“How to buy Bitcoin” was the UK’s second most Googled “how to” question in 2017, but has interest peaked in cryptocurrencies and blockchains?
The mysterious and often inscrutable nature of cryptocurrencies renders them a much-talked-about but little-understood phenomenon. They operate using what’s called a ‘blockchain’, an unalterable record of transactions that are verified by a network of computers instead of a central authority, like a bank for example. That makes sense enough. Then someone mentions ‘mining’ and suddenly, it makes as much sense as a chocolate frying pan.
So, let’s break it down. For transactions to go through they need to be verified collectively by a number of computers. These computers are the ‘miners’ and for verifying transactions, the users receive a reward in Bitcoin. But there is a finite amount of Bitcoin, which is where its value is derived – like gold for example – so once it’s all mined, it’s gone. It’s estimated that all the Bitcoin will be mined by roughly the year 2140. After this date, no more Bitcoin will ever be ‘created’.
But as there is a decreasing amount of Bitcoin and an increasing amount of ‘miners’, immense computer processing power is needed for successful mining. This requires expensive custom-built systems that are, ultimately, likely to cost more than the Bitcoin you acquire.
Bitcoin is just one form of cryptocurrency – others such as Ethereum or Ripple offer specific uses like cloud computing and quicker transactions for example – and cryptocurrency is just one use of blockchain technology. But the Bitcoin buzz is largely responsible for encouraging developers and startups to further explore the possibilities of blockchains, as The Guardian’s tech writer Alex Hern brilliantly puts, “‘x but on the blockchain’ is the new startup pitch du jour, now that ‘Uber for x’ and ‘x but on the iPhone’ are passé”.
So it’s all the rave right now and the perfect time to buy in and make a million? The short answer is ‘no’, and the long answer is, ‘no mate. Sorry. Definitely not. You’ve missed the boat there pal’. That people were able to make money from Bitcoin was a happy mistake for early investors. That time is long gone. Today, its value continues to be volatile and with media giants such as Facebook and Google banning the advertising of Bitcoin and other such currencies on their sites, questions around the legitimacy of cryptocurrencies are, again, coming to the fore.
This is partly to eradicate ads for initial coin offerings (ICO), a fundraising technique used by new cryptocurrency ventures whereby you can receive a percentage of their new currency in exchange for real money. Often, these turn out to be scams, falsely promising wealth to early investors. In a recent case, blockchain startup ‘Prodeum’ issued an ICO claiming it would revolutionise the tracking of food origin. But one day their website disappeared and was replaced simply with the word ‘penis’ while the owners made off with the early investor’s money.
A lot of the data on cryptocurrencies collected up to this point tracks things like value and trading volume. There’s little to be found on broader perceptions of and the way normal, everyday people feel toward them. Enter data insight company ‘Pulsar’ who has just published a report on the rise of cryptocurrencies “through the lens of social data”.
Pulsar argue that most of the current data out there only captures the behaviour of early investors and innovators and does not capture the general mood and perception of normal people. The study focuses on the “mainstream” and uses things like “conversation trends” to identify broader patterns of sentiment toward cryptocurrencies and blockchains.
This is a terribly precious asset as the value of these currencies essentially relies totally on whether or not people trust it and believe in it. If no one trusts it, no one will invest, if they do, they will invest, just as Pulsar’s report appears to show; “digital engagement around cryptocurrency has a measurable impact on perception and behaviour (investment)”.
What’s shown in the above data, is that the amount of social media discussions on Bitcoin appear to “signal” upcoming price increases in the currency. Over the time measured, higher conversation volumes strongly correlate with higher Bitcoin price levels. Pulsar suggests that this relationship is now weaker, however, partly because Bitcoin has come down from its December highs and partly because of people’s increasing understanding of the currency.
“We’re now starting to see divergence between price movements, search activity, and social behavior, suggesting a move into a more fragmented, and perhaps more nuanced, mainstream conversation about the future of Bitcoin”.
Pulsar’s figures are based on around five million mentions of cryptocurrency in discussions across social media channels between the dates of September 2017 to February 2018. And, they detected some interesting trends, for example, that the “Cryptocurrency buzz is being driven by a diverse audience beyond the young, male, tech community” and that “Sentiment tides have shifted in a more positive direction recently, but pessimism still prevails”.
Today’s estimated “aggregate value of all cryptocurrencies” currently sits at around $500bn and developers and startups are continuously investigating the broader benefits and uses of blockchain technology. But with regards to its legitimacy and usefulness to a “mainstream” customer base, it appears that the industry has a lot of convincing still to do.