Cryptoland Episode 0
At the start of this year, Bitcoin saw its most significant high, and right now, its value has shrunk more than 3x. This factor has occurred in many other cryptocurrencies, such as Ethereum. Why has this happened? Was there a bubble that wasn’t addressed? Wasn’t Bitcoin the savior of the financial system after the dot-com bubble? Let’s address these questions and many more throughout this article.
First, let’s get ourselves a history lesson on the foundations of cryptocurrencies and their foundation blockchain. Before cryptocurrency came into fruition, the only way to move funds worldwide or within a country was with the help of the banking system. This involved delays and fees every step of the way, but it was a secure, trustworthy process as the banking system secured and insured the money. During the dot-com bubble in the 2000s, followed by the 2008 recession, trust was lost in the banking system, primarily when taxpayer money was used to bail out the big banks.
The technological world is constantly inspired to do better, which is when the first cryptocurrency, bitcoin, was released to the world. Since its launch, Bitcoin has gone through a rough decade of proving itself to a point where it has actual monetary value. Presently, governments worldwide are still figuring out the best way to regulate these services as the rules of engagement are debated. Let’s dig a little deeper into how the technology actually works.
As you can see in the image, by using a combination of cryptography and blockchain, the founder of Bitcoin created the world’s first decentralized currency where the market decides the value and also polices the system through the process of mining.
So now that we understand how these currencies work, how does one acquire them? One can add coins to their portfolio through traditional brokers or cryptocurrency exchanges. Once you choose the platform, you must convert fiat currencies (government-issued currencies such as USD/EUR) into cryptocurrencies through a credit/debit card or wire transfer. After converting your hard-earned money into cryptocurrency, you must store these currencies in a digital wallet. These are physical devices or online software used to store the private keys to your cryptocurrencies.
Initially, it was hard to use cryptocurrencies commercially. Today, with education on crypto, the public and government sectors have come together to recognize it as an official source of wealth. Many technologies and e-commerce websites such as Microsoft, newegg.com, Shopify, and Home Depot accept Bitcoin. Car dealers, luxury goods vendors, and insurance companies recognize cryptocurrencies.
Unfortunately, 2022 has been the doom of cryptocurrencies with the fall of Terra-Luna and FTX. FTX created the most considerable dent by wiping away the highest amount of wealth till date. This is good, the bear market in 2021 during and after COVID spiked the value of cryptocurrencies to an all-high. With another recession’s onset and global inflation hitting a high, the global economy is resetting. This reset is good because, without a low, there is no high. Incidents like the FTX crash, wherein the poster child of crypto, namely SBF, is being challenged, creates a shared global sense of urgency on the dire need for regularization in this space.
As of date, bitcoin is valued at $16,512 when its YTD growth is the entirety of its value. I believe that crypto is the future, concepts such as a stable coin where an actual currency backs its value for every digital coin purchased. BUSD, USDC, and XSGD are examples of stablecoin where they are backed by a fiat currency equivalent. By pegging the value to another currency, there is a heightened level of security and trust in the system. The crypto community is highly bullish on its success, and so am I. With the incidents we have seen this year, rules of engagement will be formed over the next few years to ensure that there will be no repeat of the same.
By decentralizing the financial world, it provides freedom to the end-users, providing them with many opportunities. Where you are born defines your access to financial wellness. For someone living in a developing nation with little to no access to investing in foreign markets, they could use crypto exchanges to convert their existing fiat currency to stablecoins, which allows them to fight against inflation. In addition, they can use these funds to invest and trade on the platform in index funds or cryptocurrencies themselves, opening a world of investment opportunities, thereby allowing their money to work better for them.
I expect this series to keep growing as I keep learning and working more in this space. In the upcoming episode, I look forward to discussing the inefficiencies within the crypto ecosystem. Please feel free to comment below on what you would like me to dig deeper into.
