The global impact of cryptocurrency can no longer be denied. With financial institutions, celebrities and more offering their name and conviction behind the technology, the debate now is whether cryptocurrency will be a revolutionary concept with staying power, or fade into existence as another passing fad. Many are claiming that bitcoin and the whole concept of cryptocurrency is a black swan event for the modern times.
But before we can explain why that may be the case, we first have to look at what a black swan event is.
What Is a Black Swan Event?
The phrase “black swan” was actually a Latin expression that existed long before the actual discovery of a black swan. In the Old World, a black swan was thought to be an impossibility, since the only observed swans in existence were white. In 16th century London, saying something was a “black swan” would be like saying “when pigs fly” – something that would never happen or is absolutely impossible.
Everything changed when Willem De Vlamingh, a 17th-century sea-captain, lead a group of Dutch explorers to Western Australia and witnessed the first recorded instance of a black swan.
In the following centuries, a “black swan” came to refer to a highly improbable event, instead of an impossible one.
The phrase later regained popularity when Nassim Nicholas Taleb later used it as the basis for his 2001 book, Fooled By Randomness, and in his later book, The Black Swan. While initially used to refer to financial events, Taleb later applied it to any major discovery or event that drastically impacts our understanding of the world.
Some of the most notable black swan events were tied to the economy, such as the housing market crash of 2008, and the dot-com bubble in 2001. Both events had major consequences that rippled throughout the world, but could not have been predicted by sophisticated computer models or the public before it happened or even as it was happening.
The latest debate is whether bitcoin and other cryptocurrencies are the latest black swan event to take the world by storm.
Is Cryptocurrency A Black Swan Event?
If we’re to go by the definition of a black swan set by Taleb, an event with massive implications that no one could have predicted, many would argue that bitcoin is a black swan event.
Here are a few reasons that suggest bitcoin is and continues to be a black swan event:
For hundreds of years, the way banking and currency have been developed remains largely the same. Everyone in a nation agrees to a physical currency, and determine its value through its supply. Banks act as intermediaries that print money and acts as the intermediary between a buyer and seller. Technology has evolved to simplify this process, but the basic principles remain the same.
The problem is that the current financial system can no longer support itself. There have been recessions, corrupt governments, and a unprecedented income inequality. People no longer put faith in the same financial institutions because of the global problems they cause.
Bitcoin was the first experiment that harnessed the power of the internet to create an alternative that does not rely on a third party. That means faster transactions with lower fees. Understandably, not all financial institutions are cozying up to the idea, such as the CEO of Chase bank, Jamie Dimon, who called bitcoin a “fraud”.
- Blockchain – A Revolutionary New tTechnology
People forget that the marvel isn’t just in some currency called bitcoin, but the technology that makes bitcoin and all other altcoins possible. While hundreds of people have tried to create a digital currency, bitcoin was the first that used principles such as proof of work, decentralization, mining, and smart contracts that all worked seamlessly to make sure each bitcoin cannot be hacked or duplicated.
It may take a few years for people to fully grasp the complexities of bitcoin, but blockchain is already being put to use in multiple companies services, from voting systems to gaming microtransactions. It represents a fundamentally new way to create and track records without anyone being able to go back and tamper with them.
The founder of bitcoin, Satoshi Nakamoto, remains anonymous to this day. People are not even sure whether Nakamoto is one person, a group, or even Japanese. Speculation suggests that a handful of people interested in P2P currencies before bitcoin could be the true creator, but none have stepped forth to claim responsibility.
Since its first rise in 2013, only a handful of people could have known that bitcoin would one day soar in value. Teenagers and entrepreneurs have become unexpected billionaires overnight, and none would be able to say they invested wittingly.
So for these three reasons, the notion that bitcoin had major implications on our banking system, that the technology could be utilized outside of currencies, and that only a few people could have ever seen its boom in value, lead us to believe that bitcoin, and cryptocurrencies in general, are a black swan event.
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