Four years on, the bitcoin, the most popular virtual coin, is now worth 64 times its original value. In May 2013, a bitcoin was worth around 106 dollars, while by 13 November last year it had gone past the 6,800 mark. In the last six months, growth has been spectacular and its value has grown by nearly 500%, a boom that can be attributed largely to speculation in a currency that is, for the time being, not yet regulated in any country or supported by any central bank and that is still in a minority among the public as a payment method.
The way this virtual currency has bubbled up like foam in such a short space of time can be attributed to the rules of supply and demand. "Although the supply of bitcoins is growing, it is doing so at a much slower rate than current demand, so its value rises", explains Benja Anglès, doctor and professor of Financial and Tax Law at the UOC.
The experts agree that it is difficult to predict how the virtual currency, which first appeared on the payment system scene in 2009, will behave. "Whether it ends up becoming established as a payment method or the biggest speculative bubble in history will depend on the confidence in it shown by users", explains Víctor Garcia, UOC Faculty of Computer Science, Multimedia and Telecommunications professor.
So what will determine its success or demise? Doctor Benja Anglès maps out different scenarios that could lead either to the sharp fall of the bitcoin or to the virtual currency's establishment as a major player. What lies ahead for the bitcoin, invented by an anonymous programmer with alleged ties to the anarchist movement as a reaction to the economic crisis and against the central banks?
Professor Anglès explains that if large platforms like Google or Amazon end up creating their own payment method or if a lot of countries legislate against it or ban it, the people who initially invested in it may drop it, which could spell doom for the bitcoin. "This would happen if it is basically speculators behind the currency who have seen that they can make huge profits out of it in a short space of time. If they drop the currency when its value slows down or falls, then we could say that there was a bubble", he explains. The leading investment bank in the United States, JP Morgan, warned some time ago that the bitcoin was a fraud and that there was, in fact, a speculative bubble around it.
By contrast, Professor Anglès also maps out other scenarios in which the bitcoin becomes firmly established. He states that if large brokerages or businesses recognize it as a currency or as a payment method, the currency could end up being a viable option. Anglès explains that these large platforms (Google, Amazon) are monitoring the currency and studying its evolution. "If they see that the currency provides them with guarantees, they will probably adopt it; by contrast, if it starts to fluctuate too much and simply responds to speculative movements and is not sufficiently reliable as a payment method, in the end they will stop using it and will probably create their own", he explains.
Principal uses
Although it is hard to know how many users of the virtual currency there currently are, some calculations indicate that last year there could have been a maximum of 10 million users, according to Professor Garcia. There are some 16 million bitcoins in circulation and at most this could reach 21 million by 2140.
The principal reason why the currency was created was for shopping. At present, only Japan has recognized it, while China and Thailand have banned it. The remaining countries have not made any pronouncements on it. "Right now, it is neither legal nor illegal, but in an unregulated limbo", explains August Corrons, a professor from the UOC's Faculty of Economics and Business and an expert in alternative economics.
Presently, there are few physical and virtual places in Spain where you can pay using this currency. Professor Garcia explains that the high commissions for each transaction and the waiting time to be able to process payment in bitcoins hindered its adoption on websites and in on-site stores. "At present, projects are being promoted to correct these drawbacks, so starting this year it is possible that more businesses will offer the possibility of paying in bitcoins", explains the Faculty of Computer Science, Multimedia and Telecommunications professor, who also highlights another use of the currency as a safe haven. "The bitcoin may be a substitute for gold as a safe haven", he states. It could also be used by people in countries with high currency inflation, such as Venezuela, Zimbabwe or Argentina. "If, when they receive their salary, they turn it into bitcoins, they would have more purchasing power", he says. The use of this currency by banks could also help its popularity. The appearance of ETFs, exchange-traded funds, related to bitcoins will help this, according to Garcia.
Transfers in seconds
The rules regarding bitcoin state that there can only be 21 million in circulation, a fact that Garcia claims removes any attempt at inflation. The elimination of intermediaries when making transfers is one of the main advantages for users. According to Professor Corrons, the advantages lie in the blockchain technology, the database that enables the use of bitcoins, rather than the currency per se. "The transaction costs are small and allow account confidentiality, which enables money to be sent without leaving scarcely any record", he states. He also highlights the immediacy of payments as another of the major advantages. "Until now, when you made a transfer from one bank account to another, it was one or two days until it reached the final recipient. With blockchain, it's a matter of seconds", he explains. Some banking institutions have even joined forces to foster its use, as it is a technology that would allow transactions to be made very quickly, efficiently and securely. Also, some banks, such as the Bank of England, the Bank of Sweden, the People’s Bank of China or the partnership between Banco Santander, Deutsche Bank and BNY Mellon, are working to promote their own currency.
The main pitfalls
The fact that it is a currency that is difficult to trace means that it is used a great deal on the Dark Web, in the world of cybercrime, to buy and sell illegal goods such as weapons or drugs. "It allows distance payments to be made and it is harder to decipher who is behind them", explains Garcia, who adds that there are other virtual currencies, such as Monero, that are harder still to trace.
Professor Benja Anglès mentions bitcoins' other dangers. "This currency was created to avoid the supposed dangers of conventional currencies, such as fluctuations or forgeries, but at present this has not been avoided", the Financial and Tax Law professor states, adding that cases have been reported of stolen purses and identity theft in e-transactions. "In addition, as no banking institution provides support to the currency, neither possession of it nor transactions with it are protected by the conventional banking system or by state central banks", he goes on to say.
It will not replace paper currency
The number of virtual currencies is steadily on the rise and there are now over a thousand. Platforms such as Coin Market Cap and CryptoCompare establish a ranking of the most valuable and monitor the currency in real time. Despite the rise of the bitcoin, the experts rule out its replacing traditional currency in the medium term. "You cannot rule out it winding up as another payment method, like PayPal, and that in the future it ends up being adopted as a common payment system for e-transactions, but, for the time being, under no circumstances will it replace the present cash or electronic payment methods", claims Anglès.
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