A cryptocurrency is a digital currency created and operated using advanced cryptographic techniques. With the launch of Bitcoin in 2009, cryptocurrency made the jump from being a research theory to (virtual) truth. Although Bitcoin attracted increasing numbers in the following years, in April 2013, it caught significant attention of investors and media when its record $266 per bitcoin peaked after a 10-time spike in the previous two months. Bitcoin contributed over $2 billion in market value at its peak, but a 50 percent drop soon afterwards sparked a wild debate on the future of cryptocurrency companies, particularly Bitcoin.
Some business analysts predict that a big crypto-change will take place with institutional money entering the market. In addition, crypto may become floating on Nasdaq, adding legitimacy to blockchain and its use as an alternative to traditional currencies. Some people predict that all that crypto needs is an ETF. An ETF definitely makes investing in Bitcoin simpler, but the market for investment in cryptography still needs to be there, which some say can not be created by a fund automatically.
Bitcoin is a distributed currency that uses peer-to-peer technology that allows the network to collectively perform all tasks, such as currency issuance, trading and verification. While this decentralization frees Bitcoin from government manipulation or intervention, there is no central authority for ensuring that matters run smoothly or to uphold Bitcoin’s interest. Bitcoins are digitally created by means of a process of “mining” which requires strong computers to solve complex algorithms and crunch numbers.It is now produced every 10 minutes at 25 bitcoins and is limited to 21 million, an approximate amount in 2140.
These characteristics distinguish Bitcoin from a fiat currency which is supported by its government’s full confidence and credit. The issuance of a Fiat currency is a highly centralized activity controlled by the central bank of a nation. In accordance with its monetary policy objectives, the Bank regulates the amount of currency issued, but the theoretical limit for the amount of such a currency issuance is not set. Therefore, a government body usually provides local deposits in currency against bank failures. On the other hand, Bitcoin does not have such mechanisms of support. The value of a Bitcoin depends entirely on the ability of investors to pay for it on a certain basis. Even, if a Bitcoin exchange folds up, Bitcoin balance consumers do not have the chance to get it back.
Future Outlook for Bitcoin
There is a lot of debate about the future outlook for Bitcoin. While so-called crypto-evangelists are increasingly in financial media, Kenneth Rogoff, professor of economics and public policies at Harvard University, suggests that crypto advocates have an “overwhelming feeling” that over the next 5 years, the overall ‘ market capitalization of cryptocurrencies could exponential, hitting $5-10,[ 1 trillion].’
He said that the historical volatility of the asset class “is no cause for alarm.” However, he contrasted his enthusiasm with that of Bitcoin’s “bitcoin evangelist,” whom he called “nutty,” and proclaimed his long-term worth “more likely than $100,000 to be $100.”
In comparison to physical gold, Rogoff claims that use of Bitcoin is limited to payments making it more vulnerable to a collapsing bubble. More than other systems based on the “Trusted Central Administration such as a central bank,” the energy-intensive verification process in the cryptocurrency is “much less efficient.”
Bitcoin’s advent has ignited a debate over its existence and that of other cryptocurrencies. Despite Bitcoin’s recent problems, its success has inspired the creation of alternative cryptocurrencies such as Litecoin, Ripple and MintChip since its launch in 2009. A cryptocurrency seeking to become a part of the financial mainstream system would have to follow very different criteria. Although this option is far away, Bitcoin’s success or failure to address the challenges it faces can determine other cryptocurrencies ‘ fortunes in the years to come.