It seems a long time ago now, but back in late 2017 Bitcoin was the darling of stock market investors and social media commentators alike. After eight years of relative obscurity, cryptocurrencies exploded into the public consciousness as Bitcoin’s value soared from less than $1,000 dollars to over $19,000 barely a year later. Yet today, one Bitcoin trades for around $5,000, while cryptocurrencies as a whole shed almost $500 billion in value during 2018. So what’s caused these seismic shocks, and is Bitcoin’s future any more secure now the worst price falls are behind it?
The Bit between their teeth
Cryptocurrency markets have been volatile since 2017 when they metamorphosed from stateless payment tokens to stock market playthings. Governmental reluctance to support unregulated and decentralised monetary platforms stifled their ability to grow, while a wearying list of high-profile frauds and thefts has undermined investor confidence in Initial Coin Offerings. Along the way, Bitcoin’s future became inextricably intertwined with the wider market – it’s the oldest cryptocurrency in a market with 1,500 newer entrants, and it’s the one responsible for the blockchain.
As the third decade of this century approaches, even its champions admit Bitcoin is yet to match the early hype around it. Instead of becoming a mainstream alternative to cash and credit, some early adopters have stopped accepting Bitcoin payments. Stock market fluctuations have made its value unpredictable, and companies are reluctant to sell a £100 item in a currency that might only be worth £50 next month, despite claims a single Bitcoin might be worth $250,000 in six years’ time. There’s also the issue that both parties in a transaction need to be using Bitcoin, which inevitably poses challenges. But arcing above these surmountable obstacles is the issue of mining…
What’s mine is yours
Unlike fiat currencies which are printed and regulated by a central bank, additional Bitcoins are generated by software processing known as mining. This gets more energy-intensive all the time, just as environmental awareness is dominating the headlines. Almost three-quarters of cryptocurrency mining takes place in China, generating millions of tonnes of CO2. In response, the Chinese government has proposed banning cryptocurrency mining as an undesirable economic activity. It’s easy to identify mining by the huge power consumption required, so there’s no way to cloak these activities, and no other nation could (or would) take up the slack. However, its architecture means that Bitcoin can’t survive without intensive mining. A Chinese mining ban would be crippling, and quite possibly fatal.
At this point, expert opinions split into two camps. Some analysts believe Bitcoin’s future is hobbled by ten-minute transaction processing times, holed by stock market volatility, and doomed by environmental factors. Conversely, advocates argue that the transparency and international compatibility of digital currency are ideally suited for today’s global village. After all, credit and debit cards have also endured endemic fraud online, with processing and currency conversion fees a bone of consumer contention. Bitcoin is the biggest cryptocurrency – and therefore best placed to resolve fiat currency frustrations.
Block and tackle
Given China’s growing antipathy to the currency it’s propping up, Bitcoin resembles a risky proposition. A series of hard forks have created competing variants, adding unnecessary extra confusion and hindering mainstream adoption. Yet the blockchain that Bitcoin heralded has undeniable value, reflected in the huge sums being invested in blockchain technology by blue-chip technology brands. This decentralised public ledger could be adopted for legal transactions, personal identification, copyright payments, and innumerable other uses. Indeed, while Bitcoin’s future looks far from stable, the wider blockchain may prove to be the real breakthrough – and safer investment.