Bitcoin: This is why I believe in crypto despite the fall

Our columnist Margarethe Honisch.
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Bitcoin crosses the 20,000 mark, and calls are being made as to whether these and other cryptocurrencies even have a right to exist.

Our columnist Margarethe Honisch takes a look back at the rise of Bitcoin. She thinks: Basically, cryptocurrencies will solve a real problem.

However, not all coins are really useful.

If you take a look at the current Bitcoin price, you can hear the reminders from afar. The hyped coin is currently scratching the psychologically important 20,000 mark and at times even falling below it. With the downward trend of cryptocurrency, the doom of the whole scene is once again predicted.

Bitcoin has already experienced much larger fluctuations. Anyone who only follows the price chart may be getting cold feet at the moment. It is all the more important to ask yourself: Are all coins just shitcoins?

To answer this question, it is worth looking backwards.

Banking crisis, Bitcoin and Blockchain

Cryptocurrencies emerged in the wake of the financial crisis of 2008. Most of us will probably still remember hearing words like triple-A rating, short selling and mortgage bonds even at the hairdresser’s. The fall of the American bank Lehman Brothers not only caused a global financial crisis, but destroyed confidence in the entire banking sector and our financial system.

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During this time, people reacted differently. Some took to the streets of the financial metropolises for the Occupy Wall Street demos, while others were already working on a new solution that could replace banks forever. And so the Bitcoin white paper was published in 2009 under the alias “Satoshi Nakamoto”. It is a payment system based on blockchain – a decentralized, chronologically updated database.

What did that mean in practice? An example. If we want to pay with an EC card at the checkout, the money never goes directly from us to the supermarket. We always send it through our bank, which sends our transaction to the supermarket’s account. And only if all these parties are sure that I am authorized to complete this transaction, will it be completed. Blockchain exposes all these handles and allows me to transfer my money directly to the supermarket without any other parties involved. So I no longer need a bank, but have full power over my money.

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But cryptocurrencies aren’t money – or are they?

The biggest criticism leveled at cryptocurrencies at the moment is that there is no real value behind them and therefore cryptocurrencies have no intrinsic value. The thing is, neither does the money in your wallet. It is a piece of printed paper that we all believe. And since this piece of paper is no longer tied to gold in the US, it can happily be printed.

So we all believe that we can do our weekly shopping with a green piece of paper in the supermarket in order to feed ourselves. If we all believed in a digital currency instead of a piece of paper, would it make that much of a difference?

Ultimately, money fulfills three functions: it is a medium of exchange, a store of value and can be used as a unit of account. This is where the bigger criticism of cryptocurrencies should actually lie: since they are rarely accepted when shopping and are still far too volatile, cryptocurrencies are not actually suitable as a money substitute at the moment.

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Pure speculation or a real investment?

Besides all the countless shitcoins, there are also serious cryptocurrencies that also provide a solution to a real problem. For example, the blockchain Ethereum with the associated coin Ether. This is a platform that allows other providers to use it and develop their own solutions. Similar to a computer that I buy and then equip with my very own applications and programs.

Application examples for Ethereum are, for example, smart contracts. For example, I could drive my car into the underground parking lot, and since my car and the underground parking lot communicate with each other, the parking time is automatically calculated and paid for. No more squeezing out of the car seat because you stopped too far from the button, no more searching for change and vending machines – just get in and drive away.

This is precisely what the Cardano platform, an NGO, with associated currency Ada, has set itself as a goal. The Chainlink token does not have its own platform, but uses the Ethereum network. The idea behind the project is to transfer smart contracts outside the blockchain, so to speak from the real world, to the blockchain in a tamper-proof way. For example, loans can then be taken out without a bank, because the identity, the intention to act and any fines are clarified via such a smart contract.

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Is everyone just waiting for the bigger sucker?

Many believe that cryptocurrencies are the Greater Fool Theory. Here it says that you only benefit from an asset if someone else, even more stupid, pays an even higher price. For example, it can be observed again and again that many people sell their shares on the stock exchange when they rise very quickly due to hype.

With many cryptocurrencies, the so-called Greater Fool theory certainly applies. It is all the more important to relate to the project and the solution behind it. Fear and greed are the worst advisers on the stock market – but unfortunately also the ones you see most often.

So if you’re unsure about a cryptocurrency, if in doubt, keep your hands off it. You never know if you’ll find an even bigger lump than yourself.

Margarethe Honisch is a financial blogger and author. On your website fortunalista and her eponym Instagram account She gives tips on pension schemes and investments. She writes the “Make More Money” column for Business Insider.

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