Tuesday, July 23, 2024

    Why Central Banks Are Really Fearful of Bitcoin

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    Central banks have no love lost for Bitcoin and cryptocurrencies. Even though some positive things are happening, the overall sentiment remains predictably rather negative. The validity of cryptocurrencies and their decentralized technologies are still in question, especially by banks. It isn’t the first time central banks feel the need for Bitcoin to have a central body giving the currency any real value.

    Determining the Value of Bitcoin

    A lot of people and institutions struggle with determining the value of Bitcoin. A decentralized form of money which isn’t centrally issued or controlled poses many different challenges. Moreover, it also raises the question as to whether or not this form of money can ever have any tangible value. Although Bitcoin has a market price, it tends to fluctuate quite regularly.

    For central banks, this is a clear indicator Bitcoin is too volatile. There have certainly been many ups and downs along the way over the past nine years. Every year, it seems there is a bearish trend prior to the Bitcoin price spiking upward again. Throughout 2018, that bearish trend has become very apparent, reducing the value of one Bitcoin by nearly two-thirds in the process.

    Compared to gold, Bitcoin is a lot more volatile. At the same time, it is evident gold has also lost some appeal when it comes to investing, even though it is still a decent store of value. Some people have also attributed that label to Bitcoin, even though it is clearly too volatile to carry that burden. That said, the value of Bitcoin has held its own quite well compared to a year ago, as it is still quite a bit higher compared to June 19th of 2017. At that time, one BTC had a value of around $2,500.

    The “Need” for a Central Body

    One of the discussions that comes to the surface quite often is the lack of centralization in Bitcoin. More specifically, there is no central developer, company, bank, or government, responsible for maintaining the world’s leading digital currency. It is a very different take on the entire concept of money, and one central banks still struggle with today. Finance is, for banks, all about trust – we have no choice but to trust them with our money. Bitcoin, on the other hand, is completely trustless, and therein lies the threat to banks which profit on the finances of others.

    In fact, some experts go as far as claiming Bitcoin is an existential threat to central banks, even referring to it as “The Napster of Money”. Additionally, it is an alternative to traditional banking. That doesn’t necessarily mean it will succeed, but it poses an interesting concept. The peer-to-peer nature of Bitcoin should not be overlooked either. Even so, it is safe to say the Bitcoin price has simply gotten ahead of how far the technology has come over the years.

    All of this creates a very interesting future for cryptocurrencies. The ‘changing of the guard’ in finance will happen sooner or later. No one knows if cryptocurrencies will succeed in that regard, or will remain investment vehicles for speculators first and foremost. Until Bitcoin’s technology matures, it will not be used as a traditional currency all that much. Thankfully, things are improving in this regard, courtesy of the Lightning Network, among other things. Other faster blockchains and cryptocurrencies already exist and they put banking technology in the dark ages.


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