Promise or disappointment? The future of cryptocurrencies

SAN FRANCISCO – In any conversation with people in the technology sector about the future of bitcoin, it's inevitable to hear two very different comparisons: one with tulip bulbs and the other with the Internet.

Bitcoin's critics claim that their digital chips look like 17th-century tulip bulbs in the Netherlands, which generated a huge but very brief speculative frenzy that left behind a trail of beautiful flowers and broken bank accounts.

Those who believe in Bitcoin, on the other hand, want to convince us that crypto-currencies look like the Internet: it would be a vast technological category that will take time to reach its potential and whose expectations have exceeded reality at first sight. years Based on this comparison, the fall in bitcoin prices last year could be likened to the bursting of the internet bubble and would only constitute a temporary setback that will then leave room for a time of great ideas in full swing.

My experience as an badyst of bitcoins for several years makes me think that none of these comparisons is accurate in reality. Bitcoin is neither a failure without a cure nor an economic miracle.

So what is it? It will take a few years to see clearly what place this technology will occupy in the world. To imagine where he is going, one can not simply observe his changing price: one must understand who is using it and how at the moment.

Simply explained, what Bitcoin offers is a new way to store value and transfer it online. Everyone can open a bitcoin purse and receive money from friends and strangers. The system works without the intervention of any central authority, thanks to a network of computers not much different from the one that allows the operation of the Internet.

Despite the drop recorded last year, bitcoin users typically transfer between $ 400 and $ 800 million worth of bitcoins per day across the network, according to data from the blockchain, the public accounting book. from which is recorded all transactions with bitcoins.

This daily volume is less than half the daily average of the PayPal payment service. However, this involves a lot more activity than the network used to manage before the price surges in 2017.

Those who support the tulip version to explain the situation of bitcoin say that most of the transactions made today are speculative: buyers and sellers of bitcoins who expect their value to increase in the future. An even more generous interpretation compares bitcoin to gold, a rare commodity whose value fluctuates and offers a different option for national currencies.

When it first appeared in 2009, bitcoin was described as a new mechanism for making payments online without the fees charged by credit card issuers. Chainalysis calculates that last year, bitcoin payment managers performed 0.3% of transactions in bitcoins, for an amount of about $ 2,400 million.

That's a fair amount of seemingly legal trade, but for bitcoin, this was not a good sign that almost all of last year has come down, while its price has also dropped, according to the information provided by Chainalysis.

A large number of bitcoin supporters with whom I have discussed, if not most, admit that it does not offer many advantages over traditional electronic payment methods. In many ways, it's even worse. Who pays with Bitcoin becomes a speculator and depends on his volatile value all the time that he keeps the chips until the payment is made.

In view of these data, it is questionable whether this technology will be used more in activities other than speculation. The most convincing use described by bitcoin fans is that given by people living in countries whose currency is more volatile than bitcoin.

In Venezuela, for example, bitcoin makes it possible to move savings out of the bolivar, which is experiencing considerable inflation. Thanks to the open nature of bitcoin, Venezuelans can buy it without the government preventing it.

Some Venezuelans tell how they saved their savings with bitcoin. Last year, citizens of this country bought over $ 230 million in bitcoins via the most popular shopping platform, LocalBitcoins, according to data badyst Matt Ahlborg. These purchases continued to increase even as the price of bitcoin dropped.

The biggest problem that bitcoin faces is that its practical and legal uses have struggled to overcome illicit or clearly immoral activities.

The list of uses that have been given by bitcoin criminals is extending, ranging from ransom payments to the recovery of access to files stuck on computers – even to the release of captives – to the sale of illicit drugs.

Although it is difficult to quantify many of these uses, Chainalysis has estimated the number of bitcoins used to buy drugs on the black network. Amounts provided by Chainalysis show that drug purchases increased last year, although the price of bitcoin has declined.

The total black market transactions in 2018, about $ 620 million, is more than double the amount of Venezuelan purchases of LocalBitcoins.

Although this technology does not have widespread use among ordinary people, nothing indicates that it can not do it in the future. There are still many areas in which the most ingenious entrepreneurs are convinced that the open nature of cryptocurrencies could be useful.

In the early stages, many investors bet on Ethereum and EOS, other cryptocurrency networks that can be programmed for more sophisticated applications than Bitcoin software, such as financial contracts.

Some programmers have developed thousands of decentralized applications, or Dapps, that use EOS and Ethereum tokens. Many can be used today. With these dapps, it is possible to mobilize money and register ownership of digital badets – such as video game items – without it being necessary to have records saved by a company Central.

Unfortunately, most of these Dapps are still concentrated in legal gray areas, such as bets. The most notable use of Ethereum has so far been used by companies that wanted to raise funds without being required to meet the standards applicable to the values ​​of initial offers, which often involved scams and fraudulent activities.

I saw few signs showing that one of the most legitimate uses had worked quite well enough to make crypto-currencies attractive outside the circle of their supporters.

The most positive aspect of crypto-currencies may be that those who have a real interest want to remedy the failures. The value of digital files, however volatile, has created incentives for those who work there.

Facebook is the big company that has recently ventured into the sector. It is said that she is working on creating her own digital files. Many other major courier companies are doing the same thing.

I can not predict the future of cryptocurrencies more accurately than their eternal dreamers or detractors. However, given the amounts of money still sent to the market, it is too early to exclude them completely.