There was a lot of noise around the decision of the Central Bank to limit mining and any operations with bitcoin on the territory of the Russian Federation. What is really happening and is it worth worrying about?
Pitfalls, imperceptible at first glance to a simple layman, in relation to cryptocurrency, were identified on the InvestFuture Youtube channel by Elizaveta Danilova, Director of the Financial Stability Department of the Bank of Russia.
5 reasons to abandon cryptocurrencies:
- It is dangerous to compare cryptocurrencies with money. People are mistaken when they think that the same bitcoin can be exchanged for cash, or paid for with it. With high price fluctuations, they cannot be a reliable way to save investments.
- Investing and storing large amounts of money in cryptocurrencies is extremely risky. Over time, this tool will be abandoned all over the world. More and more countries, following China, India and Russia, will impose bans on the circulation of cryptocurrencies, which will inevitably lead to a depreciation.
- Another important factor in the rapid development of mining is anonymity. But illegal operations are a big risk in the economy.
- The main reasons why cryptocurrencies are banned is that they are associated with the loss of the independence of the national currency. They are not provided with anything, basically, the turnover takes place in illegal operations. The Central Bank considers cryptocurrencies a monetary surrogate.
- Digital currencies cannot be used for investments, like investing in stocks and bonds. They have no fundamental value. This whole story is more like a financial pyramid, so familiar to Russians from the sad experience of MMM.
WHAT IS BITCOIN?
Bit-coin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. The cryptocurrency was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto. The currency began use in 2009 when its implementation was released as open-source software.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. Bitcoin has been criticized for its use in illegal transactions, the large amount of electricity (and thus carbon footprint) used by mining, price volatility, and thefts from exchanges. Some investors and economists have characterized it as a speculative bubble at various times. Others have used it as an investment, although several regulatory agencies have issued investor alerts about bitcoin. In September 2021, El Salvador officially adopted Bitcoin as legal tender, in the face of internal and international criticism, becoming the first nation to do so.
The word bitcoin was defined in a white paper published on 31 October 2008. It is a compound of the words bit and coin. No uniform convention for bitcoin capitalization exists; some sources use Bitcoin, capitalized, to refer to the technology and network and bitcoin, lowercase, for the unit of account. The Wall Street Journal, The Chronicle of Higher Education, and the Oxford English Dictionary advocate the use of lowercase bitcoin in all cases.