The story of Bitcoin did not start from nowhere as its roots go back to the 1990s with the emergence of the “Sypherpunks” movement against online censorship through cryptography. According to Batiste Lack, the founder of a crypto exchange business, Bitcoin is based on a combination of critical technologies by IT specialists over 20 to 30 years.
On October 31, 2008, a mysterious figure named Satoshi Nakamoto posted a message on a specialized mailing list announcing that it was in the process of creating a digital currency that was free from any authority or censorship, calling on developers who wished to help with the project. Then, in January 2009, the first block of the coin was created, which only aroused the interest of some programming specialists, most of whom were Americans. Then came the launch of the first appreciation of the coin in October of the same year, when the currency’s value was 0.001 dollars, which is the same amount as the cost of producing electricity.
On May 22, 2010, the first purchase of a tangible asset using Bitcoin took place. On that day, an American developer named Lazlo Hanyecz bought two pizzas for 10,000 Bitcoin (about $5 million as of August 2021). Since then, cryptocurrency enthusiasts have celebrated this day Annually under the name “Bitcoin Pizza Day ” to celebrate the most expensive pizza in human history.
Rapidly, then the first exchange platforms appeared, such as Coinbase in 2011 and Kraken in 2012, and the Bitcoin equivalent against the dollar was reached in February 2011, and in the middle of the same year, the price reached $30. However, according to Le Figaro, Bitcoin won’t begin its voyage as an actual commodity until it was used in the “dark Internet” – a secondary Internet where anything can be purchased in perfect anonymity without revealing identification – initially earning it a negative image. The dark Internet or web is known for illegal trade, and the anonymity provided by Bitcoin made it an ideal currency.
The defining moment
2017 was a momentous occasion in the currency market development when a unique fever overtook the marketplaces. Also, many individuals rushed to get their hands on this digitized currency. A thousand dollars in one go.
Digital (encrypted) currencies, especially Bitcoin, gained wide popularity in most parts of the world after significant investors, led by Elon Musk, promoted them in February and invested $1.5 billion in them, which encouraged many to buy it in the hope of a quick profit. However, a storm has hit “cryptocurrencies,” especially Bitcoin, recently after Elon Musk suspended accepting “cryptocurrency” as a way to pay for Tesla cars, “due to climate concerns” and China’s imposition of new restrictions on its mining – the production of Bitcoins using proof of work algorithms – and use. Turkey also banned its use very recently after a couple of high-profile fraud cases came to light.
WHAT ARE CRYPTOCURRENCIES?
In 2009, while Bitcoin was still just a notion, the realm of “Cryptocurrencies” was born. In the following few years, Bitcoin managed to turn that initial curiosity it had attracted into extreme attention, and that is when the world of Cryptocurrencies rose into the limelight!
How did Cryptocurrencies accomplish this?
The main reasons behind the success of cryptocurrencies include their promise for quick economic gains, promotion by financial influencers, and anonymity and freedom from government control.
Firstly, growth spurts over the years have made many Crypto-traders millionaires!
Secondly, the acceptance it has received from famous personalities such as Elon Musk (the world’s richest man), Michael Burry (a world-famous investor), and other influencers encouraged its reception by people around the world. Moreover, many governments are now accepting Cryptocurrencies officially and creating their own, such as Nigeria, which is launching their Crypto called “E-Naira” to battle hyperinflation. The government of El Salvador will formally announce its decision to classify BTC as a legal currency from September 2021.
If you’re new to Cryptocurrencies, you may be confused as to what exactly they are Cryptocurrencies? Are they currencies? Or are they investment instruments?
To put it more simply, a cryptocurrency represents a virtual or digital commodity that could be used to buy goods and services. Like any other entity exchanged on the Foreign exchange markets, Cryptocurrencies, including the Somali Shilling or the US Dollar, can indeed be exchanged and thus viewed as an asset!
Cryptocurrencies were mainly established to replace traditional currencies, which some believe has grown obsolete today. They are protected by encryption, therefore makes them safe and close to impossible to counterfeit.
Cryptocurrencies are decentralized networks built on blockchain technology at their core. Cryptocurrencies are distinguished because a centralized agency has not authorized them, therefore safeguards them from third-party exploitation.
Characteristics of Cryptocurrencies?
Generally, Cryptocurrencies share some common characteristics, which include:
i) Decentralization:
Cryptocurrencies are decentralized and distributed across chunks, which, when linked together, constitute a Public blockchain. This eliminates anything like a centralized individual, administration, or banking system regulating or supervising the money. On the other hand, cryptocurrencies have complete independence in this sector and are governed by the market force’s economic principles.
People are drawn to digital currencies because they avoid paying high commissions. After all, there are no intermediaries commission fees while making transactions. However, the transfer of Cryptocurrencies such as Bitcoin and Ethereum incurs network fees, also known as gas fees determined by the Blockchain network. Moreover, as compared to our traditional banking, Cryptocurrencies allow way faster settlement of payments. This is true especially in the case of international transactions, which sometimes take days. At the same time, Cryptocurrencies can make duplicate transactions within mere seconds!
What’s more, is that this added speed is provided with just a minimal fee. So with Crypto, you’re getting a better service at an even cheaper rate! No wonder banks are so against them.
ii) Deflationary Nature:
Central banks have the freedom to change their “monetary policies” to determine the value or price of fiat money. Fiat (traditional) currency is expensive because there is no predefined cap on the number of these commodities that can be issued. On the other hand, several Cryptocurrencies do have a finite supply written into their mechanism until they are created. As a result of the restricted quantity, they are by definition deflationary, implying that their value will only rise over time!
iv)Pseudo-Anonymous:
Cryptocurrency possession is determined by a wallet ID rather than a person’s bank account and name. As a result, cryptocurrencies provide their holders with some privacy and continue making purchases discreetly. None of us would know who the wallet IDs belong to unless they were expressly told because the wallet IDs are randomized and therefore do not include personally identifiable information. This, according to the bankers, is a downside of Cryptocurrency as it violates the regulatory requirements that enable tracking and tracing of transactions, such as the Know-Your-Customer (KYC) requirement. This is why Cryptocurrencies are sometimes associated with illegal transactions.
Conclusion:
Cryptocurrencies are undeniably an economic transformation, but you should do your homework before participating in this virtual currency by thoroughly examining the benefits and drawbacks of this financial tool and its innovation. The venture is much the same as other high-risk, heavy investments. This indicates not whether you may participate in it is determined by your risk tolerance and investment strategies. A competent thumb rule would be to spend your spendable income solely – that seems to be the money you don’t need to cover your bills – because this will allow you to ride out market volatility and ultimately emerge victorious!
Dr. Ali Yassin Sheikh ALi, Senior Researcher and lecturer, SIMAD University
