. This isn’t breaking news: It’s how our money’s made. From VC to armchair investors, the idea is to buy in when prices are low and sell when they are high. So, it’s only natural that an unregulated and complex field like crypto attracts a lot of excitement for a certain type of investor, maybe someone who’s not as money-savvy but has caught on to the transformative power of the internet. The online aspect only democratizes it further: When anyone can buy in, anyone can profit.
Which is where things get troubling. At the heart of it, cryptocurrency is a fraud. We’ve all been sold on Bitcoin as the official future currency of the internet, its evangelists painting a picture of a world where our spending is safely anonymized and no longer subject to the whims of international bankers and governments. A number of retailers have bought in as well, meaning Bitcoin can buy you anything from a hotel room to pizza delivery. Sounds great, sure, but at its essence, crypto has proven to be something else entirely.
It’s not a true medium of exchange the way that government bank-backed paper money is. Bitcoin is an asset, and a particularly dangerous one to drop any amount of your investment money into. While it can be exchanged for goods, these transactions amount to barter deals with opportunistic retailers who are likely more eager for the publicity that comes with announcing they’ll accept Bitcoin. You don’t have to take my word for it: No less an authority than JPMorgan CEO Jamie Dimon has identified crypto as a bubble just waiting to bust. When that does happen, good luck paying for your pizza with whatever’s left.
Even outside of the volatility of the currencies themselves, that Wild West atmosphere has proven a fertile ground for scammers. Old fashioned Ponzi schemes have gotten a 21st-century facelift thanks to criminals taking advantage of the Bitcoin craze, collecting funds for Initial Coin Offerings (ICOs) that never materialize. Fittingly for a currency that got its start abetting anonymous drug and weapons deals on dark web trading posts, unscrupulous operators have flocked to Bitcoin as their latest medium for ripping off the uninitiated. Consider yourself warned.
The real benefit
While Bitcoin as an investment is radioactive and not to be touched, it’s not the case that the whole cryptocurrency movement hasn’t created something of real benefit. The dangerous part of Bitcoin is in the unpredictability of the human element in the form of deceptive labeling and scams. The technology underpinning it all, free of hype and deceptions, is surprisingly trustworthy.
The “crypto” in cryptocurrency comes from cryptography: the encryption technology that makes bitcoin transactions secure. Not only that, but all secure online activity is safe through the use of encrypted lines of code that can’t be broken by third parties. The encrypted ledger of Bitcoin transactions, known as blockchain, represents the safest data transfer medium ever created online. Burying your gold coins in the backyard was never this secure.
The blockchain works because it isn’t stored on one central server: To alter its code would mean compromising a number of machines across a wide network, a near-impossible task for even the craftiest hacker. This level of security in transactions makes blockchain useful not only for ethereal assets like cryptocurrencies but real-money movement by banks and individuals alike.
Once the Bitcoin craze blows away, we’ll be left with a truly transformative tool: a new, safe way to conduct business online. The evangelists weren’t completely wrong, only misguided. The bitcoins themselves won’t be changing our world, but the blockchain built to host them absolutely will.