There’s a digital gold fever going on. Anyone who hasn’t already become wealthy because of the Bitcoin (or other digital coins) is now betting their house on it. But are digital coins really that valuable? Or is this bubble going to burst sometime soon?
How do you make something out of nothing? That’s an easy question to answer in the case of money: banks simply activate the printing presses. Since an unknown computer genius (only known by the pseudonym Satoshi Nakamoto) published a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System in October 2008, we know that everyone can create money. The Bitcoin is a cryptocurrency: a cryptographic encrypted coin. By solving complex mathematical formulas you can pry the coins out of the computer code.
Intriguing, but also vague. Bitcoin promises to be an alternative to traditional currencies. But even when the banking crisis escalates – a few months after the publication of Nakamotos paper – the currency still stays out of the spotlights. In 2009 the network was set up quietly, and shortly after that the Bitcoin was on sale for $0.001. Years later, in the summer of 2017, the currency finally gained world fame. Suddenly, one Bitcoin became equivalent to 5,000 dollars. Out of the blue, anyone who’d bought a thousand Bitcoins for a single dollar in the early days now had a fortune of five million dollars. Since november, the currency was even worth more than $7,000. Totally incomprehensible, and it explains the huge run on digital coins that has now started.
After the Bitcoin, thousands of other cryptocurrencies have entered the market (the so-called alternative coins or ‘altcoins’). Bitcoin has brought about new technological possibilities and has also shown the world that cryptocurrencies can become invaluable. New companies promising to change the world like Bitcoin did, now turn on the digital printing presses. Bitcoins are estimated to be gradually ‘mined’ from the code until the year 2140, but a company can also choose to mine and issue a big batch of coins at once. For example, issuing one hundred million coins at a unit price of one dollar, of which they’ll pocket 10 million coins for their own benefit. Ordinary people and investment funds buy the remaining 90 million coins, hoping to share in the profits later on.
This way, the company kills several birds with one stone: it cashes an immediate initial capital of 10 million dollars in coins. On top of that, trade has also started to develop, which may further increase that value. And the network is running at full capacity: all these coins are not only traded but also often used for payments. Just as every European country used to have its own currency, every cryptocurrency is the currency of a certain digital network. You’ll pay a taxi ride with the Taxicoin and for sending Bitcoins you’ll pay transactions costs of about 0.001 Bitcoin.
“Will we all buy our coffee with Vertcoin in five years’ time?”
So it’s not all just speculation and great ideas. Thuisbebezorgd.nl and Microsoft already allow you to pay with Bitcoins. Even at McDonalds in Thailand you’ll soon be able to pay with cryptocurrencies. Will we all buy our coffee with Vertcoin in five years’ time? Will we put our retirements up for auction at ‘Auctus’? And will we soon hold Bitcoins as a digital gold backup? Bitcoin specialist and evangelist Lykle de Vries expects so. “Before the euro came, we were accustomed to having different currencies at home. And we also still use loyalty points such as Airmiles.” He predicts the rise of Albert Heijn Coins and coins to pay your energy bills, although the use and storage of coins still needs to become far more user-friendly. Now the use of cryptocurrencies is still a hassle, with all these passwords and secret keys. If you lose a code or if a hacker watches over your shoulder, you lose all your coins.
Associate Professor of Financial Market Infrastructure Ron Berndsen is more skeptical. In the former Europe of 30 different currencies, we stumbled from one currency crisis to the next. “Money works best if accepted widely. What happens if we have hundreds of cryptocurrencies?” None of them will be real money then, Berndsen thinks. Because the coins are not exchangeable. This could be solved with a single digital currency, which can then be used to pay in all currencies. The crypto company Ark is currently working on this. “You can do that, but then you’ll still have only one currency at a higher level.”
The moment you think you finally start to understand, everything becomes even more complicated. All those coins aren’t that interesting after all. It’s not really about Bitcoin itself. It’s all about the technology behind it: the blockchain. This is literally a chain of (information) blocks, a new way to store and manage information. No longer centrally located in a database, but decentralized, spread over a network of many thousands of computers. “A revolutionary invention,” says Ron Berndsen.