The development of various models of digital currencies can lead to the appearance of a fully-fledged national digital currency in our country that will supplant traditional money which purchasing power is determined by the state in its own interests. The sooner this civilizational “flight” from official bank notes takes place, the sooner each Ukrainian stops paying the inflation and devaluation tax collected and distributed in favor of several “families”.
The course of bitcoin has been weakened in recent days: on December 20th, its quotes decreased by 14%, and the price of a cryptocurrency fell to the level of 16.7 thousand dollars. Due to this price change, the capitalization of the world market of bitcoin fell from the indicator of $ 300 billion and decreased to the level of 275 billion. Even though noting market correction, the cryptocurrency crisis at the end of the year is impressive: if at the beginning of the year less than $2,000 were given for this financial instrument, then by the end of the reporting period its value was fixed at the level above the $16-17 thousand. The “rise” on bitcoin investment was at least 800%! It is difficult to recall which asset showed similar growth after the 2008 crisis. With a pace of increasing the market value of bitcoin, only the dynamics of the devaluation of hryvnia over the past four years can argue.
Anomalously high profitability of the cryptocurrency market is not only its advantage but also such “trojan horse” which can contain a surprise. First, high volatility is not only the possibility of generating superprofits, but also the risk of obtaining the same overcapacity. Secondly, the attitude to bitcoins of the world’s key financial regulators is still unclear: some (the People’s Bank of China) have moved from silence to closing the crypto-exchange and banning this popular funding search model for start-ups for implementing various projects, including innovative ones, such as ICO – attraction of investments by issuing special crypto-currencies. It is also not clear the attitude of fiscal authorities to this type of market and the mechanism by which financial monitoring requirements apply to it. The degree of involvement of the cryptocurrency market in the international money systems is also hard to understand: provisionally speaking, will it be possible in the near future with their help to carry out massive transactions for goods and services, as well as carry out operations in the core markets (for example, buy shares or real estate? By the way, in Kyiv somebody has already bought an apartment, and used bitcoins to close the deal).
Trying to catch vague omens of the shaky market of digital currencies, the world’s bitcoinophiles drew their attention to two American twin brothers, Tyler and Cameron Winklevoss, who became the world’s first legal billionaires because of the bitcoin ownership. During their school years at Harvard, they have created a first student social network ConnectU, the innovative idea of which was then successfully developed by Mark Zuckerberg, creating a global Facebook. For a long time, the brothers tried to defend their author’s priority, and finally they received $ 65 million, which they fully invested in bitcoins, although they were offered to take Facebook shares, which then grew dynamically. For what they have done, they received a nickname of “crazy millionaires.” Now their investment in bitcoin has grown to one billion, so they have become already “crazy billionaires.” In matters of investing in the digital currency, they are the same gurus as Warren Buffett on a stock market, although they evoke an indulgent smile from market “dinosaurs”. The Winklevoss brothers said they would close their positions on the “digital currency” only after the level of capitalization of the market of bitcoins reaches the parameters of the gold market, that is, eight trillion dollars. It is not difficult to calculate that in this case, one bitcoin will cost 450 thousand dollars, it means that this market rate should increase by about thirty times. An interesting fact is that by trying to save their investments from the banal hacker theft, the brothers divided the key to their virtual digital wallet into several parts and placed them in various bank cells.
The fact that the bitcoin market is not an ordinary financial bubble, like US mortgage securities and their derivatives, it becomes clear after analyzing the technology of its creation, which lies entirely in the field of mathematics and programming methods. Technically, a process of creating bitcoins is next: money transfers made in the system are written to the public “flow” of transactions (“log”) and passed to the miners who must by means of a solution of a mathematical task (hash function) convert all incoming messages (keys) and develop a unique hash code that is suitable for all new transactions. Thousands of miners of the bitcoins, every minute fight for the right to solve the mathematical problem first and receive a reward that decreases year by year (from 2013 it dropped from 50 to 12.5-25 bitcoins, and next year it will decrease up to 6-7). The award is large enough to actively fight for it, and thousands of miners around the world are involved in the process of solving a technically simple but long-term task. The more participants are in the system, the higher the complexity of calculations and technical requirements for computers are. Initially, mining took place on ordinary home computers. Now special integrated circuits (ASIC) with high speed of calculations are applied. If you do not take into account the purchase of equipment, the main cost for a miner is to pay bills for electricity. In order to minimize losses, solitary miners (solo) combine into unique conglomerates (farms) of miners, sometimes, in a very peculiar way: Kaspersky Lab discovered in Russia a special virus (trojan) that was introduced into private computers and turned them into active members of the colony of miners, of course, without the knowledge of the owners.
Puzzled because of the construction of a digital economy in Russia, the Institute for Internet Development and the Russian Association of Crypto-Currency initiated the provision of preferential electricity tariffs for Russian miners so that Russian “bitcoin” farms worked full capacity (electricity consumption grows due to the need of cooling of computer boards). It was suggested to use the experience of tariff preferences, approved on other industries when creating special economic zones and territories for advanced development in Russia.
A sharp change in attitude towards bitcoin occurred in Russia recently thanks to a small town of Kolomna, because of its citizen Vitaliy Buterin, the founder of the first printed journal on cryptocurrencies Bitcoin Magazine. Already at such a young age of 23, Buterin is one of the creators of the world digital revolution. At the age of 19, he and his friends created one of the world’s most dynamic crypto-currencies, Ethereum. By the way, the project was launched by the method of crowdfunding, that is, public financing, thanks to which it was possible to quickly collect the necessary 20 million dollars for the start. At the moment, the capitalization of the project is billions. The headquarters of Ethereum is located in the Swiss canton of Zug, which used to be famous for the anonymous financial maintenance of money-bags from around the world, and now turns into a “crypto-currency” valley of the 21st century.
The fact that crypto-currencies can be used as an anti-sanctions screen became a topic to speak quite recently. The first to announce this was Iran, a country which phenotype was formed in a closed, self-sufficient economy focused on the domestic market and limited exports of raw materials that have been developing for many years in Western sanctions, which have not been canceled yet and are being introduced again. Expert in cryptocurrencies Ganesh Jung, the CEO of Draglet GmbH, developing platforms for crypto-exchanges, announced the appearance in the near future of a closed crypto-currency system in Iran and Russia.
But the very idea of a crypto-currency was laid in the West by the Nobel laureate F. Hayek, who in his work “Private Money” pointed out that “the government should be deprived of the monopoly on the money issue.” The currency should be considered an ordinary commercial commodity and produced in a market way. ” Well, the former head of the Bank of England, Mervyn King went even further, saying that the world enters the era of the barter economy, when financial actions between counterparties will be made by instantly calculating the level of value of a product, the solvency of the buyer and the transfer of electronic money to the seller’s account. Currencies as such will disappear, and they will be replaced by basic accounting units that will not need the services of world central banks, although the appearance of an international controlling regulator may not be ruled out.
What could Ukraine learn from this?
At one time, Bill Gates said a very remarkable phrase: “We always overestimate the changes that will occur in the next two years, and underestimate the changes that will occur in the next ten.”
Regarding our topic, this phrase of the world innovative technologies guru can be interpreted as follows: the potential for earning money on cryptocurrencies in the next two years is significantly overrated, and the possibility of transforming the world financial system by using this technology is in turn underestimated. In the first case, overestimation is characteristic of mass investors, driven by banal greed, rather than the desire to form stable passive income. In the second case, underestimation is typical for all world regulators who rest in the zone of the comfort of their absolute power.
Meanwhile, the Reserve Bank of India (RBI) reports that in the near future it plans to start issuing a digital rupee based on blockchain technology.
And what can digital hryvnia give to Ukraine? First of all, help to get rid of the defect of unproductive emission, when practically all the years of independence the national currency was actively used by the authorities to generate inflationary income, which was very convenient to all pro-government groups, because it made it possible to hide the terrible failures in economic policy for the time being. Accumulated problems, of course, periodically broke through the “monetary” dam, as it was in 2008 and 2014-2015. All this happened in the rapid fall of the hryvnia against the world’s reserve currencies and total impoverishment of the population.
The crypto-currency market is unlikely to become an alternative for investments of ordinary Ukrainians: the mental differences are too great. Our domestic investors prefer something more “weightier” than a USB key or a cryptographic token.
But the ICO method for attracting investments into start-ups may have developed. In the standard (classical) scheme of starting a business, the authors of a project have only a few basic options: to attract venture financing and give up to 80% of the shares of the future enterprise to rich people, who have no ideas but have money. Or get a bank loan, but for this, you will have to finance 30-40% of the estimate at your own expense and provide the bank with liquid collateral, the market value of which is at least twice the amount of funding. But there is an alternative – to conduct ICO and attract investment by issuing its own cryptocurrency. In Chelyabinsk (Russia), according to Forbes, a group of entrepreneurs raised about $ 4 million to build zirconium dioxide production. On the Waves blockchain platform, through the ICO, investors bought ZrCoin in the price range from 1.40 to 1.55 dollars per one token. In the future, these tokens will be redeemed at a fixed price; the expected yield will be 100%. Tokens also combine the functions of a derivative financial instrument – an option that gives the right to purchase shares of an enterprise after a certain period of time (if the capitalization of the business grows).
Another direction for obtaining passive income in Ukraine may be the bitcoin mining, the production of cryptocurrencies (minimum – 15-20 hryvnia per hour). At the moment, this direction is constrained by several factors: insufficiently developed mobile network in the whole country (there is no 4G format and no full 3G); lack of a fiber-optic Internet grid in small settlements and insufficient “advancement” of the population. Otherwise, given the tariff for electricity, especially for different privileged groups, our settlements could turn into real colonies of crypto farms that would consume electricity as separate small towns. After all, in fact, we have the same Venezuelan scenario, where recently even children and old people started to “mine”, provoking an energy crisis in the country: a raw material country, an unstable national currency.
Well, a real breakthrough could be a launch of a digital hryvnia with the use of blockchain technology, for example, on the platform of a virtual trading system that unites hundreds of thousands of sellers of goods and services and millions of consumers, as well as, possibly, a public procurement system.
The development of various models of digital currencies can lead to the appearance in the future of a fully-fledged national digital currency in our country that will supplant traditional money which purchasing power is determined by the state in its own interests. The sooner this civilizational “flight” from official banknotes starts, the sooner each Ukrainian stops paying the inflation and devaluation tax collected and distributed in favor of several “families”.
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