What is Bitcoin and why are politicians so concerned about it?

Bitcoin logoBitcoin is a cryptocurrency, i.e. a digital means of payment, and it is by no means the only one, although it is the largest, since it is worth ten times more than the second, Ripple, and it is also the oldest, since it was created in 2009; here you can see a few more cryptocurrencies, such as Litecoin, Peercoin,...

Why are they blooming now?

I think it is because more and more of us distrust central banks that have been manufacturing currency for years as if they were going to prohibit it, a currency that is on its way to becoming a stamps. Cryptocurrencies also help us to escape from banks that have cheated us and avoid their commissions.

Not all cryptocurrencies are equal

We must differentiate between government-backed currencies, such as those we use every day, and company-backed currencies, such as the Amazon coinP2P currencies, i.e. that do not have a backing, and the latter is the case of Bitcoin, P2P currencies are fully decentralized. When I pay a bitcoin to you there are a number of nodes in the bitcoin network that ensure that this transaction is good which consumes a good amount of computation; these nodes are called miners and from time to time they find a block of bitcoins that pays for their efforts.

Gold standard: Who said it would be deflationary?

In 2009 when the Bitcoin was created there were none, mining has been making them appear until today more than twelve and a half million but finding those blocks of new bitcoins is becoming increasingly difficult. difficult. In summary, approximately 25 bitcoins are generated every 10 minutes. The issuance is decreasing over time. In 2140 there will be 21 million bitcoins and there will be no more. This is the graph of bitcoins in circulation, remember that the slope of the curve will be decreasing until it is zero in 2140.

Bitcoin Total Bitcoins in Circulation

Look at the graph of dollars in circulation. In this case the publishes the Saint Louis Federal Reserve. Where at the end of 2008 there was less than $900mM and today there is $4,000mM.

St. Louis Adjusted Monetary Base FRED St. Louis Fed

 What might happen if the money that has been made were to go to market?

When you look at the graphs of bitcoins in circulation and dollars in circulation it makes you laugh. listen that the former is deflationary. Today there are four times more dollars in circulation than five years ago, and paradoxically this has not caused brutal inflation but at some point it could start to do so. The same happens with the euro and the yen because our central banks have maintained a policy of fictitiously low interest rates that have resulted in manufacturing currency as if there were no tomorrow.

If the gigantic mountain of banknotes that has been manufactured were to be fearlessly put on the market, we could find ourselves bathed in stamps from one day to the next.

Why are politicians so concerned?

Imagine if we were to enter a scenario of runaway inflation or simply a loss of credibility of central banks. Imagine if we were to take refuge in a currency like Bitcoin that escapes their control, whose transactions are made between two people and are only verified by a decentralized network - P2P -. Our dear rulers would be losing control of one of their most precious possessions, monetary policy. A nightmare for them.

My conspiracy theory

The biggest wars between superpowers have long been fought in zeros and ones rather than in the physical world, the example of cyberwar between China and the United States makes this clear.

The biggest hole of Bitcoin is its exchange with our current currencies because it is done in more or less centralized exchange houses and, therefore, exposed to attacks. Bitcoin is very safe until proven otherwise, but the websites where dollars or euros are exchanged for bitcoins are another matter. This has been the case of numerous exchange houses in recent months, specifically since the Bitcoin went to a thousand dollars, at which time it began to cause panic the largest exchange houses starting with MtGox and followed by Bicurex or Flexcoin have been hacked; many others have suffered very serious attacks although it has not been published.

Hacker attacks on foreign exchange houses cost money, a lot of money when they have so much virulence. It is surprising that someone would take so much effort to steal, at best a few bitcoins; I think these attacks are more aimed at dismantling the credibility of cryptocurrencies in general and bitcoin in particular, and I think it is government hackers who are raiding the exchanges.

Who is going to win here?

I don't know if Bitcoin will be the currency of the future, if one of its hundred siblings will be, or if none of them will be; what is certain is that the capitalization of $6,000M that all bitcoins in the world represent is extremely low assuming it becomes popular as a common currency.

The biggest weakness of the Bitcoin Network might not last forever, because exchange houses are not a necessary evil for this network, as a P2P currency could also be exchanged in a decentralized way, thus avoiding the Achilles heel of this whole system. Last March, the following was presented Coinfeinea decentralized exchange website that could put an end to all the work of attacks on exchange bureaus.

How is it going right now?

Also this past March and following the closure of the once largest exchange house, Japan's MtGox, the monetary authorities Japanese y American They agreed, what a coincidence! that Bitcoin was a commodity and not a currency, so it should be taxed as such. They are taking off their masks but there is little they can do against a commodity that escapes the control of their customs because it moves digitally and in a decentralized way.

The greatest uncertainty these days comes from China that, after Russia has explicitly banned bitcoin trading. Normally when pursuing a phenomenon emerging P2P explicitly, as is the Bitcoin usually grows. For example, it is these days of Twitter ban in Turkey the Turks have tweeted a 138% more. Although the news from China has caused a sharp drop in the Bitcoin price, why not think that it could strengthen its use as a safe haven?


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