Bitcoin has Transformed From Darknet Money into Digital Gold
In the early years of bitcoin, even until the end of 2014, bitcoin was perceived as darknet money used to purchase drugs and illicit goods in the dark web. Over the past two years, this image of bitcoin has changed significantly. Bitcoin has transformed from darknet money into digital gold.
In late 2016, the global financial market and economy struggled, leading to the decline of many fiat-related multi-trillion dollar markets, assets, reserve currencies and bonds. Countries like India and China tightened existing regulations on cash and introduced impractical policies that have caused extreme discomfort to the general population.
For instance, the Chinese government introduced various unjustifiable monetary policies such as heavy regulation on Wealth Management Products (WMPs) and restriction on capital outflow to prevent further devaluation of the Chinese Yuan.
As the establishment began to impose harsh regulations on traditional forms of money and assets, investors and traders moved away from fiat and banking to alternative financial technologies and safe haven assets.
In countries like India, the government started to confiscate and seize gold from residents. Due to its physical properties, the authorities were able to forcefully confiscate gold from the Indian people. Increasing cases of gold and cash confiscation led people to bitcoin, as its decentralized nature prevents any central authority from controlling the network and seizing user funds.
Within months, global economic uncertainty and financial instability pushed bitcoin to become a hedge against the system, as major bitcoin exchange BTCC co-founder and CEO Bobby Lee said in an interview with Business Insider.
“I think the world is starting to realise that, just like gold is a good hedge, bitcoin is a great hedge against the system because itâs outside the system. Gold is sort of the hedge against the system, the status quo. Our society is ingrained with the current monetary system of fiat money, where governments issue it, they can put out as much of it as they want. Todayâs money system, in a very rude way, itâs no different to airline miles or hotel reward points,â said Lee.
In the past, many analysts have called bitcoin an anonymous form of money created to supplement the needs of criminals. Ironically, cash is more private than bitcoin as of now, as bitcoin is not anonymous by nature in contrast to cash.
For bitcoin to become a more efficient hedge against the system and the establishment, it needs to provide increasing privacy to users. Financial privacy is crucial for general users because it prevents potential situations that could be difficult to deal with in the future. Some of these situations are the exposure of income and direct advertising on spending habits.
Because bitcoin exchanges have strict Know Your Customer policies set in place due to the requests of the government, it is possible for anyone to utilize the public bitcoin blockchain to track down the amount of funds held by a certain user.
Currently, there exists a few two-layer solutions like TumbleBit that are in development to provide complete anonymity to users. If bitcoin becomes anonymous and decentralized, it will serve the general population as an impeccable hedge against the system.
In recent months, there also has been a debate between company executives, experts and developers on the purpose of bitcoin and what it was designed to be. Most notably, bitcoin angel investor Roger Ver emphasized that bitcoin is a settlement system developed specifically to facilitate peer to peer transfers within the bitcoin blockchain network.
Some argued, stating that the purpose of bitcoin depends on how a user utilizes it. Some may have invested in bitcoin with hopes to protect their wealth from financial instability and seeking long term returns. Some could be using bitcoin to settle daily payments such as purchasing foods or coffee at local stores.
Either way, bitcoin is shaping up to be a more efficient version of gold as of now. If effective scaling solutions are introduced in the future, bitcoin could very likely operate as both; a settlement system and digital gold.