The Future of Bitcoin
Proponents of Bitcoin like to suggest that it will be the money of the future. Critics point to its price volatility, evidence of a Bitcoin bubble and other problems.
Bitcoin uses a peer-to-peer network that is designed to prevent various forms of fraud. There is no single point of failure, making it very difficult to bring the system down. While George Osborne may have been making positive noises about Bitcoin in the past, governments will almost certainly try to attack the Cryptocurrency. But even if they shut down individual sites, the Bitcoin community would simply carry on.
Bitcoin was designed to operate without the need for intermediaries or any central issuing authority. Bitcoin does not rely on a central bank to issue it, a commercial bank to store it, or a credit card company to transfer it. Instead, users interact with each other directly and anonymously and without third-party intervention. Bitcoin is being used without too much difficulty to buy pizzas and pay university fees. It is certainly portable and can be used to settle accounts easily.
The big problem with Bitcoin, however, is that it is an unreliable store of value. Take what happened in 2013 @ $215, and then seven months later astronomically hit $1,200. The algorithm that controls supply prevents the amount of Bitcoin from expanding to meet increases in demand. This inelasticity in supply leads to price variations and also encourages speculation and excessive volatility. This volatility is partly a consequence of Bitcoin being new as well as strong speculative demand from buyers.
Being the first mover is not necessarily an advantage in the longer term: design flaws in the model are set in concrete and competitors can learn from them. As competition develops, no one can predict which Cryptocurrency will be best suited to the market and will achieve long-run success.
The most likely scenario is that Bitcoin will eventually be displaced by better Cryptocurrencies, and that these would avoid the boom-bust cycle to which Bitcoin is prone. We are using these Cryptocurrencies on our smartphones and the demand for government money might disappear altogether … or maybe not!
One year ago the Bank of England had announced a plan to launch its own Bitcoin-like cryptocurrency called RSCoin. Hmmm, banks may prefer RSCoin precisely because banks can have control over the digital currency ….. 'Centralised'.... Back to square one.
Bitcoin offers some substantial advantages over traditional money and several significant economic benefits. If Bitcoin crashed tomorrow morning, the technology is still revolutionary, just like if a website or an application fails on the internet, the internet doesn’t go away.
Bitcoin called the ‘Peoples Money’, ‘The Internet of Money’, ‘Programmable Money’, Is Bitcoin the money of the future? Probably not, but Cryptocurrencies might be.