Bitcoin (ticker: BTC) has existed since late 2008 but it just started making headlines in early 2013. It is a crypto-currency and a payment method; its main advantage is that trades are anonymous and peer-to-peer (i.e. made directly without an intermediary). Bitcoin’s total production will be limited to 21 million Bitcoins.
It’s certainly an interesting concept with several advantages but also some significant disadvantages. For example:
- Given its pseudonymous nature and that Bitcoin address owners aren’t explicitly recognized, such trades are effectively anonymous. However, this anonymity was proven to attract transactions from illegal activities, the best-known example being that of the Silk Road site. This was a problem with regulators and officials since they recognise it as a medium for illegal transactions.
- Bitcoin was recognized as money in many countries and as of now, it is the very liquid & broadly accepted crypto-currency on earth. However, there is a very long list of alternative crypto-currencies that are happy to grab market share and challenge Bitcoin’s dominance. And what about the 21 million Bitcoin limitation? A possibility is that when the currency will get too restricting users may turn to additional crypto-currencies, effectively raising the global supply.
- Bitcoin trades consistently on exchanges around the globe in a very quick and simple manner, and it is conveniently saved electronically in “pockets”. But having internet wallet suppliers introduces an extra risk factor that cannot be ignored. One such case in point is the security breach at Mt. Gox in 2011, which sent shockwaves from the coin community. At the time, Mt. Gox was managing around 70 percent of all Bitcoin trades where one day it took a turn for the worst with him declaring that around 850,000 Bitcoins had been stolen. Shortly after the exchange suspended trading and filed for insolvency. It’s this potential security vulnerability which makes many people skeptical when it comes to crypto-currencies.
Recent Price Action
The price of Bitcoin has been quite unpredictable since early 2013. It had been trading between $10 and $15, and shortly afterwards went on an almost instant rise reaching a high of $1163 over exactly the same calendar year. It spent the following 18 months falling all of the way back down into the $200s but then went on the rise again as global instability dropped.
It made the news once more in late 2016 when a China-led buying spree took shape, mainly from people trying to escape the Yuan’s devaluation. Its simplicity, anonymity and ease made it an extremely popular choice amongst the Chinese. In early 2017 it nearly hit an all-time large, peaking at $1140 and at that stage the Chinese central bank made an important announcement. The CB reported that it wanted to research Bitcoin trades in market manipulation, money laundering and real estate funding. At the time of writing BTC is trading at $828 which signifies a staggering 2-week fall of over 37%.
What will the future hold for Bitcoin?
So what’s next for Bitcoin? As outlined earlier, it has many benefits and because of this it will stay applicable as a currency. The huge majority of BTC transactions by volume are produced in China so both will stay interlinked. Cryptography games online are becoming more popular by the day and may transgress to be the new norm.
We see the biggest risk to Bitcoin being its substitution and/or parallel usage by other crypto-currencies. However, original Bitcoin followers claim that this is never going to be a problem because Bitcoin was the leader and as such has the first-mover privilege. This argument is seemingly faulty because though the BTC is utilized for obligations, this is only a relatively small percent of all Bitcoins. One of its primary uses is being a store of value and for this reason, additional crypto-currencies can always step in and appreciate similar standing in case aggregate demand requires it.