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Bitcoin is back: What does this mean for the average person lost by the crypto jargon?

Bitcoin is back in the news cycle this month after the cryptocurrency returned to valuation highs not seen since 2017, Bitcoin that year reached an all-time high price valuation of $19,783 (17 Dec 2017). According to CoinMarketCap Bitcoin is currently valued at $19,333 (24 Nov 2020) and many Crypto experts predict that bitcoin will cross the $20,000 mark before the end of the year.

But what does this all mean to the average person who doesn’t understand anything about Bitcoin? Well, first you will have to understand what blockchain is, then what crypto-currencies are, and what importance all these new digital technologies have for the future of finance. The crypto space is still relatively new so knowledge is key to understanding how you benefit from this new technology.

What is Blockchain?

To know what Blockchain is, we need to answer a simple question: how do we know if something is fake or real? Traditionally, in order to verify if a document is legit or not we would just look it up with the relevant authority or institution. We also have notaries, people licensed by the government to attest or record the validity of specific information or identities.

All these authorities of validation are usually centralized and hold a lot of power, for example, the licensing department controls the issuing of driving licenses, home affairs issues people their identity documents and passports, the deeds office issues title deeds for property, the reserve bank verifies the authenticity of every banknote minted, and the electoral commission verifies each and every vote at elections.

These authorities though very important to the governance of a country still suffer from bureaucracy, corruption and human error, this is the main problem that blockchain aims to solve. Blockchain is a digital ledger, which records and verifies information either decentralized or centralized on a server on the internet. Made up of multiple blocks in a chain all with the purpose of encrypting information and verifying the correctness of that information.

In simple terms, the blockchain validates and protects information from being duplicated or interfered with using digital means. This can be applied to any authority or institution that needs to keep verified information, from governmental departments to regulatory bodies, as well as banks and insurance companies. It can also be applied to digital platforms like Facebook, YouTube, Spotify and even Netflix. 

What are Cryptocurrencies?

Cryptocurrencies quite simply put are digital assets designed to be the medium of exchange for everything stored on a blockchain. Blockchain again is a digital verification mechanism with trust built into its structure and function.

What is Bitcoin?

Bitcoin is a digital asset (Cryptocurrency) aiming to disrupt traditional fiat currencies like the Dollar, the Euro and the Rand to become a digital medium of exchange using decentralized blockchain technology. Bitcoin also has the added benefit of being a digital store of value or a digitalized version of gold, hence those betting big on bitcoins current price valuation.

Why are people rushing to buy into Bitcoin?

The reason comes down to trust, 2020 has been quite a tumultuous year for governments and financial institutions having to provide stimulus packages to help alleviate the effects of coronavirus lockdown on their economies. These stimulus packages though helpful in providing financial aid also have the adverse effect of eroding trust in the money supply.

Photo by Nick Chong on Unsplash

A stimulus package is just a nice way of saying that the authority in charge of creating and validating the authenticity of money (usually the Reserve Bank), will be printing more money in hopes that banks will offer loans that will keep those who are financially strapped afloat. The more money that is printed inflation starts to increase which lowers the actual value of money currently in circulation, meaning food and fuel prices increase while the value of pensions and savings decrease.

Why Bitcoin is Important?

Bitcoin is becoming the new gold according to Bloomberg and is seen as a safe haven against inflation and the erosion of savings and purchasing power. People are essentially rushing to invest in the new bitcoin boom, not only to reap the financial rewards but to also protect against the adverse effects of money printing. This may be the defining moment for bitcoin as more renowned financial institutions in the past few years have started to take bitcoin very seriously.

Major governments are also taking bitcoin seriously, as it is now a major part of the financial policy of China, with US officials recommending that the incoming Biden Administration come up with a plan for the USA to dominate the cryptocurrency space seen as the fintech revolution by some. The country to gain a strong foothold in cryptocurrencies and blockchain technology will lead the world of finance 2.0 in the decades to come.

Disclaimer: Bitcoin and other cryptocurrencies are volatile digital assets which require lots of research and understanding before investing or transacting. Newscover recommends that all those interested in cryptocurrency and blockchain do their due diligence, as with every new innovation there are risk and rewards.

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