A Bit on Bitcoin | Blockchain Technology
Bitcoin is a digital currency under the category often referred to as cryptocurrencies or crypto assets. It was birthed in 2009. The original drivers of its creation appear to be threefold: a lack of trust in financial institutions, a desire for anonymity, and resistance against hacking. To solve these problems, cryptocurrencies like Bitcoin utilize a technology called blockchain which provides a way to transact privately and without the use of a central financial institution. While this description may sound futuristic, cryptocurrency presently is valued at $1.5 trillion. Additionally, according to a CNBC study, 47% of millennial millionaires have 25% or more of their wealth in crypto.1 The crypto conversation does not appear to be going away anytime soon.
Why are people buying cryptocurrencies like Bitcoin?
Apart from the allure of being in on “the next big thing,” people seem to think that cryptocurrencies can serve as a hedge against inflation much like gold or other commodities. Bitcoin’s value comes predominately from its imposed scarcity. The coding used to create Bitcoin limits total production of the digital coins to 21 million.
Is blockchain, the technology behind crypto, the future?
Blockchain technology is already being utilized across multiple industries to secure information and defend against errors and fraud. Companies like Microsoft, General Electric, IBM, and Starbucks are all using blockchain technology.2 The increase in fraud and ransomware attacks across major industries has led many companies to look for technologies that are decentralized and resistant to these attacks. Blockchain technology is positioned to provide part of that defense strategy.
What are the risks with cryptocurrency?
One of the most pressing risks associated with cryptocurrency is government regulation. Recently, China cracked down on multiple Bitcoin locations. As a result, Bitcoin has fallen over 50% from its high.3 There are environmental concerns as well. Bitcoin processing requires more energy annually than the entire country of Argentina. EV maker, Tesla, has chosen not to receive Bitcoin as payment until 50% of its power consumption comes from renewable sources.4
Cryptocurrency is not something countries are taking lightly. There is a dark side to every technology. Treasury Secretary Janet Yellen spoke in early 2021 about cryptocurrency at a roundtable and said, “cryptocurrencies have been used to launder the profits of online drug traffickers; they’ve been a tool to finance terrorism.”5 She did speak to their potential benefit to the financial system, as well. As governments grow more familiar with the technology and begin to thoroughly exam its risks, we will likely see growing regulation on cryptocurrency and cryptocurrency exchanges.
1. cnb.cx/3g8joZR
2. bbc.com/news/technology-56012952
3. fortune.com/2021/06/23/why-is-bitcoin-going-down-crypto-crashing-right-now/
4. businessinsider.com/elon-musk-bitcoin-tesla-payment-green-energy
5. home.treasury.gov/news/press-releases/jy0023