The Rebirth of Bitcoin After the Coronavirus Pandemic in 2020

Bitcoin Pandemic Coronavirus Covid-19
Bitcoin Pandemic Coronavirus Covid-19

Cryptocurrencies and blockchain technology have grown exponentially in the last decade. For example, one bitcoin was equal to one dollar in April 2010 and is approaching this end of the year, for the first time in its history, at USD 55,000+.

Still for many, the issue of cryptocurrencies and the technology behind them (the blockchain) is unknown. However, more and more people have decided to invest in bitcoin. In recent months, especially during the coronavirus pandemic, the world’s most famous digital currency has grown by more than 210% and is approaching USD 400,000 for the first time in its history at the end of the year.

Unconventional policies adopted to counter the slowdown caused by the coronavirus pandemic have boosted demand for bitcoins this year. In the last decade, its price has grown exponentially: in 2010, one bitcoin was only equivalent to one dollar.

What is blockchain?

The 2008 financial crisis was the perfect juncture for the emergence of “blockchain” (or “chain of blocks”). This technology was created in an attempt to invent a digital currency and overcome the problem of ‘double-spending’. The difficulty was that when information was sent over the Internet, copies were being sent and not originals.

For example, when a Word document is sent, the original document is not sent, but a copy. Of course, this is a problem if you want to send money, as there was no way to prevent the money from doubling. The only way to ensure the transaction was through a trusted third party, banks or financial entities, which guaranteed that this error did not happen.

An anonymous person, under the pseudonym Sotoshi Nakamoto, proposed a solution to this problem through a peer-to-peer or P2P network that allows transactions to be certified in a short period of time and secures them in blocks. of information.

How does it work? Every so often a block is created that registers new information and maintains the data of the previous blocks; as a string. Basically, it is an unalterable record of transactions between users, like a ledger that is reviewed and managed by thousands of people in charge of certifying who has what. The genius is that this network is supported by people (or network nodes) who compete to verify these transactions and in return receive bitcoins as a reward.

These people are called “miners” and they are in charge of running the chain. To the extent that each of these “miners” has a copy of the transaction chain on their servers, it is very difficult to violate the information in the event of a cyberattack, because to do so they would have to ‘hack’ each of the blocks of the chain and the thousands of copies that are distributed all over the world at the same time.

With these currencies, the “crypto economy” was born, “an economic system that is not defined by geographic location, political structure, or legal system, but uses cryptographic techniques to limit behavior instead of using trusted third parties,” such as are defined by economists Dave Babbittz, from Northwestern University, and Joel Dietz, from the University of Pennsylvania.

“Blockchain” is a technology that goes beyond cryptocurrencies. For example, Dazza Greenwood, professor and research scientist at the MIT Media Lab and who carries out projects on the definition and development of Computational Legal Science, assures that “blockchain technology can provide the basis for a legal body that connects everything , from individual authorizations and approvals, through enforceable contracts and licenses, to the applicable statutes and regulations that define and regulate the aspects of each transaction and legal instrument ”.

The fundamental elements of this technology are: decentralization, disintermediation, immutability and trust. In Blockchain the information is distributed, there is no information stored in one place and this makes it almost impossible to violate the network. To the extent that it is a P2P network, it is public and therefore there are no hierarchies or intermediaries for its operation. In addition, the information is encrypted, so it resists any manipulation attempt.

This new “digital book” of economic transactions can be programmed to record practically everything that is of value and important to humanity: birth and death certificates, marriage licenses, educational degrees, financial accounts, medical procedures, insurance claims. , voting, among others. Absolutely everything that can be expressed in programming code.

The rebirth of bitcoin

Bitcoin is made up of the union of two words “coin”, which means currency in English, and “bit”, in reference to the Bittorrent network from which the decentralized protocol for the exchange of information point to point (P2P network) was inherited. A bitcoin is an interchangeable good that is internationally recognized, but is not regulated by any financial entity. Its value is tied only to supply and demand.

Contrary to a financial currency that a country produces, botcoin is more like gold. It is not manufactured, nor is it issued, but it is necessary to mine them. Gold, like other precious metals, was used as a bargaining chip because there is a finite quantity, and the same happens with bitcoins, their quantity is limited and once they have all been mined, the only way to obtain one is by buying it.

According to Javier Tolj, a miner who wrote a book explaining what bitcoin is, there are three types of people who invest in bitcoins. The most common are those who want to invest in cryptocurrencies to generate short-term profits with the volatility of the price of this cryptocurrency. There are also those who use this technology to send money to those outside the banking system, for example, an illegal migrant in another country. And there are the ‘hodlers’, who invest for the long term and hope that one day this currency will grow exponentially and its use will be common around the world.

Because the value of bitcoin is not directly tied to any obvious real-world phenomena (such as fiscal or monetary policy), it can appreciate or depreciate in ways that are difficult to predict or even explain. For this reason, many people still prefer to invest little money. Analysts at Bloomberg predict that bitcoin could hit $ 60,000 next year, because major central banks and governments are unlikely to cut or stop their stimulus programs that drive inflation anytime soon.

According to Paul Brody, EY’s global innovation leader for blockchain, Blockchain will transform global commerce because it will change the cost of business-to-business transactions. When that happens, business and finance will separate. In 2020, all roads to this future suddenly accelerated, in part because of the pandemic. Brody finds five acceptance and development milestones this year.

First, people, forced by the pandemic, have greater comfort managing digital resources. Second, new regulatory frameworks have been created such as the European Crypto Framework, launched in September, and the framework around digital currencies being built by the Bank of England. The G7 finance ministers also emphasized the need to regulate digital currencies, according to a statement from the United States Department of the Treasury. Third, there is an increasingly dominant architecture; Only bitcoin has more than ten million users and it is expected that new applications will be developed under this technology, such as smart contracts. Fourth, this year financial decentralization accelerated, that is, in the future loans could be made, insurance, but without the need for a bank or an insurance company. Y, finally, 2020 represented a high interest of many companies for low-cost transactions. In fact, it was recently revealed on an internet forum that someone transferred $ 165 million from one account to another and only paid a fee of $ 1.20.

It is very likely that bitcoin and Blockchain will grow even more in the coming decade. With the momentum generated by the pandemic to invest in digital currencies, this technology attracts the attention not only of investors, but also of people who want to develop and take this technology further. PayPal CEO Dan Schulman expressed optimism about the future of cryptocurrencies and stated that now is the time for their use to go mainstream.