There are several major reasons why Bitcoin has drawn the attention of so many people who have driven up its value over the past year.
Mistrust in the Financial System and Governments: The 2008 financial crisis caused a lot of people to lose faith in banks as trusted third parties. In Canada, we actually experienced the opposite effect with the banks coming out unscathed. However, globally, many people questioned whether banks were the best guardians of the global financial system as bad investment decisions proved catastrophic, with rippling consequences.
It’s not only banks that have experienced a growing mistrust but governments and the financial system as a whole have suffered from a loss of faith. Resentment from the financial crisis, combined with the perception that governments are unable to manage the economy have left people looking for what they hope will be a better alternative.
Growing Trust in Technology: Technology has become engrained in all aspects of modern society and we have grown not only to trust it, but to depend on it to keep us safe – think of ABS brakes and collision avoidance systems in cars and autopilot in passenger airliners. Acceptance of an entirely digital currency that is not backed by any authority is much easier for people in today’s society.
Belief the Global Economy Will be Profoundly Changed: From the beginning, the inventor of Bitcoin portrayed financial institutions as suffering “from the inherent weaknesses of the trust based model”. Bitcoin would allow ”any two willing parties to transact directly with each other without the need for a trusted third party”. The inventor went on to claim that once 21 million coins were created, Bitcoin would operate “completely inflation free”.
These statements resonated profoundly with people who had lost trust and were searching for an alternative. As a result, there are many predictions that economics as we know it, such as how inflation works, would fundamentally change under a Bitcoin economy.
Improvements in Global Transactions: Lower transaction costs would also be part of the fundamental change as banks would not be needed to facilitate global transactions in Bitcoins. It is also implied that this greater efficiency would include faster processing times. Whether you are sending money back home to family in another country or you are trying to transfer money out of a country that restricts currency flows, there are many reasons why easier global transactions would be attractive.
Profit: The incredible rise in the price of Bitcoin during 2017 cannot be ignored and this stratospheric rise attracted much attention from people looking to profit from the opportunity. Many people view Bitcoin as a new type of investment in the digital age and want to get in before the value rises even further.
Technology has fundamentally changed society beyond what many could have ever imagined and has paved the way for new technologies like cryptocurrencies. To start to understand Bitcoin, we have to step out of our North American mentality and look at it from a global perspective. While people might generally trust banks and the government in Canada, that is certainly not the case in a lot of countries and the recent financial crisis has only reinforced this mistrust. Cryptocurrencies are borderless and can be used by anyone with a computer or cellphone. They can provide an alternative form of banking services to those that may not have easy access to the traditional banking system.
Hamed Murad, BA, CIM
Bitcoin owner and enthusiast since 2015