Question: Are cryptocurrencies merely a speculative bubble or the next big wave? If it is legit, why aren't governments adopting this currency globally?

Why would a government adopt a cryptocurrency? What benefit is there for a country to drop their own unlimited money supply for a limited resource that they have no control over?

People often confuse blockchain, which is a technology for storing and tracking information, and independent cryptocurrencies which are just blocks of information.

Cryptocurrency, and it’s biggest limitation

Bitcoin is a block of information, and it is limited in scope. The smallest unit of Bitcoin is a Satoshi, of which there will only be 2.1 quadrillion in existence ever. If each one was worth a penny, that’s $21 trillion worth of Bitcoin, with each coin worth $2.1 million.

In a world with a current liquid asset total of $25 trillion, and growing.

So two thirds of these potential bitcoins have already been mined. Let’s say, hypothetically, governments want to switch to BTC as a global currency. The current owners of the bitcoins are going to have to give some to the governments for them to operate. What does the government give these folks for the BTC? The now defunct dollars?

Ha! No, they just tax it, because that’s the only way they can get BTC. They can’t promise a return on Bitcoins from bond sales, because they can’t produce Bitcoins. So there goes half of your wealth, off the top. But that’s ok, because you had a whole coin, and now you have half, and you’re still a millionaire because that value has to shoot up to meet economic need!

You go out to spend a few Satoshis on a nice dinner a week later, and every restaurant is closed. They don’t have BTC to operate with, and they need daily income to survive. Since only a small handful of people have any BTC, no one came in to dine for a week. You see stores putting up closeout signs, or not open at all.

Let’s talk about GDP. GDP is the measure of economic output because of the MOVEMENT of money. What GDP is to you and I is this: things to buy. That’s not just X-Boxes and Comic Books, it’s Food, Houses, Medical Services, everything. Everything is economic output.

To keep GDP high we need people spending money. To encourage the spending of money, you want currency to decrease in value some over time. To get that to happen, you must increase the amount of currency that is being spent above the rate of increase of available goods and services.

A fixed currency can’t do that. It will always be deflationary, unless the number of goods and services declines. That means closed restaurants. Closed grocery stores and gas stations. Closed hospitals. Roving bands of angry peasants with torches.

Governments can currently create new currency. They can supply a growing economy with as much money as it may need. They can’t do that with Bitcoin, or any other cryptocurrency.

Blockchain Technology, however…

Blockchain tech is useful. Governments and banks can and will use this. They will use it with their own currencies, though, trading units that keep par with what they already produce. The ability to track and verify chains of transactions and definitively know who owns a digital currency is powerful. Several big banks are already implementing this, and several governments are working on an international trade unit. This won’t be available to the public, it will be bank use only, and it’s just a tech convenience rather than a currency.

On bubbles and speculation

Bitcoin (as the major player on the block right now) is rapidly rising in price because a lot of people are buying it. When a limited resource is in high demand, it’s value goes up.

However, what can most of these people use Bitcoins for? Why are they buying it? There isn’t a single business near me or that I frequent that will accept BTC as payment, nor will the major online retailers. It’s worth $7,180.01 per coin right this second, and I can’t get a barista at Starbucks to give me a latte for it. It’s only worth money in the sense that someone wants to buy it, because it’s worth money (yes, yes, hotels in Japan and Korea take it currently, but the market cap outstrips their annual revenues). And this works, as long as people keep buying BTC.

However, the minute more people want to sell BTC than buy… that price drops. Just yesterday BTC hit a high of $7,800 (or something mad). There’s a chance that it could go to $10k or higher if the SEC approves futures trading. But eventually the hype won’t attract new buyers. The top investors will take their winnings and move on to the next big thing, and the price will fall. That will spur more sell offs, and decreasing prices… and with falling prices and no new buyers interested, you have a bursting bubble. Bitcoin itself is pretty much worthless, unless people are accepting it as a currency. That isn’t happening on any scale that matters, nor are there any plans for them to. It’s currently a worthless token that people are bidding for, and that probably won’t continue forever.