If reports suggesting that bitcoin may become worthless are true, it would be the best thing that ever happened to cryptocurrency.
The entire valuation rollercoaster was the result of two basic factors: First, scarcity of supply in the face of growing demand jacked up prices and, second, the easy conversion to other currencies let people cash in, literally.
Neither factor had anything to do with the inherent value of bitcoin (or any medium of exchange based on the blockchain).
Blockchain technology promises transactions that are completely informed, transparent, and immediate; just imagine the paperwork required to buy a house being dependably available in an instant (and not printed on paper), or any commercial transaction having the same full-disclosure insights built into it.
Blockchain is a technology answer to a regulatory question traditionally wrapped in human imperfection, allowing us to outsource trust to machines.
Cryptocurrency is a mechanism for assigning value to transactions in much the same way: governments can’t play with the supply or make promises about its worth, and nobody can steal it. It is as sacrosanct and eternal as the existence of computer networks that affirm its existence.
Cryptocurrency is the money that renders all other currencies moot. Only bitcoin has had its problems.
New bitcoin are created when computers perform a certain number of calculations that affirm the legitimacy of other bitcoin transactions, the idea being that the supply increases as the system is used more, and gets more reliable. This is called “mining,” as contrasted with the “minting” or “printing” of currencies that governments can do for, well, pretty much whatever reason they choose.
Certain parties built huge server farms that did nothing but crunch those numbers, generating bitcoin for them to use or sell. Other parties hoarded them, in hopes that the price would rise. Both activities resembled the governmental abuse of the money supply that cryptocurrency supposedly overcomes, and the network had no good answer (other than the argument that the system would reach equilibrium…someday).
But that day wasn’t coming anytime soon, as cashing out of bitcoin into dollars (or rubles, or whatever) was wildly profitable. At it’s height, one bitcoin was worth nearly $20,000. The floating exchange rate bitcoin maintained with all those currencies it was supposed to replace let people use those currencies to monetize its value…and take it out of the digital transactions they were meant to enable.
Think tulip bulbs, or collateralized debt obligations.
Now, the bottom has fallen out from under that value proposition, as the cost of mining new bitcoin may exceed the value at which they can be converted into “real” money, and bitcoin have no inherent value outside of the transactions in which they are used.
This could be the best thing that ever happened to it, and to cryptocurrency as a concept.
The blockchain revolution isn’t about gaming the system or quick bets and gains, but rather transforming how transactions get done digitally. A currency (or currencies) that exist within a system in which those transactions occur could be a powerful tool for not just assigning value, but determining and preserving it.
It’s not about offering an alternative mechanism for that valuation, but rather replacing all of the others. Cryptocurrency is kinda like monotheism in that respect.
Will bitcoin survive to become that currency? I have no idea, and there’s still a lot of work to be done to understand the real dynamics of outsourcing trust to a technology platform (whether for transactional details or financial worth).
Devising a truly self-regulating system that can preserve its integrity despite the influences of any number of other systems (or people) is also a work in progress.
I also think a helpful small step would be to call the financial aspect something other than cryptocurrency, which almost begs suspicions.
Another step may well be the resetting of the valuation clock on bitcoin.