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Bitcoin and other cryptocurrencies have been proclaimed dead many times, but are still here. Learn about Bitcoin's pros and cons and join the discussion on the future of money.
Bitcoin controversy
Bitcoin prices are skyrocketing. In December 2017, bitcoin set a new record surpassing $15,000 for the first time. Despite warnings and an increasing feeling among analysts that the digital currency is an asset bubble, investors continue bet on it. The Guardian suggested recently that Bitcoin could produce one of the most important "outburst of irrational exuberance" in the history of financial markets. In six years this cryptocurrency has multiply by 15,000 its value. Is this sustainable in the long run? Who will suffer the consequences if the bubble bursts? Could this accelerated increase in the price of Bitcoin mark the the beginning of a new global financial crisis or that of a paradigm shift and the replacement of traditional governments-backed currencies?
Technology, once more, is shaking the foundation of social and economic activities. Bitcoin is the first and most popular of a fast-growing number of cryptocurrencies available for trade in online markets. These crytocurrencies are gradually becoming an alternative to traditional forms of payment. They have also been hailed as an attractive investment product. However, there are also many uncertainties about the cryptocurrency market. Regulation is incipient and the rapid changes in their values has led many to think that cryptocurrencies are merely high-risk speculative products. What do you think about them? Can cryptocurrencies replace traditional currencies in the future or are they just a fad?
Short history of Bitcoin
- Bitcoin was released as an open source software in January 2009, a few months after the publication of a research paper called "Bitcoin: A Peer-to-Peer Electronic Cash System" by Satoshi Nakamoto (the name was believed to be a code name representing a group of people).
- Beginning of 2011: one bitcoin is worth one dollar.
- November of 2013: bitcoin reaches its peak price (for the moment) around $1,000.
- In April 2016: one bitcoin is worth approximately $450. Craig Wright, an Australian businessman, reveals himself as Satoshi Nakamoto, but his claim has yet to be proven.
- On 29 November 2017: one bitcoin worth $10,889
- On 7 December 2017: one bitcoin worth $15,156
How does bitcoin work?
Bitcoin is a peer-to-peer system, where users deal directly with each other without intermediaries. Network nodes verify transactions, which are recorded in a public distributed ledger or transaction dababase called the block chain. The ledger uses bitcoin as its unit of account. The system works as a decentralized virtual currency. Bitcoins are generated through a "mining" process. They are awarded as payment for a processing work in which users offer their computing power to verify and record payments into a public ledger.
List of cryptocurrencies and main alternatives to bitcoin
- Bitcoin is the oldest of the existing virtual currencies, and has the biggest market value. Nearly 16 million bitcoins were worth nearly $9 billion in late November 2017 (excluding Bitcoin Cash and Bitcoin Gold).
- Ethereum is one of the main competitors or alternatives to bitcoin. Launched in July 2015, Ethereum had a market capitalization of almost $2 billion (without including Ethereum Classic), the second largest after bitcoin.
- Tether, a Chinese cryptocurrency that has revolutionized the market and has reached a market capitalisation of over $1 billion.
- Litecoin, launched in November 2013, has the fourth biggest market, $690 million
- Ripple, released in 2012, is the third cryptocurrency by market value, its capitalizartion exceeds $670 million.
- Dash, hit the market in January 2014 and, in late November 2017, has a total market value of over $313 million
- There are other alternatives to bitcoin, such as IOTA, Cardano, EOS, Stellar Lumens and Monero, which they all surpass $100 million in market capitalization.
Bitcoin pros and cons
Here are a few advantages of using bitcoin and other similar cryptocurrencies:
- It is a decentralized system, therefore it cannot be manipulated by governments and institutions.
- Privacy is protected (transactions are anonymous).
- There are very low fees.
- It is always available and has no borders.
- Bitcoins cannot be stolen.
Nevertheless, some disadvantages are also mentioned by critics:
- Because transactions are anonymous, cryptocurrencies could be easily used for illegal purposes.
- Although an incresing number of shops and markets accept payments in bitcoins, they are still a very small percentage of the total.
- Your wallet can be lost forever if the data is lost or corrupted.
- Bitcoin and other virtual currencies have been use by speculators, and their prices suffered from high volatility.
- The bitcoin system was designed with a limit of close to 21 million units. This could cause a deflation problem.
Is bitcoin dead? Are cryptocurrencies the future of money?
Every few months, some media proclaim bitcoin is dead or that it is a bubble about to burst. However this cryptocurrency is still there, more than 8 years after its creation, and stronger than ever. Will it finally disappear? Will another virtual currency replace traditional ones? What will be the future of money? Would you recommend investing in or mining cryptocurrencies?
Watch these videos on the advantages and disadvantages of cryptocurrencies
Bitcoin pros and cons: are cryptocurrencies the future of money? Will they replace traditional currencies? Vote in our poll and share your knowledge on cryptocurrencies.
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6 xp
3 posts
It's an often repeated myth that people won't buy stuff if it is expected to get cheaper. This is not true for two reasons. Firstly, before 1915 gold and silver was the basis for our money. This mean that over time, everything became cheaper. It wasn't a problem. Secondly, even today some items get cheaper all the time. Like computers, household appliances, cars, etc. Yet, how many people have stopped or seriously delayed buying a new TV, car, or phone, because it will be cheaper next year? It hardly happens.
The number of bitcoin is indeed limited to 21 million. But each bitcoin is divisible into 100 million pieces. So, actually there are 21x10^12 units. Even if that wouldn't be enough units, the divisibility of bitcoin can be increased by changing the software. Of course, almost everyone should agree to using the new software. But as such a change would be uncontroversial (unlike, e.g., increasing the number of bitcoin), it will be possible to change that rule.
1257 xp
247 posts
Bitcoin is only the draft of what could replace traditional currencies. By design it cannot work in the long run because the number of bitcoins in circulation is limited by the algorithm (and the algorithm cannot be changed), which means that a bitcoin will worth more and more while the use of this currency will grow. This is not practical, because people owning bitcoins will prefer not spending them today, as tomorrow any asset will worth less (if you express it in bitcoins). If you know that to buy a car you have to spend 100 bitcoins today, and one week from now it would be 80 bitcoins, and one month from now it would be 50 bitcoins, what do you do? You wait. The problem is that the transition period will be so long that the economic disorder would be enormous. On the other hand, if you design another virtual currency which algorithm is thought to maintain the currency at a stable value (for example producing new coins every time new users are entering the system), you may have something that could work out.
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