It was said to be the currency of the future. Investors flocked to it, sending its value to over one million dollars per unit.
Two years later, and it has become irrelevant.
Remember when Bitcoin was all the rage? In late 2013, news broadcasts, newspapers, and financial advisors proposed that the success of the crypto-currency would revolutionize the way our world uses currency.
Subsequently, Bitcoin vanished. What happened to our “bright future in Bitcoin?” Where did it all go wrong?
For those of you who are unaware, Bitcoin is a crypto-currency, which is a digital or virtual currency that uses cryptography for security. Cryptography comes from the Greek word kryptós, which means “hidden secret,” and the word graphein, which means “writing.” The individuals who solve this “hidden secret writing” are called “miners.” The secret writing is located in the block-chain, which is the general ledger of Bitcoin. Miners use a computer running Bitcoin mining software to solve the algorithms (secret writing) that are in the block-chain, and transform the code into something else–something we know as Bitcoin.
This is where the problems begin. Because the government does not back Bitcoin, the crypto-currency derives its value only from the demand for it. In 2013, when Bitcoin was getting a lot of buzz, many believed the value of Bitcoin would appreciate. The media-created buzz sent investors flocking to buy Bitcoins and sent the currency’s value to a record high of 1,242.00 USD per Bitcoin, which was close to the worth of gold at the time.
Bitcoin’s value increases when the total investment in it has a smaller divisor. This means that all the Bitcoins that have been released from the block-chain are being held by a fewer number of individuals than they previously were. This drives the demand for the currency up and increases its value.
Yet, most currency speculators consider Bitcoin too valuable to spend. If currency is not circulating, and investors are not buying it because analysis shows that the price will not rise much higher, then the demand for Bitcoin will go down. The currency’s value will plummet because it has no worth—and so it did.
A little more than a year after Bitcoin hit its record high, it dropped to 178 USD, the lowest value since its record high.
When investors start cashing their Bitcoins out, the supply begins to go up, and the price goes down. In February of 2014, the price of Bitcoin dropped from 706 USD to 102 in 90 minutes–over an 80 percent drop from its former value.
Despite Bitcoin’s boom in the media, the spotty track record of the currency gives us little hope for its future. To add insult to injury, there are still a lot of kinks in the block-chain that need to be worked out. A good amount of Bitcoin owners have reported lost transactions. When that happens, not only do you lose your funds, but the funds are also lost from the block-chain. The transaction is then no longer recorded on the general ledger, so there is no way to get your Bitcoins back.
Until the technical errors are worked out, we have no future in Bitcoin. As consumers, we want our money to be safe, protected from fraud, and stable.
Bitcoin is the exact opposite of that. To see the world’s first decentralized digital currency excel, we need more individuals to actually adopt and utilize it. This also means we need to see more establishments that accept Bitcoin as payment. However, before any of that is even possible, we need to see all of the kinks in the block-chain worked out—and who knows when that will be?
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