After a winter in which the media around the world have dedicated a lot of space to bitcoins and cryptocurrencies in general, due to their sudden and surprising increase in value, the topic has mostly disappeared from newspapers and generalist sites. The news has decreased, and the attention of the general public has fallen on those few: cryptocurrencies have therefore returned to being an in-depth topic and commented almost exclusively by those who work there and those who invest in it.
After reaching twenty thousand dollars per unit in mid-December, the value of Bitcoin has undergone several collapses and gradually decreased in the following months, reaching lows below 6,000 dollars, that is to say less than a third of its maximum value, as in the October 2017. Today a bitcoin is worth about 7,260 dollars: it does not return above 10,000 since last March and above 9,000 since mid-May.
Bull market, bear market
In the period of its peak in value, the market capitalization of Bitcoin was over 320 billion dollars: today it is around 125 billions, that is, the market has shrunk by about 60 percent in just over eight months. To this data, cryptocurrency advocates point out that in the eight months leading up to its peak value, Bitcoin had risen by something like fifteen times. But the growth at the end of 2017 – that is, when the market was “bull”, bull, bullish – has had characteristics that are perhaps unrepeatable. And above all it was caused in large part, according to all objective assessments, by enormous speculative operations, which allowed a few people to get very rich by exploiting an unregulated market with many opaque niches and gray areas. It is estimated that 100 accounts hold 19 percent of the bitcoins in circulation.
The small investors who approached the world of cryptocurrencies between the end of 2017 and the beginning of 2018, that is, when they reached their maximum media exposure, they bought bitcoin and other cryptocurrencies more than anything else hoping to make money out of it, more than for “philosophical” reasons. In most cases they found themselves with much less money than they had invested, because their entry into the market corresponded to the moment it began to shrink, that is, when it entered the “bear” phase, bear, to the downside. .
Distinctions
The latest issue of The Economist, which has a section dedicated to cryptocurrencies, published an editorial entitled “Bitcoins are useless”, much criticized by enthusiasts and professionals. The Economist makes a fairly common distinction between cryptocurrencies and the blockchain, i.e. the technology behind them. For the former, he says, “little suggests that they will become more than an excessively complicated and unreliable gamble”. For the blockchain, however, he suspends his judgment more cautiously, given that some of the largest international companies and banks are spending tens of millions of dollars on research in this field.
Currency or store of value?
What is identified as the failure of Bitcoin is the aspect that concerns its daily use, for online purchases and in stores physical, where cryptocurrencies are used by a very small minority of people: so few that they are not enough to make Bitcoin a real currency, a definition that can hardly be separated from its actual circulation. The bullish trend of the end of 2017 further discouraged this type of use for bitcoins: using them to buy something was inconvenient, since within a few days they doubled their value. With the first crashes, several services, including the travel portal Expedia, stopped accepting bitcoin payments for the opposite reason, dealing a further blow to the spread of bitcoin in everyday transactions. Many experts and insiders argue that a true development of cryptocurrencies is impossible without their penetration into people's daily lives. So far there has not been: the vast majority of those who work there and those who speculate on them use them.
The nature of Bitcoin has always been halfway between the currency and the store of value, even in academic debates: but even this second nature of it has been questioned by the enormous devaluation of recent months. What store of value is an asset that can lose half its value within a week, as happened between January and February?
Among the supporters of cryptocurrencies there are those who argue that these evaluations come from a Western point of view, and neglect the importance that, even with these limitations, cryptocurrencies can have in developing countries, where there is a 'high inflation (such as Venezuela) or where central economic authorities impose severe restrictions (such as in China). From next year, a limit on cash payments of 10 thousand dollars will be introduced in Australia, a rule that some believe could incentivize a spread of bitcoins in the country.
The point is that the ideological motivations that led many to take an interest in the Bitcoin system, mainly independence from a central authority, involve a small minority of people. People are especially interested in a fast, cheap and secure payment system: but for now, using cryptocurrencies is still complicated, not very protected, and above all unpredictable. In short, traditional payment methods respond better to the needs of most people.
Failures or road accidents?
There are other aspects that some have considered as Bitcoin failures, and which according to others are normal and surmountable road accidents: transaction fees, which ideally had to be very low, have reached remarkable percentages in recent months and are still often higher than those charged by banks. The various computer thefts, the fraudulent nature of some sites in which to buy and store cryptocurrencies, which in some cases have closed without repaying the investors, have also raised concerns about the security aspect of cryptocurrencies, one of the strengths of the initial project . “The inherent hostility to technology regulations has attracted many like-minded people but for the wrong reasons,” wrote The Economist. And there is also the environmental aspect: maintaining the structure of Bitcoin (“mining”, in technical jargon) requires enormous amounts of energy.
Cryptocurrencies that are no longer
The expansion of Bitcoin had coincided with the parallel birth of hundreds of other cryptocurrencies, associated with projects often confused when not entirely fraudulent, which were largely financed with the so-called ICOs, that is, fundraising that in many cases were nothing more than scams. The absence of regulation, combined with the wave of great enthusiasm, the widespread hope of getting rich easily and in a short time, and the lack of information and culture on the subject of cryptocurrencies (and economics and IT in general) has led many people to lose money. In May, the Wall Street Journal had 1,450 ICOs analyzed, finding suspicious elements in at least 271 of these, which had raised more than $ 1 billion in aggregate. According to a study by Coinopsy and DeadCoins, over 1,000 cryptocurrency projects failed in the first six months of 2018.
Some technological innovations to the underlying structure of cryptocurrencies, such as the so-called Lightning Network, promise improvements that will make the system faster, safer and more efficient. But once the initial infatuation created when a niche is suddenly frequented by the general public has disappeared, there is more and more skepticism about the possibilities of development of cryptocurrencies.
Camera d'eco
Due to the way the interest around the topic has developed, however, the warnings and perplexities of the major economics and finance newspapers have been almost always snubbed and dismissed by cryptocurrency enthusiasts. A certain approximation in the way they were treated contributed to this, as well as some provocative statements from international millionaires, bankers and financiers. The main information channels for many investors have been forums and subreddits – the thematic channels of Reddit – in which information circulated by people who are not very qualified or interested in manipulating the hopes and beliefs of users.
This blessed blockchain
“The future is not cryptocurrencies, but the blockchain” is one of the most widespread predictions heard when it comes to these issues. With blockchain, one of the most mysterious words of 2018, we mean a structure shared and accessible by multiple users, who make their IT resources available, such as the calculation speed of their computer or the internet bandwidth, to create and keep updated a database accessible by all blockchain participants, and protected by cryptographic keys.
The idea is that a distributed database such as that of the blockchain is more agile, cheaper to maintain and above all secure than a large central archive. Bank Santander, which has invested in the blockchain behind the Ripple cryptocurrency, has estimated that the international banking system could save $ 20 billion annually in administration costs by using the blockchain.
The blockchain that interests most private companies, however, is different from that of cryptocurrencies, mainly because it does not provide free access for everyone: banks are not interested in sharing their administrative part with customers. For this reason, there are those who dispute the inclusion of these technologies under the umbrella of “blockchain”. What is interesting is the possibility of creating new structures to manage money transfers, the stipulation of contracts, or for the management of large operations involving multiple entities, and which are more efficient, safer and cheaper than the current ones. One of the applications on which there is more optimism is for example the maintenance of a large distribution network, which is based on a database that can be consulted by all the parties involved, from warehouses to container ship owners, up to national customs. But the proposed uses are many, from tracing the origin of the diamonds to creating a more effective state property against fraud.
Some companies prefer to call the blockchain by other names, to avoid being indirectly associated with cryptocurrencies: “distributed ledger technology”, for example. But blockchain with operations similar to those at the base of cryptocurrencies are of more interest to banks, which are trying to build new systems to make international money transfers faster and cheaper, which today involve intermediary banks that withhold commissions and lengthen the times.
Is the blockchain overrated?
It is a theory that is starting to make its way, after the blockchain has been extolled rather uncritically for months, partly because it was a complicated subject on which the predictions and promises of anyone who seemed to understand something were sometimes taken for granted without too much criticism. Today, when large companies have been investing and researching the blockchain for a couple of years, there are those who are starting to be more skeptical about the future uses of the technology, or at least invite greater prudence in their judgments. The blockchain certainly has great potential, but it probably won't lead to a revolution in the short term, as expected by some overly enthusiastic insiders.
Most projects involving blockchain are still in an exploratory phase, and reports of successful employments have since been debunked: like the one that Sierra Leone held the world's first blockchain election, when in fact the Swiss company who used technology in connection with elections had only control functions. Magnus Haglin, vice president of Nasdaq, the second largest exchange in the world by market value and one of the most active companies in experimentation with the blockchain, explained to Bloomberg that he expected to find possible uses immediately. but it took longer because it is difficult to introduce a new technology from scratch. For now Nasdaq is not using the blockchain in any major project.
This is one of the main reasons for delays in blockchain projects: proposing a new, more efficient standard is the easy part, the difficult part is getting everyone, including competing companies, to adopt it. And the sharing of the same standard among the parties involved is the basis of the functioning of the blockchain. According to a Gartner study, only 1 percent of CIOs (i.e. business executives responsible for the IT and technology side) say they have adopted some form of blockchain, and only 8 percent say it is in the plans soon. term. 80 percent say they are not interested in technology. In some cases, companies that say they have launched projects on blockchain don't really use this technology, but simplified versions.
Gary Barnett, an analyst at GlobalData, told The Economist that another major problem is that there is a great misunderstanding between companies and those who work with blockchains. Non-experts often struggle to understand the technology, while those who develop it are so enthusiastic that they do not pay enough attention to the concrete characteristics of the company to which it should be applied.
There are also fields in which the blockchain is useless, at least for now: Bank of Canada has tried to use it to manage national payments, but has discovered that the benefits are negligible because the current system already works quite well. This is because in many cases a decentralized and distributed system such as the blockchain is much less efficient than a centralized system, because it requires much more computing power and bandwidth.
Then there is a problem of compatibility between the software sold by the various blockchain companies, and of the volume of transactions they can manage: still too low for many large companies. Many companies, Bloomberg adds, are simply scared of being the first to adopt blockchain, and therefore the first to discover its problems.
