Bitcoin Archives - Politics Today https://politicstoday.org/tag/bitcoin/ Fri, 12 Jun 2026 04:53:07 +0000 en-US hourly 1 https://wordpress.org/?v=6.4.8 Under Algorithmic Colonialism: The “Easy Money” Vibe https://politicstoday.org/under-algorithmic-colonialism-the-easy-money-vibe/ Fri, 12 Jun 2026 04:51:01 +0000 https://politicstoday.org/?p=30343

On Twitter, Instagram and TikTok, stories of individuals becoming rich overnight, accounts claiming to have discovered legendary coins early and portfolio screenshots updated almost daily generated a mass sentiment: Fear of Missing Out or FOMO.

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hen simultaneous lockdowns began worldwide in March 2020, the crisis scenarios predicted by economists largely materialized; unemployment increased, consumption contracted and supply chains were disrupted. However, this same process also accelerated an unexpected transformation. As people were confined to their homes, work, social life and money all transitioned behind the screen. This relocation was not merely a practical adaptation but a fundamental reorganization of humanity’s relationship with the world.

Global internet traffic recorded an average increase of 40 percent in the first half of 2020. Video conferencing platforms, electronic commerce sites and digital finance applications gained millions of new users. According to a report by the McKinsey Global Institute, the pandemic advanced digital transformation by five to seven years across multiple sectors. However, this acceleration was not the product of a controlled and planned transition; it was a leap born out of necessity. Consequently, the vulnerabilities it introduced were just as vast as the opportunities.

The rapid expansion of digital finance profoundly disrupted the relationship people have with money. Traditional financial actions such as visiting a bank, trading through a broker and filling out paperwork gave way to instantaneous, invisible and effortless transactions. Money became a mere digit on a screen. This abstraction also brought with it an illusion of ease, earning money began to seem as effortless and even as entertaining, as spending it.

From a neuroscientific perspective, this process is directly related to the human mind’s perception of risk. Studies conducted by researchers at Stanford University indicate that loss aversion weakens when financial decisions are made through digital interfaces rather than in tangible environments. Along this spectrum advancing from physical money to plastic cards and ultimately to abstract numbers, individuals become increasingly inclined to take higher risks. The fact that a vast majority of society encountered investment instruments either for the first time or intensively during the pandemic coincided exactly with this underlying landscape.

Read: The Dopamine Cycle: How TikTok’s Recommendation Algorithm Shapes Minds?

Blockchain technology: Centralization or decentralization?

The foundational promise of the cryptocurrency ecosystem was decentralization. The white paper authored in 2008 by the figure known as Satoshi Nakamoto, whose true identity and whereabouts remain a mystery, aimed to eliminate intermediary institutions in the financial system and enable direct, equal and transparent money transfers between individuals. Blockchain technology was presented as the infrastructure that fulfilled this promise. Records were kept in an encrypted format across a distributed network and no single central authority could independently intervene in this network.

From a theoretical perspective, this architecture was presented primarily on social media platforms as a protective mechanism against state oppression and inflation and interestingly, recommendation algorithms placed this narrative in front of millions of people time and time again. Cryptocurrencies were marketed as both a safe haven and a symbol of resistance against the current system, particularly in countries where people had lost faith in their own national currency. Thanks to social media platforms, this perception eventually transformed into a reality embraced by users.

However, the reality in practice painted a very different picture. Although the blockchain infrastructure remained decentralized, the cryptocurrency market gradually evolved into centralized structures. Major exchanges such as Binance, Coinbase and FTX transformed into multinational corporations that control the vast majority of the global volume. A similar concentration occurred on the supply side of the cryptocurrency market. By the end of 2021, calculations showed that approximately 80 percent of the circulating supply of Bitcoin was held by only 2 percent of the total holders. This structure clearly contradicted the claim of democratization put forward by cryptocurrencies.

In other words, while the technology itself was ostensibly decentralized, from a political economy perspective, the market possessed a power asymmetry dominated by major players. Individual investors considered themselves free within this structure, but in reality, they were participating in a game where they could not determine the prices, liquidity or timing. This paradox constitutes a critical foundation for understanding how the easy money vibe operates.

Read: How YouTube’s Recommendation Algorithm Radically Transforms Young People?

Earning easy money during the pandemic: Bitcoin and other coins

Prior to the pandemic, Bitcoin was trading at approximately 7,300 dollars. Throughout the pandemic year of 2020, prices began to climb alongside investor interest, driven particularly by the recommendation algorithms of social media platforms and by November 2021, Bitcoin reached 69,000 dollars. This corresponded to an increase of approximately 840 percent. Other major coins, notably Ethereum, recorded similar and even steeper increases. According to an analysis published in 2021 by researchers from Columbia Law School, the total value of cryptocurrency markets was under 200 billion dollars at the onset of the pandemic. By November 2021, this figure had skyrocketed to 3 trillion dollars.

This staggering surge transformed into a narrative. Social media emerged as the most powerful amplifier of that narrative. On Twitter, Instagram and TikTok, stories of individuals becoming rich overnight, accounts claiming to have discovered legendary coins early and portfolio screenshots updated almost daily generated a mass sentiment: Fear of Missing Out or FOMO. A qualitative study conducted by researchers from Selcuk University focusing on cryptocurrency investors revealed that the vast majority of participants discovered this market through social media and their social circles. No one had read a technical paper but they had caught a particular vibe. In other words, individuals were making decisions through their System 1 thinking, acting entirely intuitively and devoid of rationality, yet they perceived themselves as rational decision makers.

Türkiye was one of the countries where this process unfolded most vividly. According to the data, as of 2024, Türkiye ranked third globally in cryptocurrency ownership relative to its population, with almost one fifth of the population holding crypto assets. An academic study conducted in 2023 utilizing a logit model analysis on a sample of 947 individuals revealed that 29,4 percent of the respondents invested in crypto assets. The most frequently cited motivation among investors took the form of statements such as “my income is insufficient” or “I want to earn more income.” In other words, a significant portion of those entering the market opened this door not with a technical expectation but driven by the motive to earn more.

Read: The X Algorithm’s Challenge in Türkiye: Politics, Engagement, and Disinformation

The sharp decline in coins following the pandemic and the capital transfer mechanism

Beginning in late 2021, cryptocurrency markets entered a severe downturn. By the summer of 2022, the total market capitalization plummeted from 3 trillion dollars to below 900 billion dollars. Many altcoins lost 90 percent or more of their value. The bankruptcy of FTX, the collapse of Terra and Luna and the successive liquidity crises initiated a brutal liquidation process in which ordinary investors exited the market with massive losses.

At this point, the global monetary policy of the pandemic era requires a separate evaluation. The United States announced a COVID relief package of approximately 5,2 trillion dollars between 2020 and 2021, while the Federal Reserve carried out 4,5 trillion dollars of quantitative easing through bond purchases. According to an analysis published on Nasdaq, the total volume of new money injected into circulation reached 13 trillion dollars by the middle of 2021, constituting an unprecedented sum in historical terms. Normally, a money supply expansion of this magnitude would have triggered severe inflation. However, this time, a portion of the excess liquidity was channeled into global asset markets via digital interfaces, with the cryptocurrency ecosystem functioning as one of the major destinations for this influx.

The ability of cryptocurrency markets to attract the masses was achieved by rapidly inflating the value of certain coins during the period referred to as the bull market phase. The value of some coins multiplied astronomically, and all of these developments were subjected to intense propaganda. The fact that internationally recognized figures such as Elon Musk traded in the cryptocurrency market, launched coins, made positive statements regarding the markets and expressed optimistic expectations heavily captivated the masses.

During this period, a multitude of social media influencers, some operating behind anonymous profiles, emerged to conduct cryptocurrency analyses and offer purchasing recommendations. While not applicable to all of them, a vast majority of these profiles were actually executing paid promotions for coins or artificially inflating the value of their own assets. Their vocalization of expectations for an uninterrupted upward trend in this manner, coupled with the intermittent rise of the coins they recommended, constituted the primary reasons why individuals flocked to these markets.

For investors in economies like Türkiye, the mechanism operated as follows, as the Turkish Lira depreciated, individuals converted their savings first into dollars and subsequently into crypto assets pegged to the dollar. These crypto assets were purchased predominantly in dollars through exchanges headquartered in or regulated by the United States. The capital effectively exited the country. When the price of a coin purchased for 80 dollars by a user from Türkiye dropped to 20 dollars, 60 dollars out of the initial 80 dollars that had left the country vanished with no possibility of return. When this scenario is multiplied across millions of users and hundreds of different assets, a concrete picture emerged demonstrating that tens of billions of dollars in value draining from countries like Türkiye ultimately financed Western markets.

This process represents a narrative not merely of individual losses, but of a structural capital transfer. The 2021 Global Financial Stability Report published by the IMF clearly documents that crypto assets can be utilized as a mechanism for transferring money across borders, particularly in countries experiencing capital flow restrictions. Therefore, the culpability for the regulatory vacuum lies not solely in the naive faith of individual investors, but within the structures that deliberately preserve this vacuum.

Read: How Information and Truth Function in Times of War

The new phase of the easy money vibe: Leverage and the gambling threshold

After the coin markets collapsed, what remained were not merely emptied wallets but also a deeply entrenched psychological pattern. Regardless of how much they lost, individuals fell into an endless cycle of hope, trading and loss, believing that their next transaction would be successful and yield substantial profits. Naturally, the drive to compensate for their losses was an important triggering factor in this process. This psychological mechanism also coincides with what behavioral economics refers to as the tin can theory. Individuals attempting to recover their losses tend to enter increasingly high-risk positions.

Right at this exact juncture, leveraged trading emerged as the “solution” presented by the market. Leverage ratios reaching up to 100 on platforms such as Binance and similar venues opened a new space where taking a massive position with minimal capital appeared feasible. An investor could open a position worth 10 thousand dollars using merely 100 dollars. However, the mathematics behind this striking facade was exceptionally ruthless.

That same leverage ratio meant that even a minor price movement, for example, if the value of a coin traded at 100x dropped by just 1 percent, would be sufficient to wipe out the entire capital. A study published on ScienceDirect comparing investor behaviors across various countries documents the overlapping characteristics of leveraged crypto trading and gambling: the illusion of control, the continuation of trading despite serial losses, the loss of control over time and money and secrecy. The interviews we conducted with three individuals who experienced bankruptcy in this context served as a prime example completely corroborating this situation.

The survey conducted by the Financial Conduct Authority (FCA) of the United Kingdom in 2019 is highly striking. When British citizens who purchased cryptocurrencies were asked about their motivations, the most frequent response, at 31 percent, was “gambling.” This ranked far ahead of technical interest or ideological commitment. The qualitative interviews we conducted in Türkiye with individuals engaging in coin trading at an addiction level share a similar finding. A significant portion of the participants consciously defined cryptocurrency trading as a new risk-taking practice that replaced traditional forms of gambling, particularly betting and sports wagers. This mindset created an exceptionally fragile foundation in leveraged trading.

Read: The Social Dilemma: Change in Social Media Regulation on the Horizon?

The rise of virtual gambling and social disruption following the pandemic

With the decline of cryptocurrency markets, the unfulfilled pursuit of easy money flowed into other channels. Virtual gambling emerged as the largest of these channels. The picture in Türkiye is even more striking. From a legal framework perspective, online gambling has been prohibited in Türkiye since 2007 and access to foreign gambling websites is restricted. However, these restrictions constitute merely a technical barrier. With the widespread adoption of VPN usage and cryptocurrency payments lowering the threshold of traceability, this barrier is easily bypassed.

From a psychological perspective, this transition is significant. A comprehensive review study published in Frontiers in Psychology examining trading and gambling behaviors during the COVID pandemic era documents the overlapping characteristics between excessive cryptocurrency trading and pathological gambling; increasingly larger bets placed to chase losses, the need to conceal the activity, the disruption of family and professional life and most importantly, the inability to quit despite negative consequences.

Researchers assert that the diagnostic criteria for individuals engaging in excessive cryptocurrency trading and gamblers overlap substantially. They suggest that a diagnosis of pathological gambling can easily be applied to these groups. It was observed that leveraged trading was utilized in all four of the interviews we conducted and although all four individuals initially gained profits in their trades, their losses subsequently increased exponentially. Furthermore, it was observed that three out of these four individuals attempted to compensate for their losses by engaging in virtual gambling.

Brain physiology supports this tendency. The sudden cycles of rise and fall experienced in the crypto market stimulate the nucleus accumbens, namely the reward center of the brain, by disabling the prefrontal cortex. This functionally overlaps with the mechanism triggered by addictive substances. Price charts updated constantly throughout the day, profit and loss notifications and the 24-hour open market structure continuously keep the stimulus and reward cycle alive. Virtual gambling platforms deliberately exploit this physiological vulnerability by design. Interestingly, TikTok, which triggers this phenomenon on social media, has also developed a recommendation algorithm targeting the reward center of the brain.

The social consequences have now extended far beyond mere numbers. The significant increase in debt items originating from cryptocurrency and gambling in bankruptcy cases, the proliferation of crypto related cases in execution and foreclosure proceedings, the association of domestic conflicts with these losses, and the connection of suicide cases, which are rarely disclosed to the public, to this background all constitute the final links of the same process. Explaining these outcomes through individual vulnerability is a moral illusion that obscures the structural causes.

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Conclusion: The chain extending from the vibe to ruin

It is possible to summarize the analytical chain followed throughout this article as follows: Pandemic conditions necessitated digitalization. It would perhaps be more accurate to state that this developed as an imposition of the global system rather than a mere necessity. Digitalization closed the distance to money and paralyzed the perception of risk, albeit temporarily. Global money printing processes presented a new asset class to the world economy experiencing increased liquidity: Cryptocurrency.

This asset class proliferated not as a technical instrument but as a narrative of hope. The recommendation algorithms of social media platforms actively promoted accounts and posts disseminating cryptocurrency propaganda. Individuals were not actually pursuing a genuine prospect of profit; rather, they were being drawn toward the exact points where whale investors holding the vast majority of crypto assets would execute mass liquidations, which is to say, into a trap.

Even following the decline of coins, the easy money vibe did not perish; rather, it channeled into leveraged trading and from there into virtual gambling. This occurred because the habit had firmly established itself independently of the underlying asset. This time, the screen replaced the table, the chart replaced the deck and the algorithm replaced the croupier. Yet the sensation remained identical: Just one more move.

The issue that demands debate today is neither coin prices nor which website ought to be blocked. The fundamental matter is this: When the concept of effortless gain takes root so deeply, how can a social structure centered on labor be sustained? Without providing an answer to this inquiry, legal regulations will merely grapple with the visible surface of the system. They will fail to halt the gears turning within minds.

A specific scenario is at play, one that is fundamentally massified through the promise of rapid wealth and the legends prominently featured on social media, because grand transformations that cannot be massified are unsustainable, reflecting the famous Legitimacy Principle of Habermas. The conclusion of the debate regarding whether the pandemic was a fabrication remains unknown. However, the global order, seizing the pandemic as an opportunity, transitioned humanity into a new era: The digital age. While executing this transition, it exploited one of the most fundamental human drives, namely the desire to make money easily.

Although the result has currently assumed a condition analogous to that of Oblomov, a new narrative became widespread concurrently with the decline of humanity: Artificial intelligence. Right at this point in the story, assuming that artificial intelligence is a transformation intended to facilitate human life is merely the product of another fiction; in reality, a system aiming to replace humanity is being constructed. Precisely at this juncture, the decline of humanity was perhaps one of the sufficient conditions. Is this decline the herald of another rise, or the renewed beginning of a novel yet ancient conflict? We will attempt to examine this in a subsequent article.

(Originally published in Turkish by Kriter)

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]]> Cryptocurrencies in the Middle East: Investment Surrounded by Risk https://politicstoday.org/cryptocurrencies-in-the-middle-east-investment-surrounded-by-risk/ Mon, 31 May 2021 09:28:52 +0000 https://politicstoday.org/cryptocurrencies-in-the-middle-east-investment-surrounded-by-risk/

For people in the Middle East, buying cryptocurrency is not only an opportunity to invest but it is used as a shield of their savings against the devaluation of local currencies and financial crises.

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Cryptocurrencies are going mainstream. Since the creation of Bitcoin in 2008, the market capitalization of cryptocurrencies (cryptos) has reached $2 trillion. Bitcoin and other cryptos are also growing presence in the Middle East.

Cryptos are not just an alternative investment, but they may be used to relieve economic and financial turmoils.

The Middle East is not new to the use of decentralized payment systems. For years, people used the Hawala (Trust) system as an informal value transfer system to bypass traditional banks. But with cryptocurrencies, the trust based on the Hawala system has been replaced with algorithms, which are the fundamentals of the decentralized nature of the cryptocurrencies based on blockchain technology.

Cryptocurrencies have gained attention from users in the Middle East over the past few years. A growing presence of cryptocurrency-related service providers, exchanges, and trading platforms popped up rapidly in the region.

VIDEO: Turkey to Implement New Cryptocurrency Regulations

Although crypto is a highly volatile investment, the growth of Bitcoin (from $1 in 2011 to almost $43,000 in 2021) has shown the world its promising profits.

For people, buying cryptocurrency is not only an opportunity to invest but it is used as a shield of their savings against the devaluation of local currencies and financial crises.

For people, buying cryptocurrency is not only an opportunity to invest but it is used as a shield of their savings against the devaluation of local currencies and financial crises.

Scams and frauds are ordinary in the crypto world. The relative complexity and the lack of knowledge on cryptos may expose investments and savings to big risks.

However, such risks haven’t stopped Lebanese from investing in cryptos amid an unprecedented economic and financial crisis that hit Lebanon in late 2019. Lebanese Lira fell to 80% against the dollar. Banks severely limited access to accounts to millions of people, thus, many started to invest in cryptos to relieve from the devaluation of the local currency and secure their assets away from the Lebanese banks.

Read: Bitcoin: The New Global Reserve Currency?

Crypto users in the Middle East conduct trades in many ways, depending on the regulations of their countries of residence. Many use several mobile apps. Some investors that have foreign bank accounts use well-established exchange platforms, including Coinbase. But some crypto exchanges don’t serve users in every Middle East country. So, buyers rely on local exchange platforms, such as OTC remittance outlets or private professionals that manage several portfolios by trading on WhatsApp, Telegram, Facebook, and Twitter.

Aside from Coinbase, Binance, and other popular platforms, users in the Middle East also use local exchange platforms.

Although new cryptos are getting popular, the most crypto traded in the Middle East is Bitcoin. As a second choice, buyers invest in Ether, the cryptocurrency based on the open-source blockchain developed by Vitalik Buterin in 2015. Recently, Dogecoin, a crypto formed as a joke, gained popularity due to the endorsement of Elon Musk, CEO of Tesla and other companies.

Due to the restrictions, lack of a regulatory framework, or unclarity over trading cryptos, not all countries in the Middle East may use the most popular exchange platforms. Aside from Coinbase, Binance, and other popular platforms, users in the Middle East also use local exchange platforms. For instance, BtcTurk is the biggest cryptocurrency exchange in Turkey, with around 3 million users, according to Bloomberg.

Read: The Rise of Bitcoin and its Ambiguous Future

Rain, a cryptocurrency trading platform licensed by the Central Bank of Bahrain, serves crypto products and services in Bahrain, Saudi Arabia, United Arab Emirates, Kuwait, and Oman. Among other exchange platforms, BitOasis, Local bitcoins and Paxful are widely used in the Middle East. However, many people join Western platforms by using Virtual Private Network (VPN) tools. Charges and the security infrastructure are the key elements that lead to preferring an exchange platform rather than another one.

Trading aside, mining is an essential operation to buy and sell cryptos. Mining is the process by which new cryptos enter into the market circulation. Furthermore, mining is the process of verifying bitcoin transactions and recording them in the public blockchain ledger.

Miners use very sophisticated computers that solve complex calculations. Miners were paid 6.25 bitcoin for every block mined, but the reward was reduced by 50% in May 2020. One of the most expensive costs to mine cryptos is power energy. Elon Musk has recently highlighted the issue related to crypto mining related to the environment. Electricity cost is an essential factor for starting a mining activity.

Most mining farms work in China, where electricity price is widely cheaper than in Europe and the U.S. In the middle East, Iran is a very important player in the mining market. Its electricity price ($0.005 KWh in a household) makes Iran a suitable country for mining, along with China and Venezuela. There are some Chinese mining farms in Iran, according to several reports. Kuwait may be an interesting county for mining, but the lack of infrastructure prevents mining operations on a large scale.

Blockchain technology is not only limited to cryptocurrency. Like the rest of the world, Middle Eastern countries are developing Central Bank Digital Currencies (CBDCs). These are new financial instruments based on the blockchain that would allow central banks to issue digital currency. CBDCs are an effort to contain and fight back Bitcoin and other cryptos. CBDCs are the digital representation of countries’ fiat currencies (government-issued currency). They are important because they can be programmed and can reduce processing times and costs.

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In the Middle East, the central banks from Saudi Arabia and UAE are working together on a blockchain technology project called Project Aber. The dual-issued CBDC would be viable for cross-border payments, as it would be an improvement over their current centralized payment systems. Israel, Lebanon, and Turkey have claimed to plan to launch their CBDCs too. However, these pilot projects are still embryonic as they need to develop adequate infrastructures to make them work. Although some experts say that CBDC will destroy the cryptocurrency market, others see this new financial instrument only as an alternative to use cash.

The race to cryptocurrencies and the new financial instruments are part of the development of the fintech industry in the Middle East. The region has strong potential, although it is one of the most underbanked regions in the world. Furthermore, cryptocurrencies have strict relations with energy resources, thus, not all Middle East countries will be able to develop financial instruments based on blockchain.

At the political level, Bitcoin and other cryptocurrencies may represent an obstacle to monitor the cash flow for some countries. For others, cryptocurrencies might help avoid international sanctions, although restrictive measures have been put in place in recent years.

Regarding CBDCs, it is too early to discuss whether they can help local or cross-border payment systems. So far, no central bank has issued a retail CBDC, and the current pilot projects are still at an early stage to get feedback about its adoption.

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]]> Bitcoin: The New Global Reserve Currency? https://politicstoday.org/bitcoin-the-new-global-reserve-currency/ Wed, 10 Feb 2021 04:00:25 +0000 https://politicstoday.org/bitcoin-the-new-global-reserve-currency/

World governments are likely to experience that their financial powers continue to be challenged by bitcoin-like cryptocurrencies.

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When bitcoin first emerged in 2009 in the aftermath of the greatest financial crisis in human history in 2008, its utility was questioned and scrutinised. Today, the price of bitcoin stands at $47,000 after it rallied from $5,000 when coronavirus lockdown hit the global economy back in March 2020. This is 10x value unfold in less than a year. The spectacular rise in value boggled the minds of many including investors, regulators, and bankers.

So why bitcoin is rising? Since the financial crash of 2008, questions were raised about the future of the US dollar as the global reserve currency. The quantitative easing policy adopted by the Federal Reserve Bank was described by many economists and financiers as the recipe to the destruction of the US dollar exorbitant privilege and its status as the global reserve currency.

Simply put, no one wants to save and invest their wealth in a currency that constantly loses its value to inflation. Loss of wealth that happened to many countries and investors that save in dollars is significant. The dollar had an average inflation rate of 1.64% per year between 2007 and today, producing a cumulative price increase of 25.63%.

Investors who have to deliver profits to their clients needed to hedge against dollar inflation. Thus, an influx of institutional investors lined up to buy bitcoin as they saw it become the gold standard for the digital era. The limited supply of bitcoin at 21 million coins means it is inflation-proof.

Scarcity of bitcoin operates as the catalyst for the increased demand on bitcoin and thus its price increases against the dollar. Therefore, institutional investors such as MicroStrategy and Guggenheim Partners fund managers increased their portfolio holdings of bitcoin and offered related financial services to their clients.

Read: The Rise of Bitcoin and its Ambiguous Future

A picture shows cryptocurrency, Bitcoin. Photo by Anadolu Images

Not only institutions are lining up to buy bitcoin, but also retail investors have increasingly shown greater interest in the coin and used it to hedge against losses to their savings in dollars due to inflation and to trade it. Companies such as PayPal, Square, and Visa have allowed or about to allow their customers to deal in bitcoin and used that to boost their payment solution for their customers which increased the number of retail investors who got into bitcoin.

The ongoing changes in the global economy are also part of the reasons for bitcoin rise. The Bretton Woods system of a gold-pegged dollar made the US (which owned 80% of world’s gold reserve at the time) the world leading economy. Eventually, to maintain the financial privilege, the US economy deindustrialised and became a service and finance-based economy.

With China’s rise, and due to security concerns around the safety of its supply chains, the US is interested in getting industry back onshore. Devaluing the dollar helps achieve such strategic objective as the US seeks to reclaim its domestic manufacturing capabilities.

The economic dynamic of bitcoin is simple. As USD value decreases, conversely, the price of bitcoin increases.

Overall, the economic dynamic of bitcoin is simple. As USD value decreases, conversely, the price of bitcoin increases. The increased demand helps institutional investors save their treasury, increase their profits, and adapt to technological changes in digital payment systems using blockchain-enabled technologies such as bitcoin.

Economy is not the only reason for bitcoin price rise. The global power struggle between China and the US is at play as well. At first, the Chinese government hailed bitcoin and its underlying technology, blockchain, and deemed it a way to undermine the dollar hegemony. However, political concerns around the potential use of bitcoin for capital flight and to change the power dynamic between wealthy Chinese and the state undercut such view. Additionally, China saw bitcoin rise as an opportunity to achieve its strategic objective of becoming a greater power broker in global economy.

The founder of SpaceX and Tesla Motors, Elon Musk, while delivering a speech at the Satellite 2020 Fair in Turkey. Photo by Yasin Öztürk. Anadolu Agency.

Thus, China tried to exercise regulatory control over Chinese holding bitcoin by banning cryptocurrencies. However, the Chinese crackdown on bitcoin led to more Chinese investments in the coin as it proved the need for non-government-controlled assets.

Today, China is a dominant actor in bitcoin mining. This is due to the cheap cost of electricity, mining equipment, and land. Furthermore, the strong capital controls exercised by China lured many Chinese who cannot move money abroad to bitcoin. Since China could not beat bitcoin, it decided to play its own blockchain game.

Globally, by deploying the digital yuan, China aims to offer foreign governments an opportunity to save and invest in a currency other than the dollar.

Hence, in April 2020, China announced its commitment to launching the digital yuan which would use blockchain technology. The aim of such move was to maintain the power of the Chinese state over the wealth of the nation, to reap the benefits of the new technology to reduce transactions cost and time, and to preserve the domestic power of the Chinese Communist Party.

Globally, by deploying the digital yuan, China aims to offer foreign governments an opportunity to save and invest in a currency other than the dollar. This shall help, according to the government view, boost the status of the yuan as a global reserve currency. Over the past few years, the yuan value has been appreciating, and China continues to implement policies that encourage its internationalisation.

Bottom line, China is happy the USD is losing its status as the global reserve currency which was used by the US to exercise power globally over the past seven decades. Furthermore, China’s mind is open to technological changes and is trying to harness the blockchain technology to boost the global financial status of the yuan, which is expected to help China materialize its goal of becoming the world’s top economy by 2050 and contribute to the success of its Belt and Road Initiative.

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From the US point of view, the Federal Reserve Bank continues to signal a quantitative easy policy via trillions of dollars of stimulation packages. In 2020 alone, $10 trillion were injected in the US economy to offset COVID19 depression.

The Biden administration promised more stimulus packages and an increase in the minimum wage to $15, which is expected to inflate prices. Therefore, American and international investors and retailers alike have a low level of confidence in the Fed’s willingness to protect the value of the dollar.

Is all bitcoin story gloomy? Of course not. Despite the rosy picture bitcoin enthusiasts show, mass adoption of the coin lags due to several concerns about the high volatility of bitcoin prices and the impact of bitcoin mining on the environment. However, on the long run, as more institutional and retail investors adopt bitcoin, the price will stabilise. Furthermore, mining bitcoin using green energy will become viable.

Taxing bitcoin holding is another issue due to the anonymity enjoyed by the holders. However, many governments have figured out ways to tax bitcoin holders and mechanisms continue to be developed to achieve such objective.

Read: The Transformation of Money and Blockchain Technology

Lastly, a potential ban on bitcoin by governments worries potential investors and retailers. However, the decentralised nature of bitcoin means it is proved against potential government bans. Furthermore, the geographical neutrality of bitcoin means that it will always be moveable and thus valuable.

In conclusion, governments need to reclaim investors and people trust to push them to continue to use national currencies and abandon bitcoin. Incentives such as price stability remain to be unlikely in the medium term as governments run the money-printing machine to stimulate their COVID19-depressed economies.

As monopolistic powers that operate in increasingly decentralised economic structures, world governments are likely to see their financial power continue to be challenged by bitcoin-like cryptocurrencies.

VIDEO: What’s Happening With Bitcoin?

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]]> The Rise of Bitcoin and its Ambiguous Future https://politicstoday.org/the-rise-of-bitcoin-and-its-ambiguous-future/ Tue, 30 Jan 2018 09:03:28 +0000 https://politicstoday.org/the-rise-of-bitcoin-and-its-ambiguous-future/

Cryptocurrencies are an important component of the great digital transformation. As discussed in various circles, Bitcoin and similar currencies might be a bubble that could burst. However, the technological development suggests that these kinds of currencies will become an inevitable part of our daily economic activities. In this respect, Bitcoin and altcoins have influenced the globe within a short time.

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While there were important developments transpiring in the cryptocurrency market throughout the last year, Bitcoin was the most prominent among these currencies. This is due to Bitcoin’s market volume, its high number of users and the fact that it has become an accepted currency by certain firms and companies. Since its conception after the Global Crisis, Bitcoin has become a phenomenon of the last couple of years, increasing its value tremendously in terms of trade volume and market capitalization.

Growing twenty-fold within 2017, the value of Bitcoin was around $20,000 by the end of the year. Beside its increase in value, piquing individual and corporate interest in Bitcoin, its acknowledgement as a legal entity for example in Japan, and cryptocurrencies being managed in prominent derivative markets (CME, CBOE, Nasdaq) were some of the most important developments. These developments aimed to increase interest in cryptocurrencies, while also decreasing the fluctuation in terms of their value. The instability and over-volatility of Bitcoin and other cryptocurrencies still raise the question as to whether they have a future in the markets.

The rise of Bitcoin

What makes Bitcoin different and special is that it can be exchanged between buyers and sellers digitally without the requirement of any third-party authority such as a state or central bank. Even though Bitcoin is defined as the brainchild of a utopian crypto-anarchism due to the fact that it is decentralized and encrypted, it has transcended their control. The introduction of Bitcoin into the market and its ever-increasing demand has led to the creation of diverse cryptocurrencies – currently over 1469 different types. Meanwhile, within the approximately 7814 markets, the trade of these cryptocurrencies increase day-by-day.

The most distinguishing feature of Bitcoin is that unlike fiat money (for example the Dollar or Euro), which is controlled by a central authority, Bitcoin is controlled through a software algorithm. Backed by an advanced technology called “blockchain,” Bitcoin’s creation and exchange relies on encryption (cryptography) principles. Being the most prominent cryptocurrency, Bitcoin was founded to be limited to 21 million units, 16,814,000 of which are currently in circulation. The limited supply of Bitcoin indicates that its increase in value is inevitable due to recent skyrocketing demands. Bitcoin’s supply was limited as it is intended to be used as the gold-standard.

When introduced in 2010, the value of Bitcoin was around $0.07, by early 2011 it had increased to around $1. Valued at $13 in 2012, Bitcoin continued to rise to $266 in 2013 and reached $960 by the end of 2016. By 2017 however, Bitcoin skyrocketed to the value of $20,000. This tremendous rise was widely covered by news outlets and Bitcoin was labelled the “digital/virtual” gold. The performance of Bitcoin triggered many individuals to re-direct their investments to cryptocurrencies. This interest in cryptocurrencies increased the demand of Bitcoin and led to the growth of its trade volume and increase in its value. Bitcoin’s swift rise in terms of value transcended its purpose and its fluctuations allowed it to become a speculative investment. Causing loss to investors and users, this extreme fluctuation sparked discussions regarding Bitcoin being some sort of a bubble.

Despite not being based on any legal currency, there are various platforms (such as online exchange markets) where users can exchange Bitcoins. Bitcoin and altcoin markets are different than conventional markets. Dubbed as cryptocurrency markets, these platforms are independent from countries and do not have opening-closing hours. There are also other platforms that allow the exchange of Bitcoin into real money.

While Bitcoin has become increasingly widespread over the internet and online shopping, there are also an increasing number of companies and ATMs that accept Bitcoin. Many establishments such as eBay, Amazon, Dell, Microsoft, Subway, Tesla and Bloomberg, accept Bitcoin as a method of payment. Currently, Bitcoin is accepted as a payment method for over 11,000 establishments worldwide. Besides being a popular digital currency, Bitcoin is also – physically – available at 2088 ATMs across 61 different countries. 35% of these ATMs also allow transactions with select altcoins. 60% of ATMs that allow Bitcoin transactions are located in the U.S.

In terms of numbers, the U.S. has 1197, Canada 316 and the U.K. has 104 ATMs. In respect to continents, 96% of the ATMs are located in North America and Europe, while only 2.4% of them are located in Asia. The increasing number of Bitcoin ATMs indicate that on average, every 2.5 days, a new Bitcoin ATM is placed.

Bitcoin in Turkey

The Japanese Yen and the U.S. Dollar are the two currencies that are used the most while buying and selling Bitcoin. Looking at the share of currencies, the Japanese Yen stands at 46%, the U.S. Dollar at 26%, the Korean Won at 18.76% and the Euro stands at 5.1%.

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The demand to cryptocurrencies also attracts users in Turkey. The Turkish Lira stands at 0.3% in terms of usage and is among the top 10 currencies. There are four cryptocurrency markets in Turkey: Paribu, BTCTürk, Koinim and Koineks. The 24-hour volume of these four cryptocurrency markets were $42 million by the end of 2017. Even though the majority of transactions were realized through Koineks, Paribu is the most valuable Turkish cryptocurrency market (worth approximately $19 million) with the largest 24-hour volume. These markets allow for the exchange between some select cryptocurrencies and obtain a share of transactions for acting as an intermediary between buyers and sellers. Although the interest in cryptocurrencies in Turkey has increased visibly, with the number of users increasing from 9000 to 42,000 within the last 6 months, the latency experienced by users during their transactions constitutes a prominent issue.

Similar to how Bitcoin has become a payment method on many international platforms, it is also accepted by numerous establishments in Turkey. There is news about Bitcoin becoming a payment method in sectors such as the real estate, food and education. BTCTürk, one of the intermediary cryptocurrency markets in Turkey, has announced that it was working to establish the infrastructure which would protect establishments against the sudden shifts in exchange rates and allow users to use Bitcoin online and during shopping. In this respect, it’s definite that Turkey needs certain laws to regulate the usage of cryptocurrencies. While cryptocurrencies and their markets, along with the backing blockchain technology is spreading internationally, Turkey should implement regulations which will transcend individual initiatives.

Security and risks

Despite having significant volumes, Bitcoin and altcoins are prone to volatility and speculations. Meanwhile, as they may be used for money laundering and other illegal activities, these currencies are as dependent as they are independent. Thus, due to the risks and opportunities they pose, cryptocurrencies will be addressed by governments all around the world. Indeed, many countries have already implemented certain regulations, while others have been observing cryptocurrencies and legitimizing them.

While the interest in Bitcoin increased after a crisis in Southern Cyprus, it has become especially useful in European countries where banks are unable to provide services to the public, like in Greece, Italy, Spain and Portugal. Due to the fact that Bitcoin allows people to realize various transactions such as withdrawing and transferring money independent of the financial system in the country, they have become popular. As it could be remembered, the Finance Minister of Greece, one of the countries that suffered from the Euro Crisis, had threatened the troika with making Bitcoin the national currency of Greece.

The production and transfer of Bitcoin, which could be defined as a tax and cost-free currency, could be observed by anyone. While the amount of dollars, euros or liras in circulation are unknown, Bitcoin is monitored with ease. Everyone is able to see the amount of Bitcoin in circulation and observe the transfers between wallets, including the amount and the date. In this respect, Bitcoin is established on a transparent system.

Besides their advantages, Bitcoin and altcoins possess certain risks. While their simplicity and cost-free transfer are advantageous, the lack of management or control by an institution or central authority poses certain risks in terms of security. For instance, while paying university tuition fees, or paying employees their salaries with Bitcoin is an opportunity, the fact that JP Morgan’s CEO deemed Bitcoin as “fraud” and expressed that he would “fire anyone buying Bitcoin,” affects not only the demand but also the value of Bitcoin to an extent.

Meanwhile, there are newly emerging altcoins, whose numbers are over a thousand, that do not have a future and are a get-rich-quick scheme. Inspired by the de-centralized Bitcoin, the arms race between altcoins in terms of hash processing power, excessive power consumption and Bitcoin mining becoming monopolized as an industry are some of the negative aspects of cryptocurrencies. Moreover, prohibitions against cryptocurrency investments and mining are being implemented in Asian countries. As is known, China has prohibited the exchange of cryptocurrencies, while Korea may put an embargo on cryptocurrency markets.

Cryptocurrencies are an important component of the great digital transformation. As discussed in various circles, Bitcoin and similar currencies might be a bubble that could burst. However, the technological development suggests that these kinds of currencies will become an inevitable part of our daily economic activities. In this respect, Bitcoin and altcoins have influenced the globe within a short time.

Despite being new, not having any legal status and having the possibility of being used for illegal activities, the swiftness, low costs and risks render Bitcoin and other cryptocurrencies attractive. In fact, even though Bitcoin has yet to prove itself, cryptocurrencies have tremendous potential in the mid and long-term. Rather than dis-regarding, governments should take initiatives that will prevent people from being victimized and allow the employment of blockchain technology. The increasing number of users and investors, both individual and corporate, make it necessary for governments to implement regulations and enact laws in order to keep up with this transformation.

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]]> The Transformation of Money and Blockchain Technology https://politicstoday.org/the-transformation-of-money-and-blockchain-technology/ Tue, 09 Jan 2018 10:26:24 +0000 https://politicstoday.org/the-transformation-of-money-and-blockchain-technology/

It is argued that blockchain, the underlying element of digital currencies, will have the most impact on our lives in the near future, taking over social media, big data, robots and artificial intelligence. Some even claim that its affect will be the “real” revolution.

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Being more than just a type of metal or paper, money is an element of a trust-based relationship between the creditor and debtor. In this respect, rather than being a measure that assesses the value of a commodity, money is the measure of trust in other people. Essentially, all monetary systems are based on trust and today’s coins and banknotes are not actually evaluated according to a standard established on precious metals. While states render banknotes trustworthy and financial regulations make electronic funds credible, crypto-currencies have the same trust via the blockchain technology, which offers security to the increasingly popular crypto-currencies. Developments in technology, international trade and the globalization of finance brought innovations for money. With the emergence of the electronic fund, money began to be transferred through electronic means defined as Electronic Fund Transfer (EFT).

EFT was then followed by the credit card and Automatic Teller Machine (ATM) technologies. With the onset of millennium, monetary transactions via credit/debit cards instead of cash, and along with the new technological developments rendered money increasingly digital and virtual. Today, banknotes have been replaced by electronic funds – two thirds of personal transactions in the United States are conducted through credit and debit cards. As money has entered the cyber world, various electronic payment methods emerged. Electronic funds and methods of payment, such as the credit card, PayPal, e-cash, electronic check, mobile payment, eScrip, IPIN, PcPay, and First Virtual, have increased in terms of both volume and variety. This spread of electronic funds created issues such as information security and high costs in transactions. In this respect, people need systems that are secure, low on cost and swift in order to freely handle their transactions.

The blockchain technology and cryptocurrencies

There are various approaches to the concept of cryptocurrencies. The most significant of these is the decline in trust in central banks and other financial institutions following the 2008 Financial Crisis. The 2008 crisis brought many changes to the global financial system – national stock markets collapsed, credit-rating agencies lost reputation, financial institutions and companies were on the verge of bankruptcy while certain worldwide banks went bankrupt. More important than all, the public perception of the finance sector slipped, leading to a feeling of increased distrust towards banks. As a result of this increasing distrust, Bitcoin was proposed as an alternative to powerful reserve currencies such as the U.S. Dollar and Euro. The crypto-currency Bitcoin was first mentioned in an article written by Satoshi Nakamoto, titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System.’

A technical analysis on an alternative currency and its timing was intriguing, as it was brought at a time when following the crisis, people were distrustful towards the financial world. In the mentioned article, Nakamoto defines Bitcoin as a peer-to-peer electronic system that relies on encryption. In his work Nakamoto criticizes intermediary services conducted by banks and argues that banks are not required for trade due to the increasing trend of electronic trade. While the article technically explains how the blockchain infrastructure was developed and how it functions, it also attempts to provide a new perspective as to how to resolve the post-crisis issue of trust through technology.

Even though crypto-currencies were being discussed prior to 2009, the introduction of the blockchain technology made them more appealing. So, what is blockchain? It is a distributed database in which all records are connected to each other through cryptographic elements (hash functions). Not being a centralized system, all data is stored by users integrated into the system. Blockchain, the distributed database that tracks encrypted transactions, is kind of a digital ledger known as Distributed Ledger Technology (DLT). With blockchain, crypto-currencies remove the intermediary and replace the prerequisite mutual trust with a mathematically-precise technology, thus establishing a trust mechanism. The trust here is actually in the security of crypto-currencies backed by the blockchain technology. Besides not requiring an intermediary and being transparent, the most prominent aspect of the blockchain technology is its high security. In this respect blockchain possesses a great potential as it accelerates transactions , decreases costs, increases security and expands operational capacities.

Acting as a digital registry without a particular storage, blockchain is a precious database that can be used for various purposes including storage of property ownership documents, birth and death certificates, management of smart contracts and financial documents. Blockchain provides an unprecedented opportunity for its users to control their digital identity. A transparent global registry, blockchain is used for various purposes such as securing, managing or storing in numerous fields. The facilities it provides to digital identity renders blockchain the key of trust economy. In this respect, blockchain offers the same advantages to businesses as well. For this reason, some argue that blockchain will rock the markets and will be at the center of the fourth industrial revolution.

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While Sweden was the first country to take steps in utilizing blockchain in order to secure and manage documents by storing land registry on the database, Bitfury signed the largest state blockchain deal with Ukraine, which will see the transfer of all the country’s electronic information to the database. Similarly, South Korea struck a deal with Samsung for blockchain-based technologies, and Hong Kong and Singapore announced that they were going to use blockchain technology in order to resolve their trade issues and to unify trade platforms.

Various steps are being taken in order to integrate multiple international sectors together with blockchain technology. In order to facilitate international trade, IBM is attempting to establish a digital trade consortium through blockchain by including the largest banks of Europe such as Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and Unicredit. IBM’s interest in this technology continues as it has announced a partnership with UBS, Bank of Montreal, CaixaBank, Erste Group and Commerzbank for the establishment of a blockchain-based trade finance platform. These kinds of developments indicate that the finance sector will quickly adapt to future digital technologies such as blockchain.

Bitcoin and the future of virtual currencies

Blockchain’s popularity increased in tandem with the crypto-currency Bitcoin. Expanding its volume and market share tremendously after its inception in 2009, Bitcoin has become a phenomenon in itself in recent years. Being the most valuable crypto-currency, the value of Bitcoin increased from $970 to $20,000 in 2017 alone. Today, Bitcoin’s share in the crypto-currency market is around 45% and its volume is around $265 billion. The crypto-currency market is worth around $600 billion in total. Following the introduction of Bitcoin to the market and the ever increasing demand for it, hundreds of other virtual currencies have emerged. Crypto-currencies other than Bitcoin such as Ethereum, Ripple, Bitcoin Cash, Litecoin, Cardano, IOTA, and Dash are defined as alt-coins (alternative coins). As of late 2017, there are 1367 crypto-currencies in the market. However, Bitcoin is still the most discussed crypto-currency not only because it has the largest share in the market but also because it is accepted by certain firms and companies.

Technological developments may allow for the digitalization of money to take a different turn. The risks and opportunities posed by Bitcoin will not only be observed by governments. Despite its high profit margin, Bitcoin is a volatile currency prone to speculation and can be used for money laundering and other illegal transactions. As is observed in the case of Bitcoin, crypto-currencies are an attractive and lucrative means for transaction due to their swiftness, low costs and minimal risks. Even though they are new to the market, they have no legal status and therefore can be used for illegal activities. In this sense therefore, crypto-currencies possess the potential of becoming an alternative means for investment or even currency. Indeed, it is argued that blockchain, the underlying element of digital currencies, will have the most impact on our lives in the near future, taking over social media, big data, robots and artificial intelligence. Some even claim that its affect will be the “real” revolution.

It is becoming compulsory for states to implement legal regulations that will enable them to adapt to this level of change. As is known, crypto-currencies already have a stock market. Some countries deem virtual currencies as a commodity and tax profits gained from their transactions. It could be asserted that governments will attempt to control digital currencies through blockchain technology in the upcoming years. Thus, for this reason, instead of deeming them as a hoax, Turkey should evaluate the possible advantages and risks of digital currencies through observing their usage, while enacting laws to protect individuals.

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