*If you were thinking and breathing in 2017/18 you probably heard of BitCoin**. The illusive cryptocurrency is shrouded in mystery for any number of lay people, but with a whispering promise of a future paved in gold for anyone who invests. Not quite. BitCoin is at its core just another form of money. Let’s talk about money for a moment.
There are three types of money, each embodying another form of exchange. The first and least common in today’s world is commodity money. This means money that has inherent value. Commodities like tea, salt, and tobacco are the most famous of the commodity monies. This basically represents a barter economy where you trade goods with a value for other goods with a value. However, this is not very effective in the long term. There are two functions of money that are not met with commodity money, the measure of value and the store of value.
The next form of money is commodity backed money. The United States operated with commodity backed money for much of its history, they called it “the Gold Standard”. This means that you have representative paper money, that is backed up by some amount of commodity (gold) in storage somewhere. If the US wanted to print more money it needed more gold in the coffers. This is a large downside because if they could not get more gold then they could not print more money, lending to severely limited monetary policy.
The last type of money and the one we use today is called fiat money. This is money that has no inherent value and is not backed by any commodity. The way this money works is by everyone who uses it agreeing that it is an acceptable form of currency and, historically, a country will back that understanding up by supporting the currency and using it exclusively.
This brings us back to BitCoin…
BitCoin is perhaps the most fiat of all fiat money, in a sense, seeing as there is not even a physical representation of the currency and it has no commodity associated with it. The common collective that has adopted bitcoin as a recognized and (dare I say) respected form of currency has severely changed over the past six months. Early adopters of BitCoin are pretty stereotypical in nature; tending towards one of three different demographics. Nerdy young kids who had a few hundred dollars to spend who thought it was interesting; conspiracy theorists who believe the monopoly of central banks will be the dark demise of the world and the only way to escape the impending doom is to invest in a currency not linked to any central bank; and the easygoing privacy nuts who are so concerned about people stealing their personal information that they are willing to move to a currency few people accept, only because it is safer.
That was then.
Now everyone and their dog is obsessing about this great new currency they heard about during yoga or from their friends while drinking pumpkin spice lattes. What I’m getting at is, ya basic.
Let’s look at the numbers.
- January 9, 2009: Initial Release
- January 9, 2012: $6.65(USD)/BitCoin
- August 19, 2013: BitCoin Breaks $100(USD) for the first time
- February 6, 2017: BitCoin Breaks $1000(USD) for the first time
- December 16, 2017: Bitcoin hits all-time max at $19,343(USD)
- July 25, 2018 (time of writing): $8,119(USD)
Price of bitcoin over the last year. via CoinDesk.com
So, it is clear and undeniable that BitCoin has had a huge jump in popularity over the past year or so, but despite that, the trend is in-fact downward. Its almost as if the fad has worn off and the novelty of having invisible money isn’t enough to keep the speculative adopters interested anymore.
I’d now like to address what I perceive to be the elephant in the room: why I will never invest in bitcoin, and why I do not think it will last.
Currency, as it exists today, is backed by a central bank for each individual country (or group of countries such as the EuroZone). There is no one group of people for whom BitCoin “cannot fail”. Much like the TBTF (too big to fail) banks and entities of the great recession, the USD has a minimal to zero percent chance of failing, short of an asteroid or another catastrophic event. BitCoin, however, has no bailout plan in place, no country backing it up, and no society that relies on it. If it fails… the world will sit back and watch it burn.
When BitCoin goes bust it won’t be saved.
*This article concerns itself with the recent history, present, and future of BitCoin. If you are interested in reading about the way that bitcoin works or how to invest please seak that information elsewhere.
**BitCoin is, in fact, the intended subject of this article, however, you can typically substitute any cryptocurrency in place of BitCoin as they all have the same downfalls.
