Bitcoin on the top of Google’s searches 2017

The evolution of technology has become the driver of disruption in many industries. Through the adoption of various technologies such as the Internet and big data, new entrants can scale up business processes in more cost-effective and convenience manners than established institutions.[i] A particular technology that is re-shaping business processes today is blockchain, which is a virtual record that registers its transactions in connected blocks. The advantage of this technology is that every individual has equal access to the transaction records in his network and closes the possibility of cancellation of past transactions. Blockchain is called the safest technology today in the absence of intermediaries in conventional transaction networks. The application of blockchain creates a new trend in transactions where individuals no longer entrust security to humans (i.e. banking officer or financial advisor), but to a combination of virtual codes[ii] that can only be distributed within the authorized blocks, as visualized by the following illustration in Figure 1.

Figure 1. How bitcoin Transaction is processed[iii]

The most well-known application of the blockchain concept in the financial industry is the cryptocurrency called Bitcoin. In 2017, Bitcoin was listed on the top list of Google’s searches indicated by several frequent questions such as “How to buy Bitcoin”, “How to mine Bitcoin”, and “What is Bitcoin”.[iv] Despite the emergence of various new competitors in the form of Altcoin (Ethereum, Dash, Monero, Zcash, Augur, Steem, Storj, Factom), Bitcoin still dominates the current cryptocurrency market. Within eight years, Bitcoin’s value has shot up to more than US$ 2.500 per BTC 2017 as seen in Figure 2.

Figure 2. Bitcoin (BTC) value from 2009 until June 12, 2017[v]

Value: $ 2,658 per BTC

The global economic conditions that have not fully recovered from the 2008 financial crisis have contributed to the increasing public appreciation of Bitcoin. The Bitcoin system does not recognize inflation, and its value has increased progressively. Many predict that 21 million bitcoins will only be available worldwide, and already as many as 16 million bitcoins have been circulating in the market to date[vi]. Also, media coverage that continues to call the Bitcoin scarcity in the world market is increasingly provoking many people to get this new form of currency. A very high demand coupled with the scarcity in the market has caused the uncontrollable fluctuation of Bitcoin’s value throughout 2017, otherwise known as the Bitcoin boom or Bitcoin hysteria, as shown in Figure 3.

Figure 3. Growth of Bitcoin’s Value in 2017[vii]

Global governments reactions to the emergence of Bitcoin until 2017

Technological advances such as Bitcoin cannot be prevented. The creation of the “genesis block” of Bitcoins in 2009 by Satoshi Nakamoto, the project’s pseudonymous, departed from a lack of confidence in the mainstream banking system. Nakamoto’s thesis helps explain the popularity of Bitcoin as an asset independent that isn’t backed by any sovereign entities like governments and mainstream banks.[viii] Each country reacted differently to the widespread adoption of Bitcoin, so here’s a summary of the reaction of the world’s top economy-driven countries towards Bitcoin and cryptocurrencies in general:

• China

There are currently no laws from regulatory bodies such as the People’s Bank of China or the Ministry of Industry and Information Technology on the legality of Bitcoin and its trading.[ix] In fact, law enforcement has not made any significant efforts to penalize the Bitcoin traders.

• Japan

The Japanese Government through the Payment Services Act has set up a framework that makes it legal to use cryptocurrencies for payment.[x] This regulation gives an opportunity to its capital, Tokyo, to be the hub of cryptocurrency trading in Asia.

• Germany

The European economic giant is open to Bitcoin, and it is considered legal. However, Bitcoin is taxed differently depending on who are making the transactions (exchanges, miners, enterprises, or users). The German Federal Financial Supervisory Authority, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), recognize that Bitcoin has a comparable value as foreign exchange.[xi]  

• Russia

Russian financial authorities stated that all forms of money issued by non-state approved institutions are illegal.[xii] The Central Bank of the Russian Federation warned against any transaction of bitcoins and other cryptocurrencies.​​​​

• United States

As of January 1st, 2017, 13 US states have worked on legislations that will accept or promote the use of Bitcoin, while several other states have already passed them into law.[xiii] Bitcoin is set to be given the same financial safeguards as traditional assets such as gold and stocks.

A recent study provides a concise mapping of Bitcoin in more than 70 countries around the world. According to this data, as many as 87% of countries recognize the legality (L) of Bitcoin with variations of classification in the form of currency, commodity, property or even without specific information. Then, about 9% of countries put restriction (R) on Bitcoin and 4% stated Bitcoin as illegal (I). Only 38 countries recognize Bitcoin as a legal currency.[xvi] Regulatory barriers and compliance issues have kept many institutions from playing the Bitcoin boom. For some sceptics, Bitcoin may never function well as a medium of exchange because of its extreme fluctuations. [xvii] For some others, they suggest that Bitcoin might work fine as a store of value for selling.[xviii]Regardless of its potential benefits or losses, the emergence of Bitcoin should be viewed as a breakthrough in the financial world. Bitcoin offers a modern global financial system by which we can trade with anybody else in the world, including unbanked people who have never had access to capital markets.

Bitcoin in 2018

The fortunate boom of Bitcoin in 2017 remains as unproven worth. The wait-and-see will remains as a preferable approach for Bitcoin traders and investors in 2018 since there are currently few non-speculative ways to spend or use it. Some observers predict that the value of Bitcoin could reach US$ 50.000-100.000 in 2018.[xvii] However, it cannot be denied that the Bitcoin’s cryptocurrency competitors will continue to emerge. As Bitcoin’s value becomes more expensive and numerous other virtual currency emerge, Bitcoin faces a tight competition in the future.

A massive and intense media coverage online to Bitcoin can help this virtual currency maintain its position as the most sought-after virtual currency of the year. Moreover, the increasing number of providers of Bitcoin and Bitcoin wallet will make it easier for Bitcoin transactions. Bitcoin’s value may crash again, but through multiple crashes, runs and splits on its lifetime, Bitcoin has been tested. For now, the choice is in your hands: are you ready to jump in Bitcoin’s waves this year?

Editors: Atin Prabandari, MA(IR) and Nabeel Khawarizmy Muna, SIP

References:

[i] Financial Stability Board. (2017). ‘Financial Stability Implications from FinTech: Supervisory and Regulatory Issues that Merit Authorities’ Attention.’ Available at: http://www.fsb.org/wp-content/uploads/sites/1423/R270617.pdf. [Accessed: 20 December 2017]

[ii] A., Antonopoulos. (2014). ‘Bitcoin security model: trust by computation’, O’ Reilly-Radar. Available at: http://radar.oreilly.com/2014/02/bitcoin-security-model-trust-bycomputation.html. [Accessed: 20 December 2017]

[iii] Arsov, Aleksandar. (2017). ‘Bitcoin as an Innovative Payment Currency in Germany: Development of the e-Gold Standard’. Available at: https://researchleap.com/bitcoin-innovative-payment-currency-germany-development/ [Accessed: 29 January 2018]

[iv] Murphy, Margi. (2017). ‘Bitcoin mania: Google’s top searches in 2017 dominated by digital currency craze’. Availabe at: http://www.telegraph.co.uk/technology/2017/12/13/bitcoin-mania-googles-top-searches-2017-dominated-digital-currency/ [Accessed: 20 January 2018]

[v] Wieczner, Jen. (2017). ‘BlackRock’s Top Economist Thinks Bitcoin and Ethereum Look Like a Bubble’. Available at:  https://finance.yahoo.com/news/blackrock-apos-top-economist-thinks-032157288.html [Accessed: 20 January 2018].

[vi] Buchko, Steven. (2018). ‘How many Bitcoins are left?’ Available at: https://coincentral.com/how-many-bitcoins-are-left/ [Accessed: 30 January 2018]

[vii] Hackett, Robert, Wieczner, Jen. ‘How High Bitcoin’s Price Go in 2018?’ (2017). Available at: http://fortune.com/2017/12/21/bitcoin-price-value-prediction-bubble/ [Accessed: 14 January 208]

[viii] Wu, Tim. (2017). ‘The Bitcoin Boom: In Code We Trust.’ Available at: https://www.nytimes.com/2017/12/18/opinion/bitcoin-boom-technology-trust.html [Accessed: 7 January 2018]

[ix] Weese, Leonhard. (2017). ‘Bitcoin Regulation in China Still Unclear, but Chinese Exchanges Thrive Overseas.’ Available at: https://www.forbes.com/sites/leonhardweese/2017/11/29/bitcoin-regulation-in-china-still-unclear-but-chinese-exchanges-thrive-overseas/#700ca27e6487 [Accessed: 29 January 2018]

[x] Pal, Rakhee. (2017). ‘Countries Approving Cryptocurrencies’. Available at: https://medium.com/the-mission/countries-approving-cryptocurrencies-b5bbca1a5a03 [Accessed: 30 January 2018]

[xi] Winheller. (2017). ‘Regulations of Bitcoin in Germany’. Available at: https://www.winheller.com/en/banking-finance-and-insurance-law/bitcoin-trading/bitcoin-and-bafin.html [Accessed: 30 January 2018]

[xii] Pinchuk, Denis. Elena Fabrichnaya. (2017). ‘Russia Turns Cold on Crypto-currencies’. Available at: https://www.reuters.com/article/us-russia-cenbank-bitcoin/russia-turns-cold-on-crypto-currencies-idUSKBN1CF0RF [Accessed: 30 January 2018]

[xiii] Max. (2017). ‘State of Regulation 2017, Bitcoin and Blockchain Regulation in the United States.’ Available at: https://news.dinbits.com/2017/01/state-of-regulation-2017-bitcoin-and.html [Accessed: 30 January 2018]

[xiv] Darmawan, Oscar. (2017). ‘Bitcoin: Trading for Z Generation.’ Jasakom.

[xv] Wu, Tim. (2017). ‘The Bitcoin Boom: In Code We Trust.’ Available at: https://www.nytimes.com/2017/12/18/opinion/bitcoin-boom-technology-trust.html [Accessed: 7 January 2018]

[xvi] Darmawan, Oscar. (2017). ‘Bitcoin: Trading for Z Generation.’ Jasakom.

[xvii] Ibid.

[xviii] Tuttle, Brad. (2018). ‘Bitcoin Could Hit $100,000 This Year, Says Analyst Who’s Been Right Before’. Available at: http://time.com/money/5103946/bitcoin-predictions-cryptocurrency-rise-value-2018/ [Accessed: 30 January 2018]