BTC Better Have My Money: Big Tech and Bitcoin
BTC1000: Intro to Cryptocurrency:
Even if you’re not a financial expert, you’ve probably heard a lot about Bitcoin and Ethereum, or if you follow Elon Musk on Twitter, Dogecoin. Aside from these fancy names, cryptocurrency is a form of payment that is digital, encrypted, and decentralized. Like the cash in your wallet, you can use crypto to buy the same goods and services. However, many people view cryptocurrencies as an investment asset, like stocks and real estate. Nonetheless, cryptocurrencies are still just forms of currency — this means that it does not generate any cash flow. In order to gain profits, someone has to pay more for the currency than you did. Apart from its usage, the defining appeal of cryptocurrency is its decentralized structure. Since they are not issued by a central authority, cryptocurrency is essentially immune to government interference and central authorities. This decentralized structure behind cryptocurrencies, such as Bitcoin, is built by blockchain. Blockchain is a technology spread across many isolated and individual computers that manages and records transactions.
New Kids On The Blockchain
Blockchain is a distributed ledger technology (DLT) that facilitates the process of recording transactions and tracking assets in a business network. The ledger can also be programmed to trigger transactions automatically.
So how does blockchain work? Let’s hash out the details:
1. Distributed Database
Each block on the blockchain has access to the entire database and the history of its transactions. No single person or group has control of the data, but instead, all users collectively reserve control.
2. Peer-to-Peer Transmission
Instead of using a central system, communication takes place directly between peers, which are the blocks. Each block is chained together, which allows all cryptocurrencies to be transferred worldwide without the need of a middle-man. With the peer-to-peer architecture, anyone can participate in the Bitcoin network and in the process of verifying and validating blocks.
3. Transparency with Pseudonymity
Anyone with access to the system can see any transaction and its corresponding key and value. Each node on a blockchain is identified by a 30-plus-character alphanumeric address. Users have the option of being anonymous or proving their identities to others. Transactions take place between addresses on the blockchain.
4. Irreversibility of Records
Blocks have certain storage capacities and, when filled, are chained onto the previously filled block, making the record inalterable nor reversible.
5. Computational Logic
Because of the ledger’s digital structure, blockchain transactions may be linked to computational logic and therefore configured. As a result, users can create algorithms and rules that initiate transactions between nodes automatically. Also, the ledger structure keeps track of users’ anonymous identities, their cryptocurrency balances, and a database of all transfers between network participants.
Mining Without a Pickaxe: Major Tech Companies Invest in Bitcoin
If you’re active on Twitter and keep up with Tesla and SpaceX co-founder, Elon Musk, you’ve probably heard about his gambit surrounding Bitcoin. Over the past months, Bitcoin has drawn the attention of Wall Street and Silicon Valley, with firms such as MicroStrategy and Square joining high-profile investors in recommending bitcoin as an inflation hedge. Bitcoin has reached a 100.34% increase YTD. Seeing this increase, Cathie Wood, CEO of ARK Investment Management claims that more Big Tech companies are going to want to hop on the Bitcoin bandwagon to hedge against inflation.
In May 2020, Wall Street legend and hedge fund manager Paul Tudor Jones named Bitcoin as “like investing with Steve Jobs and Apple or investing in Google early”. Perhaps, Bitcoin could be the superpower asset that helps companies constitute for the measures and economic sacrifices made in the wake of the COVID-19 pandemic. In two ways, improving payment processing and hedging against inflation. The former diversifies the payment method for customers, which not only helps businesses stand out from their competition but also increases their consumer base due to its ability to allow customers to complete transactions more quickly. In addition, due to its limited supply and real yields ranging from zero or lower, Bitcoin is seen as an inflation hedge by major tech companies.
The most popular saying among investors is “what goes up must come down”, and this has already been proven with GameStop (NYSE: GME) earlier on in the year. As said by Cathie Wood, “if all S&P 500 companies were to allocate 1% of their cash to Bitcoin, its price could increase by approximately $40,000.” However, once one company pulls out of the investment, the value of Bitcoin could just as easily come tumbling down.
Case Study: Limiting Big Tech’s Power Using the Design of Bitcoin
A few years, blockchain and Bitcoin were almost synonymous. At the very least, blockchain founders and investors must understand that many of the underlying economic factors pushing convergence around the market would indeed extend to blockchain-based applications. Blockchain technology can still be hindered to “winner takes all” dynamics, increased globalization of markets, and weaker antitrust enforcement.
Several startups now deliver decentralized networks and collaborative ledgers as alternatives to Facebook, Twitter, YouTube, and Amazon’s web hosting services. Over the last few weeks, their platforms have expanded to millions of new users. However, as growing companies with limited governmental or enterprise control, they are faced with the ethical concern and risk of feeding into illegal markets and acting as a vessel for violent or inappropriate content.
Nonetheless, fear of this autonomy is what fuels technologies like blockchain. Take Bitcoin for example. Started in 2009 by a pseudonymous user, Satoshi Nakamoto, with the purpose to create a “trust-less” cash system with no restrictions or preventions from the government. In its early years, it gained exposure from a group of online admirers who wanted to make online payments for illegal drugs or weapons. More recently, the pandemic has been a boon for cryptocurrency due to the rise in digital payment.
So Is decentralizing power for a more digital and confidential transaction experience truly worth opening Pandora’s Box? Only time will tell.
Author: Carrie Lu
