Bitcoin: Revolutionary breakthrough, or mother of all bubbles

Nikki Beesetti paid for a semester tuition with a single Bitcoin she bought in 2017.

Rafa Ayoub / Nikki Beesetti

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Rafa Ayoub / Nikki Beesetti

If you think America’s policies are polarizing, consider Bitcoin. The price of a single Bitcoin today is around $ 50,000. Ten years ago, in its infancy, it lay around a buck. The meteoric rise of the digital currency has marked millionaires and activated true believers around the world. Only skeptics are convinced that Bitcoin is the mother of all bubbles.

In recent weeks, the price of Bitcoin has been driven higher after much published investments from the car manufacturer Tesla and the life insurer MassMutual. Banks, MasterCard and the auction house Christie’s have all opened their doors to this type of cryptocurrency and to those closer to the financial mainstream.

Before corporate America tipped in, there were people that Nikki Beesetti fascinated by Bitcoin’s promise. In 2017, Beesetti was an engineer at Purdue University, with typical college press and teaching on the side.

“I was paid about $ 10 an hour,” she says. “It was just enough money for me to buy, food, coffee, the frame.”

As an engineering student, she was curious about Bitcoin’s technology, its innovative design. And eventually as an investment. So she did a lot of research and spent $ 2,000 on a single Bitcoin.

“I sold at the end of the year when it was about $ 19,000,” she recalls.

The only Bitcoin she bought covered her tuition, books and lab fees. And it changed her life in a way. She’s still buying Bitcoin, still excited about its potential.

“Sometimes when you’re young, a new technology can really wake you up and really shape your future and how you see the world,” she says. “I think that was the case for me and Bitcoin. It has definitely made me more optimistic, it has definitely given me a lot of things to look forward to, especially at a time when things can seem so lonely and boring.”

The Bitcoin Maximalists

There is a phrase for people who are all on Bitcoin, not only to get rich but also as a revolutionary breakthrough. They are called Bitcoin maximalists. George Mekhail is one of them.

Mekhail is a mortgage professional by day and co-author of a book called “Thank God for Bitcoin“on the moral case of cryptocurrency.

“I found something I believe in,” he says. “I found something that seems to have a benevolent mission to somehow help humanity. And so I got stuck.”

He started buying Bitcoin in 2017 and has since continued to buy and hold.

Here is the maximalist case for Bitcoin: The cryptocurrency is free from politics, significant at a time when so many people suspect the government’s expertise and intentions. It is not controlled by central banks or leaders seeking popular approval. Bitcoin is limitless. Bitcoin can not be counterfeited, spent twice.

And here’s what could be the biggest argument for Bitcoin on behalf of Bitcoin: As it stands, there will only be 21 million Bitcoins ever. So, like gold, it is finite, making it a hedge against inflation. On the other hand, the maximalist argument is that governments can print endless money. So shortage will keep Bitcoin valuable. There is just so much of it.

Here is the more appropriate case for Bitcoin: FOMO, fear or miss. From professional traders to ordinary people buying fractions of Bitcoin on apps like Robinhood, the lively drive has driven Bitcoin into the stratosphere. The price has been estimated more than 440% from a year ago. That’s why you might hear a friend or neighbor say, “I’m going into crypto.

Skeptics: ‘I do not understand why the price is not zero’

Skeptics say momentum cannot be maintained. They say that a hard crash is inevitable, that unlike real estate or stocks or bonds, Bitcoin is an asset with no underlying value. “The idea that this thing is inherently valuable is, I think, misplaced,” said Robert Shiller, a Nobel Prize-winning economist at Yale, known for his work on bubbles.

A number of Nobel Prize-winning economists have warned against Bitcoin, saying it is a speculative bubble. One of them, Oliver Hart, wrote to NPR in an email: “Like many economists, I do not understand why the price is not zero.”

From useless to spectacularly valuable, the differences in views on the value of Bitcoin are enormous. This is partly because the cryptocurrency is intangible, even mysterious. “It’s basically a currency based on nothing but math,” says James Ledbetter, editor and publisher of FIN, a newsletter on financial technology. “It corresponds to nothing in the real world.”

But it does exist in the digital world, where transactions are kept in a general ledger. The underlying technology used to keep track of transactions – known as blockchain – is basically a way of registering. So-called Bitcoin miners use computer power to confirm that each transaction is legitimate and that the entries in the general ledger are visible to everyone.

“It verifies the transactions so that everyone can believe that the system is clean and open,” says Ledbetter.

Many say that blockchain innovation can have meaningful real-world applications, in copyright protection, land title registration, even in food security – all of which need similar verification processes.

Brilliant innovation that “belongs to a movie”

However, the cryptocurrency ecosystem has its drawbacks. Verifying these transactions takes a lot of computing power and uses a lot of energy. Cybercriminals have stolen Bitcoins and other cryptocurrencies from stock exchanges where they are traded. And Bitcoin does not always go up. The price has crashed several times before.

“It’s a mystery how it has gained such acceptance,” says Shiller. “I think it has something to do with the coolness of the idea.”

He agrees that the Bitcoin story is fascinating.

“Secret codes, computers that write codes that cannot be broken. There is a story about this very invention that sounds like it belongs in a movie.”

Shiller says bubbles are riding on a peak of enthusiasm. There is plenty of enthusiasm for Bitcoin. One place he sees is in his classroom at Yale.

“I teach a financial markets course. And sometimes they seem to fall asleep. I just pick up Bitcoin and they suddenly pick up.”

But Nikki Beesetti, the former Purdue student who paid for her semester teaching with Bitcoin, thinks the enthusiasm is justified, that Bitcoin and its technology will have uses that are hard to imagine today. She likens the situation to the internet age.

“A lot of people didn’t think it was going to be the next big thing,” she says. “They saw no value in it. They saw no reason to share all this information with anyone in the world.”

The next internet, digital idiot’s gold or something else? The history of Bitcoin is evolving, so now it may be what you think it is.