In July this year, the price of Bitcoin dipped below $30,000 for the first time since its all-time high (ATH) at $64,863.10[1] back in April. For many less versed in the cryptocurrency scene, this was a rude awakening. The excitement and faith they had pinned to Bitcoin and cryptocurrencies as a whole took a hard hit and – like we saw back in 2018 – many chose to exit the crypto scene with their heads hung low, tail between their legs and the belief that the whole thing is a scam.
But to interpret one dip as an indicator of the long-term integrity and strength of an asset is to fail to appreciate and understand the nature of its global economy and its full potential. Reaching back above $50,000 earlier this month, Bitcoin has already recovered and today trades at 28% discount compared to its ATH. The fundamentals do not change; there isn’t a single asset that hasn’t, at some point in history, experienced a drop in real purchasing power of up to 50-80 per cent – including cash, an asset which although seen by many as stable, has in fact always been a risky and volatile asset to hold. Despite its current instability, Bitcoin remains a world changing innovation and one that will help drive the development and evolution of society in today’s tumultuous and fast-moving world.
A digital asset that has now been on the scene for eleven years, Bitcoin is a store of value and is deflationary by design. The cryptocurrency offers limited distribution, fix supply and a very clear inflation rate, which is decreasing over time. When we compare this to fiat currencies which are being devaluated day by day, it’s not hard to see Bitcoin’s strong appeal. Further to this, there’s the question of trust. As Satoshi Nakamoto, the author (or authors) of the Bitcoin whitepaper has said, "The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” In a world that seems to be in a constant state of emergency and where there is flailing support for centralised powers, it is perhaps no surprise that the belief that these nation-state-backed currencies are outdated is becoming increasingly popular. It appears that the hegemony of fiat money is not only being questioned but already starting to crumble.
But when it comes to unlocking the full potential of crypto, it’s still very early days. If we look to modern history to find a similar stage in burgeoning technological advancement to that of the current state of play in the crypto world, the late 90s and the development of the internet is a strong comparison. Netscape Navigator – the forefather of all internet browsers – had just launched, and access to the world wide web was now in the hands of the public. It was a momentous period; the beginning of a changing world which, almost three decades later is in many ways, unrecognisable to the world that welcomed Netscape Navigator back in the 90s.
We’re in the early stages of cryptocurrency and much like the way the internet has influenced today’s world, there is no denying that our society three decades from now will be shaped by the developments in cryptocurrency that are still to come. There is much learning, testing and experimenting to be done. As we have seen in this year alone, every new bit of information and even a tweet from Elon Musk can send the crypto world spiralling in a new direction. Like all new innovations, Bitcoin is finding its feet. It will go through its cycles and it is therefore critical that we keep our perspective focused on the big-picture and long-term potential of the sector, rather than run away at the first sight of a dip.
Today’s world is built on systems of centralisation; this is especially true for the finance world where nearly all of the power is centred around a certain institution or institutions. Bitcoin, therefore, is revolutionary by nature. The Bitcoin blockchain is powered by miners who provide the computing power and the hashrate, ensuring that the blockchain is constantly updated and kept secure. These miners are spread out around the world and although there are areas where there are high concentrations of Bitcoin mines (namely China), there is not one source of governance or power for the mining of Bitcoin. Ultimately, to stop the production of Bitcoin would require shutting down the global internet and power supply – now that’s a decentralised system. And when you think about what this decentralisation and the future of blockchains means for the finance world, it’s game changing.
Let’s take a step back and look at foundations of decentralised finance (DeFi) as a whole. While these projects may start centralised (in order for them to get started, you need a small group of people to kick things off), the goal from the outset is to let go and dissolve this power over time, something that is often done with the creation and dissemination of tokens which in time, become sources of decision power i.e. one token equates to one vote. There comes a point when there is enough distribution of these tokens that no one individual has more than 50% and therefore, de facto control is decentralised.
A great example of DeFi outside Bitcon are decentralised exchanges (Dexes) which have automated order books and liquidity pools where individuals can list a new crypto asset pair and therefore create a market in a wholly decentralised way. Dexes, for example, offer a sandbox that is proving to the traditional capital market and its participants the power and possibilities of blockchain. When we talk about Defi therefore, we are not just talking about a niche crypto scene. Compare this to the London Stock Exchange which has a US$40B[1] market cap or the Nasdaq worth US$32B[2]. Dexes offer similar types of services which are fully automated in a decentralised way.
The crypto world is ever moving. Sure, you can buy Bitcoin and stick it in your digital wallet but if you don’t keep an eye on new equivalents and how things are moving in the crypto scene on a daily basis, you have a lot to lose. But if you do it right – by keeping your finger on the pulse of the constantly changing currents – you’ve got plenty to gain. Bitcoin and the cryptocurrency scene are offering something new to the finance world. It is a truly revolutionary way of looking at the economy and it is therefore critical that we do not impose upon it traditional beliefs, values and frameworks. In order to harness its full potential, we need to adapt our frame of mind, expand our research and thinking and embrace it with the perspective of advancement and innovation.
The crypto revolution is on our doorstep, and we can no longer ignore it. We cannot ignore this technology which gives us all access to an economic system where everyone who wants to make it a success can have a chance to participate; we cannot ignore blockchain which enables a democratisation of the finance world by enabling distributed decision-making power for many more stakeholders with scalability and equitability; we cannot ignore this innovation that gives 1.7 billion unbanked people access to financial services.
The distinction between digital and physical assets is already blurred for many teenagers and those in their twenties. There is a growing generational divide between Millennials, Zoomers and the younger members of society who are embracing cryptocurrencies and decentralisation with open arms, and the older members, the incumbents, who are more resistant to change. The question isn’t whether cryptocurrencies and decentralised finance are going to be a critical component of the future economy; that answer is an indisputable yes. The question is: are you going to get on board with the advancements, or will you be left behind?
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