The word ‘cryptocurrency’ shook the world for some time in the recent days. Everyone from around the world was jumping on the bandwagon. Even people who showed no interest whatsoever in any kinds of investment tools were keen to know about Bitcoins and cryptocurrencies. With all the fad, cryptocurrency took over the world, but it just lasted for a few months though. As predicted by many experts, Bitcoin value took a big dive and other virtual currencies followed suit. Bitcoin mania is still not completely over in the world. However, this recent fad was a big eye-opener for governments across the world.
Over the years, bitcoin has built a cult-like followership with many investors defending it vigorously as the next big thing. Well, I am not here to say they are completely wrong. The truth is – even the “so-called” experts in this field do not have a proper understanding of his technology. It may take over the world one day, but that day is not anywhere near the future in my opinion. While bitcoin advocates still defend it, I would like to point out that bitcoin has already deviated from its primary purpose – to serve as a digital currency.
What we have now is an investment tool or a get rich quick scheme rather than a solid alternative to traditional currency. I don’t know how it actually got to this point. In the present form, bitcoin and other cryptocurrencies have become a mode of investment. The real question is – how long can they sustain in that model? Frankly, I don’t have a clue. Not just me, even financial experts from around the world don’t have a proper understanding of what will be the future of cryptocurrencies.
Amid all these considerations, let me give 10 reasons why the recent bitcoin bubble could not sustain its momentum.
1. Most people entered just for FOMO
FOMO (fear of missing out) seemed to have played a major role in boosting bitcoin price up to $20,000. Bitcoin value reached $1,000 just at the beginning of 2017. By the end of the year, people were rushing in to buy bitcoin for as much as $20,000. With half the world touting this to be next big thing, many people jumped into it just for a very simple reason – they didn’t want to be left behind.
As the saying goes – what goes up, must come down – bitcoin bubble was expected to explode one day and it rightly did. At the time of writing this article, one bitcoin price was around $8,800. Will this remain stable at this price? Nobody has a clue.
2. High volatility
At the time of its peak trading point, bitcoin price was gaining and losing thousands of pounds within mere days. As noted, even the experts in this field cannot promise whether the price will remain stable. Imagine the US dollar or Euro gaining 10 times it values and losing 5 times its value in a matter just 12 months. Who do you think can hold on to them?
As of now, most bitcoin holders are just investors who are expecting a boost in bitcoin value with another bubble in the future. It might come, or it might not come. For an average investor, this does not sound like a worthy investment option.
3. Lack of material value
It will take a lengthy lecture to help people understand the origins of money and how paper currency became widely accepted in the real world. You might probably know that the paper currency that we have is the representation of gold or silver held by our governments. Even with all its flaws, a government is still a trustworthy body as far as currency is concerned.
Cryptocurrencies like bitcoin, on the other hand, do not hold any material value nor do they have a centralized authority to provide value. The total mineable bitcoin is not a representation of gold reserve held somewhere. Without a material value or a trustworthy administrative body, it is challenging for an ordinary user to accept bitcoin as a form of currency.
4. Too many cryptocurrencies?
As soon as bitcoin value hit a record high, way too many players jumped into the market and they gave a bad name for cryptocurrencies in general. While bitcoin value soared in the market, so did the value of these other players. The worst part was that most of these players weren’t even subtle about their ridiculous naming. Dogecoin, UFO con, Trump coin, Putin coin, Sex coin, VGINA – these are all real cryptocurrencies currently trading in the market. And there are many more like this.
The market cap for some of these companies is currently in billions of dollars (Dogecoin hit $1 billion market cap in January). When bitcoin rate was at its peak, these other virtual currencies managed to gain a foothold in the market and made huge money. How trustworthy are they? That’s another big question that has no answer.
5. Lack of government support
Most of the bitcoin supporters have immense pride in the fact that bitcoin is completely decentralized. While this certainly is a huge deal, it is also the main reason why most governments will not approve bitcoin anytime soon. It is true that bitcoins are legal in most developed countries. However, this does not indicate any regulatory support for them.
In India, the government has not declared cryptocurrencies as illegal but it has issued a stern warning to the people to not lose their money in virtual currency trading. Moreover, the Reserve Bank of India compared it to a Ponzi scheme just a few months ago. Though people are free to trade in bitcoins, it is heavily discouraged by many governments.
6. Lack of regulatory framework
The regulatory framework for bitcoins and other cryptocurrencies is still in the nascent stage. On a global level, there are no major regulatory agencies in full control of managing bitcoins. That would beat the purpose of cryptocurrencies – some would say. Still, a regulatory framework is essential to gain more trust from the general public.
In certain markets across the world, governments were forced to regulate cryptocurrencies after the boom but it is still not implemented on a global level. In India, bitcoin exchange centers are not officially recognized by the government. Most importantly, major banks in the country have just withdrawn their support for bitcoin exchanges owing to an increase in cryptocurrency scams. Without a proper regulatory framework, cryptocurrency investment may not work in the way you expect them to do.
7. Impossible to reverse payment
Here is another reason why bitcoins may not be practical for everyday use. The blockchain technology used by cryptocurrencies makes it impossible to reverse or cancel a payment already made. This is mainly to assure the recipient that the money received is now in their possession. When implemented on a mass level, this could make it a nightmare for everyday transactions.
Imagine sending a bitcoin payment to an e-commerce site by accident. How likely do you think it is possible to get back the payment? There will be no evidence of the payment made. While escrow services are available for major transactions, bitcoins might be highly impractical for day to day usage.
8. Security threat
The distributed ledger system of the blockchain technology makes it virtually impossible for someone to hack bitcoins. If someone was to hack bitcoin, he/she has to attack millions of places virtually at once – which is near impossible. With that being said, bitcoins are prone to theft through hacking. When it comes to cryptocurrencies, hacking happens at the level of currency exchanges or simply through your digital wallets.
The Mt.Gox exchange attack in Japan is one of the most infamous incidents surrounding bitcoins. More than $450 million worth of bitcoins were stolen from the company’s hot wallet over a period 2 to 3 years. Bitcoin value will get affected if a scandal of this magnitude were to happen again. Many experts claim that 30% of bitcoins are prone to theft even at present. The security threat surrounding cryptocurrency is very real at this moment.
9. Difficult to understand
This could be the simplest reason why bitcoin value did not sustain its momentum. Hardcore bitcoin enthusiasts have a deep understanding (or at least they claim to have) of the blockchain technology and how the whole system works. But, can this be expected of an ordinary person with bare minimum knowledge about how the real currency works?
Cryptocurrencies are difficult to understand for the common folk (including me). When something such as this is so complex to understand and lacks government support, there is no way of trusting the system.
10. Historic association with crime and drugs
I am writing this with a strong disclaimer that bitcoins have shed their historic association with crime and drugs a long time ago. However, there was a time when criminal networks found bitcoins to be easy for their trading. The anonymous nature of bitcoins provided them with the much-needed cover for their illicit trading and crime funding.
Though most of the bitcoin users are now legitimate, this historic association with crime and drugs is still a blemish in the record of cryptocurrencies.
The world is yet to figure out the actual bitcoin value in my opinion. The points listed here about bitcoins are very real. However, this is not to say that bitcoins are completely useless. Frankly, most of the “so-called” bitcoin experts still have a lot to figure out about the future of cryptocurrencies. At the moment, there is no way to predict where cryptocurrencies will end up in the future. If you have a great expertise in blockchain technology and you know what you are doing, bitcoin investment may be suitable for you. However, if you are in it for a get-rich-quick scheme, you are likely to be sorely disappointed.
The post Bitcoin value: 10 reasons why bitcoin could not sustain its momentum appeared first on GK Samurai.