I just found it this article on a Hungarian forum, and I consider it interesting. This is an article from 2017, so it is funny to read and think "what would have been if"...

Please, excuse me for the grammatical mistakes...I need to ask to google translate's help also a "little bit" :)

So...let's start

Virtual currencies are doing great this year, 15-20 times this year alone, hundreds of times in a few years, thousands of times in five years. As is usually the case, speculation has naturally started, and wilder and wilder cryptocurrency-based investment products are emerging every day. Meanwhile, relatively few people see how the system works, and even they do not know what the real value of cryptocurrencies can be. Some say it's the greatest financial innovation of the 21st century, others say the crash is coming soon: everything you want to know about bitcoin and the cryptocurrency market.

We are talking about lucky people who got rich due to the brutal jump in the exchange rate of the virtual currency called bitcoin, who in a few years and months amassed an enormous, although seemingly quite volatile, fortune. The early boarders

By far the biggest financial story of 2017 is bitcoin and other similar virtual currencies. And the winners are mostly not investors and especially not financiers in the classic sense of the word. But they are financial freedom fighter nerds who dream of a world without state control, who want to replace the controllers and sharks of the financial world, the banks and the state, with algorithms.

How realistic this is, it is difficult to say for now. It is certain, however, that bitcoin and the technology behind it will have a lasting and significant impact on our lives. If for no other reason, it is certainly because the value of the alternative financial system has grown enormously in recent months, and a real gold rush has taken over the market. The theoretical value of the amount of virtual money in circulation is several hundreds of billions of dollars (i.e. several times the Hungarian GDP).

And the playground of nerds (and drug dealers) has become an accessible investment market, where speculation runs by the thousands, and from which everyone wants a bite, despite the completely inflated prices. Bitcoin futures trading has already started in the past few days, and not in some secluded, dark corner of the Internet, but on the Chicago Stock Exchange. But there are already mortgage bitcoins and bitcoin mortgages, and a good number of speculators do business on credit. The cogs of the financial world were immediately set in motion at the prospect of extra profit, and nowadays a new speculative financial product related to bitcoin appears almost every day.

Old bankers lament daily that the collapse is coming, while young bankers promise that the future has arrived and that it will be the virtual oil, gold and platinum of the 21st century. However, in reality, there are relatively few people who understand what this is all about, how the system works, what is the real value of bitcoin, or if it even exists. And why is a cryptocurrency worth so much, which doesn't really have any real economic value behind it, and which can't be used for much at the moment.

And since its value can only be guessed at, the bitcoin craze seems to have gone beyond all reasonable limits. According to the pessimistic version, instead of renewing the financial world, a classic investment balloon was blown, which could burst at any moment, destroying many millions of dollars of real assets. On the other hand, while they wanted to achieve the dismantling of the central power of the financial world and the quasi-democratization of the financial system, based on the available information, in the end, in its current form, it was possible to bring together an alternative reality where enormous influence is still concentrated in the hands of a few, and which, despite/because of the lack of central power, is not something stable.

If the above is not completely clear, don't beat yourself up, because it's really not a simple matter. Bitcoin is the oldest, most famous and most popular virtual currency, but at the same time it is the most abstract product of the monetary development of human civilization. Someone (or someone) under the pseudonym Satoshi Nakomoto came up with the concept of cryptocurrency in 2008, after the outbreak of the American financial crisis. (Who or what Satoshi Nakamoto is has not yet been revealed, although there are many potential Nakamoto candidates. Nakamoto quasi-retired shortly after bitcoin was created, leaving the project to others.)

The starting point was that the American central bank, the Federal Reserve, commercial banks, and the state itself are manipulative organizations, and therefore financial affairs must be freed from their influence and power.

The central problem of the idea fed by libertarian ideas is that the value of modern cash and bank money is given by the fact that the state and the central bank guarantee its value, and in general the operation and stability of the monetary system is based on (sometimes forced) trust in the state and banks . At the same time, states and their central banks tend to abuse this trust and manipulate the amount, value, and usability of money. While using money is quite expensive and complicated, and in most cases requires intermediaries: banks, currency exchanges, etc. Those who also continue to manipulate the system are prone to fraud, and sometimes their greed and/or lameness can cause catastrophes that destroy assets of tens or hundreds of millions, such as the 2008 crisis.

To eliminate this, Nakamoto created the design of a virtual money without central authority, manipulation and intermediaries, where

in a peer-to-peer system, as, for example, BitTorrent works. This became bitcoin, the first cryptocurrency, where crypto means cryptography, i.e. encryption, on which the system is based. Which, according to the prophets of the matter, could be the basis of a completely fair and impartial 21st century financial system.

Of course, virtual money in itself was not a new thing, there were already plenty of them before. The big thing was that he solved it by incorporating inventive cryptographic solutions so that virtual money could not be counterfeited or spent multiple times. The latter problem arises from the fact that, while cash or metal change hands in a physical transaction, only data sets are used in virtual transactions. In the banking world, this is solved by the sorcery called account management, where it is kept track of who has how much and how much they spend and receive when.

However, Nakamoto wanted no central settlement systems like this in his own libertarian utopia. So he created the blockchain, in which transactions are recorded by independent, peer-to-peer computers instead of central accounting.

Since the system assigns tasks randomly, it is not possible to manipulate what goes into the blockchain in principle. And individual blocks confirm not only the transactions stored by themselves, but also the integrity of all previous blocks, so the chain is in principle unbreakable. So you can't delete it, only create new transactions. Of course, such a system is not infallible in theory either, but it would require amazing resources. Whoever has these computing capacities at his disposal can make just enough money with "legal" mining, while hacking the blockchain could collapse the entire system and thus make the hacking itself meaningless. (Even if we assume that the goal is to make a profit and not to destroy wealth.)

Theft from individual accounts is still impossible, just a few days ago there was a rather large case worth tens of billions of forints. But the biggest scandal of the entire bitcoin story is also related to hacking: the collapse of the Japanese bitcoin exchange called MtGox in 2014, when 6 percent of the bitcoin volume in circulation at the time, at the then exchange rate, was 450 million, worth 16 billion dollars (4.2 thousand billion forints!) of cryptocurrency at today's exchange rate, were stolen by unknown persons. The case has not been resolved since then. In 2011, the system itself was hacked due to a security flaw, and someone created 184 billion bitcoins, but this fraud attempt was immediately intercepted and fixed within hours.

Nakamoto introduced bitcoin in 2009, he mined a million of it in the first round. However, at first only a very narrow circle used cryptocurrency, and not all of the best kind: in addition to libertarian geeks, virtual currency was popular mainly among criminal groups and hard-to-reach corners of the Internet, online drug dealers operating on the dark/deep web, and traders of other illegal stuff. money, primarily because of the (pseudo)anonymity it offers. At that time, it didn't even have a known exchange rate, the prices were set based on individual deals, just like in the good old days.

Then, nicely, slowly, gradually, it began to integrate into everyday financial affairs. The first milestone was when Laszlo Hanyecz, a programmer living in Florida (presumably László Hanyecz), ordered two pizzas for ten thousand bitcoins. Let's say not directly, but he sent the bitcoin to someone who ordered him the pizza, which was roughly $40 at the time. The broker soon sold the bitcoin assets for $400. Presumably both of them are banging their heads against the wall today: ten thousand bitcoins are worth more than HUF 50 billion today. (Hanyecz later told Wired that he didn't mind, the pizza was delicious, even though the 10,000 bitcoins were only around $300,000 at the time.)

It would be an exaggeration to say that pizza buying started an avalanche, but the fact is that quite a lot of changes have taken place in the cryptocurrency world since then. Today, it is not only possible to buy cocaine or tiger penis with bitcoin, as it was in 2010 on the online illegal marketplace called Silk Road; but many companies, for example

Online bitcoin exchanges have a huge turnover, and on these you can buy not only whole, but also partial bitcoins, up to hundred millionths of a bitcoin (this unit is the satoshi, and currently 1 dollar is worth about 5000 satoshis).

Regardless of this, the usability of bitcoin is still very limited today. Although Barclays has been flirting with it for some time, banks have so far been reluctant to use it (although this is what the original inventors wanted, right), and the companies that accept it do so more for the advertising and PR value of the thing, but they don't mean it entirely seriously.

However, the highly limited use value does not dissuade many people from buying bitcoin. This is faithfully reflected in the bitcoin-US dollar exchange rate: at the time of the pizza purchase, bitcoin had almost no value, not long after, at the beginning of 2011, it was worth one US dollar, ten in the summer of 2012, one hundred in the summer of 2013, more than a thousand by the beginning of this year, and five thousand by the fall , crossed the 10,000 mark at the end of November, and in recent days it has been hovering around 18-20 thousand dollars (approx. 4.8-5.3 million forints).

The reason for the brutal price increase is that while the number of people wanting bitcoins has increased significantly, the amount of cryptocurrency has not. Demand is basically driven by three groups:

The Japanese government's approach is based on the idea that with rapid adaptation, the island nation can (hopefully) become one of the centers of the emerging sector of fintech, i.e. financial technology. Lately, however, the Japanese have mostly been driving the prices, most of the buyers on the Japanese stock exchanges are local private investors, and most of the sellers are Chinese miners.

So there is no shortage of interested parties, even more so in bitcoin. Satoshi Nakamoto programmed the system in such a way that bitcoin mining becomes more and more difficult over time, and the reward awarded to miners, i.e. the rate of money creation, decreases. There are currently 16.7 million bitcoins in circulation, but

if all goes according to plan, the money supply will stop at this number. The reason for this is that Nakamoto wanted to partially eliminate inflation and to close it within a precisely controlled framework with his cryptocurrency, and the simplest way to do this is to radically limit the amount of money.

At the same time, this is also one of the sources of problems. Bitcoin is a bit like gold back then: everyone needs it, but its quantity is fixed, so its price increases. On the other hand, due to the scarcity of supply and the decentralized nature of the system, the price tends to change very quickly, which is compounded by the fact that

Bitcoin cannot be priced either as an investment product or as money: although there are many methods on the market for pricing securities and currencies, they are all based on some real economic fundamentals, i.e. economic and financial indicators from the real world. In the case of bitcoin, there are no such things, at most a promise that there will be in the future. In addition, it is not even possible to say that bitcoin has an official dollar exchange rate at all: you can get bitcoins and satoshis at different prices on different bitcoin exchanges, sometimes there can be a difference of hundreds or thousands of dollars.

Because of these, bitcoin tries in vain to replace the classic money currently in circulation, but it is essentially unable to do so at the moment. Diminished a bit, money has three main functions: a measure of value, a means of payment and a means of settlement. Bitcoin in its current form is not very good at any of these:

In the case of a normal currency, if such fluctuations were to occur, the central bank would try to stabilize the situation by controlling interest rates and the money supply; but that's exactly what bitcoin wanted to eliminate. This was achieved, but contrary to expectations, the self-regulating balance that the creator had hoped for has not yet reached the market.

This is also related to the fact that since bitcoin is a legal gray zone in most countries of the world, buyers do not receive the same legal protection as in the case of an average foreign exchange transaction or stock exchange purchase, so if someone is scammed, it can only be blamed on themselves. With independence from the state, one overcomes not only the disadvantages of state regulation, but also the advantages.

In the present, however, some people have made a huge profit from the march of bitcoin, at least virtually. Those who boarded in good weather could achieve a return of 16-17 thousand (4-4.5 million) with an investment of even one dollar (approx. 260-280 HUF). But those who acquired bitcoins before 2011 could reap many times more than that: in 2009, in the early days, the production cost of bitcoin was well below one dollar. On the heels of bitcoin's success, a few million new cryptocurrencies based on blockchain technology have been launched in recent times, and these have also recorded amazing profits, some of them are even more profitable than bitcoin.

It is difficult to say exactly how many people and how much they earned from the work, precisely because of the decentralized and anonymous nature of bitcoin. In any case, Bloomberg recently concluded that

There are two potential problems with this. One is that there are obviously quite a few of these big capitalists, dubbed by the paper only as "bitcoin whales", who want to exchange their cryptocurrency for real money, since even though there was already an example of buying a Lamborghini with bitcoin, Silk Road has since been liquidated, so for cocaine, champagne and everything else is easier to pay in dollars. On the other hand, a larger selling wave can cause a rapid and significant price drop, which is why they have to be careful if they don't want to immediately zero out their investment.

On the other hand, it is an even more serious systemic problem that, while Satoshi Nakamoto wanted to create an impartial, fair and centralized monetary system, an oligopoly was ultimately created where a few big capitalists (for example, the rowing brothers who were dumped from Facebook and became billionaires from bitcoin), the top 0.001 percent due to the huge amount of money at his disposal, he is able to make quite large market waves with relatively small steps. That is, it is technically possible for a few or a few dozen people to manipulate the entire market. But the recent influx of large investors also had a huge impact on the entire market, which fundamentally changed the game. Bitcoin wanted to eliminate the possibility of such systemic manipulation.

it is not able to function as money, and it did not bring about the libertarian nirvana without centralization and intervention. But this is actually not surprising in the light of the fact that in Satoshi Nakamoto's original manifesto there is no mention of the basic rules of economics, the whole thing is more of an idealistic political mask, plus a very exciting and truly revolutionary cryptographic technology.

But even though most of the world's central banks complain that there could be huge problems with the system, market optimism (or herd spirit) has not died out, in fact.

At the beginning of December, bitcoin futures trading started, first on the platform of CBOE, which operates the Chicago stock exchange, and on Monday, on the platform of CME, which operates the world's largest futures market. A futures contract means that you can make a deal on the stock exchange that will be fulfilled in the future: today I agree with someone to buy three bitcoins in three months for $45,000. So practically, you bet on the movement of the bitcoin exchange rate: in the case of the above example, I would make a profit if the value of bitcoin were higher than $15,000 in three months; and if it is lower, I would fail. (Actually, you don't even need to buy bitcoin anyway, the whole business is done in dollars, the bitcoin exchange rate is only the reference value of the business.)

Needless to say, this is a risky game for a currency that can show fluctuations of around 20 percent in a few days. In any case, the futures market expects a further rise: in the first days, the option price exceeded the real exchange rate by two thousand dollars; although the premium has decreased since then, the average price of the transactions is still in excess of the real exchange rate.

But there are still interesting new products on the market. For example

which we give above as a warning example. Bitcoin is quite difficult to withdraw, there are not many options to convert to cash, which creates a headache for those who want to enjoy their sudden wealth. Fortunately, the bottom diggers of the financial market (innovative actors according to other approaches) are happy to help: some startups that are extremely optimistic about the future of cryptocurrency have started to provide loans that are secured by the applicant's bitcoin assets. Although the terms of the loans are not good, this is still the easiest, and systemically riskiest, way to make real money from the virtual.

According to some U.S. officials, the craze has gotten to the point where many people are mortgaging their homes to invest in bitcoin, or selling other investments and going into credit card debt to buy more bitcoins and satoshis. In Japan, where roughly one-third of global bitcoin trade takes place, three-quarters of the turnover is not in bitcoins, but in bitcoin-based derivatives, i.e.

In addition, these speculative transactions are largely based on credit: the leverage ratio in the market is fifteen times. This means that the traders circulate 16 times their own capital, and the extra money is received as a quasi-loan. The essence of the method is that you can achieve a much larger profit with a large loan capital (if I achieve a 10 percent profit on a thousand forints, it is only 1010 forints, if on 16 thousand forints, then after repaying the loan of 15 thousand, I have 2600 forints left, which is a 160% profit ). Which is good as long as you are in profit, but if you fail, the loss will be much greater, since the borrowed money must be repaid.

Despite this, the head of the largest Japanese stock exchange, bitFlyer, claims that they can easily tolerate a 30 percent drop per day, and they try to minimize the risks, for example, if someone loses 50 percent of their capital, they immediately lock their account so that they cannot lose more.

So, according to the birds of prey (and the perceptible signs), the price of bitcoin is primarily driven by the fact that everyone believes that the price will increase. As for the traditional operating mechanism of the investment balloon:

Not a day goes by these days without another central bank governor or head of a commercial bank warning against cryptocurrency trading. In the past few days, the French finance minister has already talked about placing the dangers of bitcoin speculation on the agenda at the next summit of the world's twenty largest economies (G20). This, according to bitcoin supporters, is a sign that junk banks and states will try to disable the system, which threatens their financial power. On the other hand, however, it is an eternal truth that after a while the states try to intervene in all such widespread systems for the sake of the public good (or on the pretext of it), and now the bitcoin fever is really starting to grow to such an extent that the bodies governing the real financial world have to do something about it. So it is far from unthinkable that the ice cream will lick back and that the cryptocurrency world created with the goal of a stateless financial system will eventually be subject to state regulation. And depending on its nature, the regulation can overwhelm the currently anarchic market.

The good news is that even if bitcoin crashes, it probably won't have a terribly big impact on those who didn't get in on the party. Currently, the volume of bitcoin speculation is modest relative to the size of the global financial system: total global invested wealth is roughly $240 trillion, while total cryptocurrency wealth (the total value of bitcoin and all bitcoin rival currencies) is 0.25 percent of that. And despite the tossing around with millions and billions of numbers, the fortunes created by bitcoin are only virtual and were created with a relatively small investment; so if their value evaporates overnight, it won't have a fatal financial impact on most of today's bitcoin riches. (Of course, those who took out a mortgage at the peak to invest in bitcoin will go bankrupt, but they may be quite a few for now.)

The big banks are not in the business, and the exposure of institutional investors is growing in vain, but overall it is quite low. For that, the value of speculative transactions would have to increase by orders of magnitude, so that a possible collapse would have a more serious impact on the global economy. This cannot be ruled out for the time being either, and there are those who think so

The other good news is that even though bitcoin seems unsustainable as money, blockchain technology could very well turn out to be a revolutionary innovation. It is no coincidence that while they are largely staying away from the cryptocurrency craze, the world's major banks are investing thousands in the development of their own blockchain-based technologies, which, according to Nakamoto's original plan, can really reduce the administrative and transaction costs of the banking system by simplifying settlements. Although it is a funny addition that Nakamoto's goal was to create a money system without (central) banks, in comparison, central banks and large companies have started to study and improve blockchain technology to make their own closed systems based on it.

Earlier, the Index also discussed the possibility of smart contracts, which are one of the innovations of the already mentioned bitcoin rival, Ethereum. These are mechanisms based on the previously presented cryptographic system that automatically execute certain agreements if the previously laid conditions of the agreements are met. Recently, Daimler-Benz, the manufacturer of Mercedes, took out a loan of one hundred million euros from a German bank.

But in addition, they are already trying to use the technology in many other places, for example in trade settlement, in the management of corporate value chains, in the insurance and real estate markets, or even in energy distribution. And in the future, it can make life easier in a million other areas, from facilitating government administration to allowing online voting to storing and sharing health data.

So there is definitely a lot of fantasy in technology, even if most people compare the current situation of cryptocurrency to the internet investment (dotcom) bubble that burst in 2001. Back then, everyone believed that the Internet was an endless source of opportunity, and that every dollar invested in Internet companies would quickly multiply. This was not the case in the short term: in 2001, it turned out that the optimism was excessive, and the market could not produce as much growth as was expected. The stock market crashed, many companies went bankrupt, and the United States sank into recession.

But in the long term, the optimism of the 90s turned out to be true in the end: today the Internet really is one of the biggest businesses, Google, Facebook, Amazon and others are among the most valuable companies in the world. The blockchain can easily have such a career:

For now, it would be difficult to describe something that no one understands and whose outcome no one can predict. It is characteristic that Wired, which is considered a standard publication in the tech sector, sang about the rise and fall of bitcoin as early as 2011, in the past tense. Six years later, we're pretty much in the same place, but maybe even six years from now, there will be news that bitcoin is finally over.

Yes...I know it was long...maybe too long...but I hope it worth the time to read :)

Original source: https://index.hu/gazdasag/2017/12/18/bitcoin_kriptopenz_kriptovaluta_blokklanc_virtualis_penz_befektetesi_lufi_spekulacio_21._szazadi_penzugyi_rendszer/