The Bitcoin took the world of finance by surprise when its value increased by 15,000% within four years, as the price per Bitcoin surged from $ 0.08 to $ 1,200! The underlying demand for an independent digital currency, not controlled by a central government which is subjected to their quantitative easing and inflation, made Bitcoin an imminent threat to conventional fiat currencies. Today, Bitcoin’s prospects as the future of virtual currency is more secure than ever.
Bitcoin Will Survive Volatility
More businesses, both online and brick and mortar retail stores are accepting Bitcoin as an alternative to cash or credit cards. Moreover, companies like EgoPay are making it extremely easy to convert Bitcoin into other digital currencies which is contributing to rising popularity of Bitcoin. However, the extreme volatility of Bitcoin’s price made it difficult to accept it as a viable alternative for everyday transactions for the general population.
But volatility is an unavoidable aspect of laissez-faire economics. Price of futures contracts, safe haven commodities like gold and silver, the currency markets, and the rest of the free market economy has survived volatility by innovative financial engineering, such as utilizing hedging to counter the massive fluctuations. Similar financial instruments are being developed to protect Bitcoin users and investors from the price volatility. For example, Singapore based BTC.sx allow hedging Bitcoin so that its value remains constant against major currencies during massive price swings.
Bitcoin Itself Is Secure
The scandals regarding security breach by major Bitcoin exchanges did not help the infant digital currency either. Especially, the Tokyo based exchange; Mt.Gox’s loss of $ 450 million worth of Bitcoin due to hacking and subsequent declaration of bankruptcy pushed the cryptocurrency on the verge of annihilation. This is because Mt.Gox was responsible 70% of Bitcoin transactions when it happened.
But the fact remained that it was Mt.Gox, whose platform security was compromised, not the security of Bitcoin itself. The vice president of cloud and emerging technologies at online security firm Trend Micro, Mark Nunnikhoven, commented on the overall Bitcoin network, based on the cryptocurrency’s block-chain structure, as it is “very secure.” Since each transaction needs to be verified and logged in the network distributed system of Bitcoin, it is literally not possible to conduct a fraud transaction with the technology behind this cryptocurrency.
Bubbles Are Part of Growth
Critics of Bitcoin have repeatedly said that the increasing market capitalization of Bitcoin is a bubble, similar to the tulip mania, and the sooner or later it will pop. The extreme valuation of Bitcoin by the market may resemble similarity of a bubble, but bubbles have existed alongside legitimate currencies and other asset classes in free economies.
For example, the US stock markets crashed in 1929 and several times since then, but people still consider it as a viable investment vehicle. Even after the recent global financial crisis!
The hype around a new digital currency may have made investors initially overvalue it. But over time, the market will saturate and the stability will be established. In fact, since the start of 2014 (YTD), the market capitalization of Bitcoin remained within a narrow range, where it traded near $ 600 per Bitcoin. As the maximum number of mined Bitcoin is capped at 21 million, the value of Bitcoin will likely increase over time. In contrast, the volatility and asset bubbles will certainly decrease in near future.
Like Cash, Bitcoin is King
Then there is the question of using Bitcoin for trading illegal products. Bitcoin’s critics often mention how the value of Bitcoin plummeted after the FBI took down narcotic trafficking site “The Silk Road.”
Nevertheless, the Chief Operating Officer of Coinkite, Rodolfo Novak, is hesitant to blame Bitcoin for how and why drug dealers used it. Commenting on the allegation against Bitcoin, Novak said that “the reality is that in any system, bad people are going to do bad things.” “But nobody jumps to saying how the dollar is dead any time a drug dealer is caught using them,” he added.
At this point in time, Bitcoin may be viewed as a craze or fad, where only currency nerds and speculators are interested in it. However, once the dust settles and people start using Bitcoin for real world transactions instead of hoarding as a commodity, then the true value of Bitcoin as a currency will be revealed.
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