Cryptocurrencies began as an alternative method to make transactions without intermediaries. They are becoming increasingly important worldwide, both due to the number of users who use them and the large amount of money and speculation they generate. What is the rise of it? What are its risks and benefits?
In 2008, someone named Satoshi Nakamoto changed the way money is transferred when he published a document that laid the foundations for paying with bitcoin, the first cryptocurrency, creating a decentralized payment network in which neither banks nor governments have a place.
Nakamoto, whose identity is not known with certainty – if it is a person or a group – determined that bitcoin would be an instrument to transfer money completely managed by users, based on a network peer to peer or peer-to-peer network.
He did so by devising a technology that allows users to make direct exchanges with great security: the blockchain or chain of blocks. Conscious or not of his proposal, Nakamoto revolutionized the way of making payments.
How does the blockchain work?
To achieve a direct transaction without intermediaries, the creator of bitcoin relied on the fact that the transactions had to be public and what previously worked as a bank account to keep track of all the transactions carried out by a person, it is now a public ledger that keeps track of all transactions made by all users on the network.
“What it does (the methodology of cryptocurrencies) is to turn everything into an immutable record, once a coin was for a place you cannot say ‘this did not happen’, once it happened, it is recorded forever,” says Matías Nisenson, businessman and investor in technology companies in Argentina.
Each user has a digital wallet from which they receive or issue their payments. Each transfer is sent to the user network publicly, but for these transfers to be verified and considered valid, they are issued with a code or mathematical algorithm that must be decrypted.
Mining to verify transfers
This is done by people or entities with large computer equipment that are known as miners. When the miners decrypt the codes, they join transfers to others and build blocks with them. Each block is sent to the user network and is chained with other blocks that have been set up by other miners, this is what is known as a blockchain.
The model is highly secure, since for an individual or group to be able to hack it, it will have to attack an entire chain with thousands or millions of transfers and alter its already verified algorithms, which would require having computer equipment that compete with those of thousands of miners around the world.
For Miguel Yasuyuki Hirota, an expert in digital currencies and cooperatives, the main advantage of cryptocurrencies is having demonstrated that blockchain technology is completely viable in the management of a monetary system. “It is a system with a high level of reliability and practically no possibility of falsifying data,” he says.
To be sustainable -economically speaking-, miners charge for their work of decrypting codes and that is how bitcoins are born, since they are not issued by any bank or central entity. The first bitcoin that was created was paid to decrypt a transfer that had nothing more than the content of a newspaper. From there, all the transactions that have been made have been verified by mining.
But the bitcoins will not be infinite. When Nakamoto created the bases of this currency, he established that there would be a limit of 21 million bitcoins to circulate and currently 80% of this total has already been mined. It is believed that by the year 2140 the last bitcoin will be looked at and it is unknown if by then the allowed amount will have been expanded.
It goes without saying that the gigantic computing equipment required to mine bitcoin and other cryptocurrencies are often entire farms of servers that consume too much power. It is estimated that transfer mining already consumes the same energy worldwide as what nations such as the Netherlands or Argentina use, which places a huge environmental burden on the planet.
Speculation and fee-free transfers, the most attractive of bitcoin
The possibility of being able to make transfers between two people without a centralized entity charging commissions has been a feature that has seduced many users.
“When Nakamoto invented bitcoin, I didn’t think it would get that big,” Yasuyuki says, “People realized that bitcoin is a currency unfettered by governments and began to send a huge amount of money with easier, “he adds.
And now more and more wholesalers and retailers accept payments with bitcoin. For example, real estate, cars, clothes or food are for sale. In the United States, the Domino’s and Subway chains already offer their products in exchange for bitcoin and you can even pay for college degrees, art, or vacation packages, among others. Paypal also allows payment with this cryptocurrency.
I would compare bitcoin to tulips from the 17th century Netherlands
But this is only one factor in its growing boom. His arrival was accompanied by great speculation and the promise that bitcoin and other cryptocurrencies are the money of the future.
“I would compare bitcoin to the tulips of the 17th century Netherlands,” says Yasuyuki, referring to one of the first speculative bubbles in history, when one of these flowers cost the same as a house. “This type of speculation could not attract money infinitely, then the price of the tulip fell and many Dutch lost their fortune, I think the same could happen with bitcoin,” he indicates.
Since its inception, millions of people have invested in the purchase of currencies like bitcoin and its value has increased by leaps and bounds. To get an idea, five years ago you could buy a bitcoin for about $ 600 and in October of this year it reached a maximum price of $ 66,000 per unit, which translates into an increase of 11,000%.
Bitcoin was followed by thousands of cryptocurrencies, including Ethereum, which focuses on the exchange of applications and decentralized contracts that can be executed automatically and whose growth in the last five years has gone from about $ 11 to about $ 4,700 per unit. , that is, it has grown by 42,000% since its creation.
The high volatility of cryptocurrencies, a risk to take into account
But the volatility of these currencies is also a high risk for those who bet on buying them. As they are not regulated and there is no entity to back their issuance, the value of bitcoins and many other cryptocurrencies depends on multiple external factors, including the law of supply and demand.
For example, the reluctance of China and many other governments to regulate them means that every time a measure is imposed against their use, the value of cryptocurrencies falls. In May, Beijing banned all cryptocurrency transactions in the country, sending bitcoin plummeting to $ 34,000.
And in the same way they have fluctuated upwards when they have received the support of great public figures, as when the tycoon Elon Musk tweeted that he would invest in that currency and that his famous Tesla could be bought with that currency.
You can now buy a Tesla with Bitcoin
– Elon Musk (@elonmusk) March 24, 2021
This cryptocurrency experienced another rollercoaster in the last week of November and the first of December, when it went from being worth about $ 58,000 per unit but collapsed with the announcement of a new variant of coronavirus, Ómicron, which caused its price to fall below the $ 52,000.
This volatility is a high risk for Yasuyuki. “Bitcoin was born as a currency without any support and for now it works as a currency because it works with that mechanism of the stock market where there are more buyers than sellers, but when the buyers are exhausted we will see that sudden drop in prices.” It also relates the end of the interest of bitcoin buyers with the total issuance of all 21 million bitcoins to be issued.
Nisenson, for his part, prefers to think that there will not be such an “apocalyptic” scenario and points out that once all the bitcoins are issued, this currency would have a purely currency use. He believes that when this moment arrives, the miners will continue decrypting transfers for a “‘fee'” (commission) that will be charged to each of them, that is, it would no longer be the banks that would charge the user fees if not the miners , who would make it possible for the system to continue working.
Beyond speculation, as both Yasuyuki and Nisenson point out, the blockchain has demonstrated the great capacity for self-management of users and beyond transfers, this technology has also brought the possibility of creating a large number of decentralized actions, as is the case. decentralized applications or contracts.
For the moment, it will only be time that says if this financial technology applied to multiple spheres of society has come to stay and become the new method of bartering and social organization or if, on the contrary, the speculation that surrounds cryptocurrencies will end up being the Achilles heel of what promises, so far, to be a financial revolution.
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