Bitcoin is an unlikely internet success story. Created anonymously eight years ago, this digital currency can only be acquired in whole units or tiny fractions worth one hundred millionth of a bitcoin. It’s bought by paying money into an ATM, or earned by surrendering computer processing power to recording bitcoin-related transactions in an indelible public ledger called the blockchain. Yet this ledger maintains user anonymity, so individuals can’t be identified by their actions.
Because it’s not underwritten by a central bank, bitcoin’s worth fluctuates wildly. In May, it lost almost a fifth of its value in one day of frenzied trading, with a further crash in mid-July as fears grew about the implications of an essential software update. When 93 per cent of blockchain processors declared their support for the BIP91 software update, prices soared to record highs… and then fell by ten per cent when rumors surfaced about other upgrade disagreements.
With high-profile champions such as Bill Gates, bitcoin has many credible advocates. Yet digital currency remains on the periphery of society, shrouded in mystery and regarded with suspicion.
So what’s likely to happen to bitcoin in the years ahead?
Firstly, it seems the resolution of the BIP91 issue will support price rises for several months. Bitcoin’s value has doubled since the start of this year, and one analyst predicted after May’s crash that one bitcoin could be worth $100,000 by 2027 – at the time of writing, it’s worth a record $4,000. The next development deadline is November, and bitcoin’s value could take off like a rocket if the so-called SegWit2x scaling proposal is unanimously agreed upon. Conversely, failure to agree might see the currency split into competing versions, like Linux distros. A low-profile fork called Bitcoin Cash launched on August 1st, though the differences are nominal and this new currency is worth less than a tenth of its older sibling as of mid-August.
Assuming future development implementations proceed without issue, bitcoin still needs a major adopter to gain critical mass. Its main advocates are presently travel-based businesses like airlines, where the absence of exchange rates and processing fees are particularly attractive. Early adopters willing to accept bitcoin can claim a USP over their rivals, but it’d take the patronage of a Walmart or Amazon to hit the headlines. When blue-chip brands begin accepting bitcoin in payment, public skepticism will ebb away. But these connotations with illicit deep web activities are proving hard to shake.
Nonetheless, using a digital currency like bitcoin or ethereum makes perfect sense as our lives migrate online. Storing funds in encrypted online wallets is more practical for internet transactions than entering credit card data, just as PayPal is seamless and handy when paying for online transactions. As the percentage of ecommerce transactions in global retail improves upon 2016’s disappointing 8.7 per cent total, more people may choose to convert dollars to bitcoin.
It seems inevitable that bitcoin’s growing pains will continue. Stock market trading and the lack of an underwriter will cause further spikes and troughs in value. Emerging rivals may supplant bitcoin by improving on its formula, just as BlackBerry’s pioneering email-on-the-go OS was copied more successfully by Android and Apple. Finally, November’s SegWit2x deadline poses the latest threat to bitcoin’s long-term prospects. The next few months certainly won’t be dull for digital currency watchers.
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