Blockchain And Bitcoin Face Unforeseen Headwinds
Blockchain technology and Bitcoin (BTC) work as a single package with the former providing the decentralized platform. Virtual currency operates without an intermediary. It is a digital currency that does not require a bank to carry out transactions. Importantly, the platform verifies and then records all these transactions accurately on a distributed ledger technology (DLT). If all that sounds good, then we must ask why cryptocurrencies are having such a tough time gaining traction.
Hype and speculation surrounded the cryptocurrency prior to, and after, its launch. Trade analysts declared it to be a sort of revolution. The utopian hype even predicted that the digital currency will make all the centralized authorities including government obsolete. Even before the Bitcoin could actually fulfill the demands or meet the expectations, the hype triggered a massive investment craze leading to rise in the value of BTC.
Hype Helps Launch Multiple Crypto Products
Concurrently, the hype around BTC also led to the launch of multiple digital assets, altcoins, and virtual currencies. Last year, another option to lure the investors was created – initial coin offerings (ICO). The ICO’s attracted more than $20 billion in investments mostly from the retail industry. Despite such an overwhelming response, the dollar value of virtual currencies stumbled.
Bitcoin and Ether (ETH) are the two leading cryptocurrencies. However, both of them collapsed suddenly – shocking the crypto community with 70% loss of their dollar value. Not surprisingly, the stumble affected the adoption rate of the retail industry the most. All this somehow indicates that the cryptocurrency could not fulfill its function to serve as money. Coming to the blockchain, although it does have a lot of potential, more experimentation and trials should really reveal its true worth.
During one of the interviews published some time ago, the co-founder of cypherpunk movement, Timothy May said, “I think the greed and hype and nattering about “to the Moon!” and “HODL” is the biggest hype wagon I’ve ever seen.” May believes that the hype and intense interest in blockchain and cryptocurrency are sweeping the industries like the Tsunami eventually leaving everyone in confusion and carnage.
May believes so because cryptocurrency failed to meet the major three criteria that make it acceptable as money. According to the money definition, it must serve as a medium of exchange, a unit of account, and storage of value. The virtual currencies could not fulfill either of these criteria.
BIS Weighs In
According to the General Manager at the Bank for International Settlements (BIS), Augustin Carstens, very few people use a digital currency for daily transactions except through dark web or anonymous mediums. It means that the value of cryptocurrencies is always speculative and not for storage. Also, since the virtual currency continues to define its value in comparison to the dollar, it fails to fulfill the criteria for the unit of account.
Apart from high volatility, increasing crime rates is one of the reasons that are discouraging investors from investing in cryptocurrencies. Very recently, the U.S. Commodity Futures Trading Commission (CFTC) fined an Arizona local, Joseph Kim, for floating a fake virtual currency trading scheme. Kim not only unknowingly included his former Chicago-based employer in this fraud but also cheated outside investors.