Bitcoin: The Currency of Today and Tomorrow?

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The virtual currency that emerged in 2008 and has significant market value attracts many investors. How did it reach this level, and will it last?

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Full Text

Article for Foca em Foco magazine.

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Today, the value of Bitcoin hovers around 40,000 to 50,000 Brazilian reais (as of March 2020). But it was very different at the beginning. The cryptocurrency had virtually no commercial value. Hungarian-American programmer Laslo Hanyecz made what is considered the first known Bitcoin transaction: he bought two pizzas from his friend Jeremy Sturdivant for—believe it or not—10,000 bitcoins. Today, that would be worth around 500 million reais at the time. Surely the most expensive pizzas in history, right?

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But if Bitcoin’s value is so high and the money is virtual, why doesn’t everyone just create bitcoins? It’s not that simple. Producing a bitcoin requires a super-powerful computer capable of processing the complex encryption lines that secure it. Encryption—a set of principles and techniques to encode writing, making it unintelligible to those without the proper access—makes Bitcoin “uncopyable.”

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In addition, the blockchain system functions like a decentralized bank, maintaining its own financial system and connecting people, where all participants can verify transactions. Because of this structure, Bitcoin attracts investors who value privacy in their financial dealings.

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Its real value as a currency lies in scarcity. Traditional money, which is used daily, is theoretically backed by something tangible—historically, gold. Bitcoin, Raphael Lima, creator of the YouTube channel Ideias Radicais, explains, isn’t analogous to the dollar or the real. “Its parallel is with gold. It’s a scarce asset with intrinsic value that people can exchange,” he says.

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Transactions

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Another important factor is transactions via the blockchain. Cryptocurrency exchanges occur without government interference and with impressive speed. Transactions are efficient, allowing crypto users to bypass taxes. In its early days, Bitcoin was a medium of exchange on the “deep web,” used to purchase drugs and other illicit goods. However, that is now a thing of the past.

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Investing in Bitcoin is relatively new and has gained greater acceptance among young people. For instance, 21-year-old student Matheus Troni discovered cryptocurrency in high school and now invests in Bitcoin. “I invest because I believe in the concept of the currency and that it will appreciate greatly in the future,” he says. Troni started with a 1,000-real investment in early 2019, then added 100 reais each month. “I’m satisfied and feel secure with my investment,” he adds.

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Bubble Concerns

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With such high monetary value, is Bitcoin overvaluation indicative of a bubble? According to economist Wiliam Retamiro, yes. He believes cryptocurrencies like Bitcoin are here to stay but face several restrictions imposed by traditional financial authorities, such as central banks.

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Moreover, because there’s no regulation, the market can be manipulated. “A bubble like the one in 2008 involved a very broad society. Since Bitcoin is concentrated in the hands of a few, the risk of widespread loss is much lower,” he explains.

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Retamiro also points out other disadvantages of investing in cryptocurrencies: “There is no credit guarantee fund. In conventional finance, if a bank or insurance company fails, a central bank’s guarantee fund protects clients. Since Bitcoin isn’t recognized by the Central Bank, there’s no guarantee for payments.”

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“Bitcoin has changed commercial relationships and has a social function: to break tradition and rethink the global economic system.” – Wiliam Retamiro, economist

The economy is a dynamic and unstable field. Bitcoin’s influence is a reality—what remains to be seen is whether it will be enduring and how the global economy will respond.

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