Bitcoin: Will It Survive 2016?
Dual identity, battle against governments, competition from other cryptocurrencies, scalability among other factors make innovation inevitable if Bitcoin must survive.
Dual identity, battle against governments, competition from other cryptocurrencies, scalability among other factors make innovation inevitable if Bitcoin is to survive.
In a Vanbex Group report of April 4 2016, Brandon Kostinuk has compared the attempt to describe Bitcoin as a currency or an investment with trying to discern whether light is a particle or a wave. The correct answer of course is, it’s both, he says.
In his analysis, Kostinuk points out that Bitcoin faces a multitude of battlefronts that may obstruct it from further pushing into the mainstream, as a universally accepted currency.
Whether from within, externally, or fundamentally, through design or accident, Bitcoin is up against the real-world pressures of accommodating to wide-spread use. Most notable is the question of scalability, which, if left unsolved, will almost certainly spell disaster for the invention of Satoshi Nakamoto.
‘Developer fund’ could rescue Bitcoin
Positive news arrived last week with the announcement of a $900,000 Bitcoin Developer Fund for MIT’s Digital Currency Initiative, the institution’s first foray into the Bitcoin and blockchain world.
The money, which came from a range of Bitcoin-related (or dependent) companies will help fuel the continued work of Bitcoin Core developer Cory Fields, former Bitcoin Core lead maintainer Gavin Andresen and current Bitcoin Core lead maintainer Wladimir van der Laan. The trio arrived under the wing of MIT last August, a saving grace from the funding constrictions as a result of the Bitcoin Foundation’s collapsing profitability.
Motherboard’s Christopher Malmo has written a good piece on the $900k announcement titled, “To Survive Long Term, Bitcoin Needs a Break from the Real World.”
In his article Malmo comes to the following conclusion:
“Taking it off the line and into the academic realm could just be the shot in the arm that bitcoin needs to move forward with new ideas. To move forward, it may just need a place to grow without these real-world constraints.”
Bitcoin is fighting on multiple fronts
Kostinuk notes that the problem is that the slew of issues (the battlefronts that Bitcoin is up against) will not suddenly cease, not to mention a key competitor currently surging in popularity coupled with backing from a particular tech giant. The crucial thing, as Van der Laan told CoinDesk in late January, is that “the time of discussion and planning is over for now and we need to move on with actually realizing the roadmap."
Going back in time, in Cyprus, in 2013, amid the banking crisis, many Greek citizens looked to Bitcoin as a means of placing their money in a place the government could not reach. Put your feet in the shoes of government then and it’s quite clear why they would be hard pressed to accept an alternate unit of account or exchange as a viable option alongside their own sovereign fiat.
The Cyprus episode catapulted the cryptocurrency to new heights, as Guillaume Babin-Tremblay, executive director of the Bitcoin Embassy in Montreal, Que iterated. He said to Kitco News that “Bitcoins were growing slowly until Cyprus. Cyprus was the catalyst for the big increase in the price.”
The price sat at $40 per Bitcoin and then doubled within a couple of days, according to Babin-Tremblay, with Kitco News reporting, “Prices pushed towards $200, but dropped to about $60 after the banking crisis abated.” Bitcoin offered Cypriots, who were at risk of having assets seized by the Central Bank of Cyprus, a place to put their money outside the reach of governments.
China, Argentina, Iceland and Russia, with their slumping economy the target of international sanctions and duly battered by the collapse in commodity prices, are all home to economies that have fomented a need for investors to seek an alternative vehicle of investment. Right or wrong, this action, moving currency out of the domestic system, affects economic stability. Growth is also hindered when citizens move funds offshore for the obvious reasons that that money no longer feeds the national economy through taxation, consumer spending or on-hand capital for banks.
This is what investment in Bitcoin is tantamount to and, hence, the opposition to the cryptocurrency and the ensuing legislative battles. The above example is also demonstrative of how and why a digital currency gains value and can experience intense volatility. It’s quite circular in nature.
Bitcoin thrives as an investment
On one hand, it’s about demand, which in turn feeds the purchasing power of a currency. On the other hand, demand for investment in a particular currency oftentimes has to do with its purchasing power or value on the world market, otherwise, why invest?
Venezuela is an interesting example. There is projections its economy could inflate by 700 percent, according to the International Monetary Fund. This is the highest inflation rate in the world. The collapsing economy has driven entrepreneurs to Bitcoin as their preferred payment method. This type of economic environment feeds demand for the cryptocurrency. But the cryptocurrency is struggling to make a decisive choice. Relevancy as a legitimate currency, crypto- or otherwise, hangs in the balance with governments bearing down.
Pundits discuss Bitcoin’s prowess with a $6.3 billion market cap, compared to Ethereum’s cryptocurrency which, in second place, makes up just below $900 million in market cap at the time of writing this piece. However, value, as we’ve seen in Bitcoin’s own history, is relative. Governance is needed; action is needed, as Van der Laan had espoused.
Innovation is key for Bitcoin to remain relevant
For the digital currency to move forward, beyond its current state of ambiguity the realization that a decentralized currency functioning via a laissez-faire environment or attitude does nothing to produce the most efficient, effective and secure monetary system.
The most talked of issue plaguing Bitcoin at the moment is the block size debate. At the current 1MB size, by design it was supposed to take around 10 minutes. Under current conditions, this timeframe can stretch to anywhere from 45 minutes to a couple of hours. We know the time it takes in comparison with a credit card and so on. Whether the delayed transaction time is a result of mining centralization in China is another debatable subject, just as the topic of the centralization of the mining network to the overall goal of Bitcoin itself is subject for discourse.
Bitcoin’s relevancy hangs in the winds of innovation and real-world action. The $900,000 injection from Bitcoin-based companies is a small price to pay to resuscitate their lifeline, a cryptocurrency that commands billions and in which their enterprises are based, for the most part. It all can evaporate, diminish just as Blackberry’s North American dominance vanished in the wake of competition.
Returning to Venezuela: Consider why citizens would select Bitcoin versus any of the alternatives. It has nothing to do with computational algorithms of the cryptocurrency; it has everything to do with the current store in value presupposed by demand.
Bitcoin’s core developers must start to fight through the battlefronts, and soon, otherwise Mike Hearn’s parting words will run as true as any tautology ever could. As we know demand for a product is never guaranteed in this fiercely competitive environment and the items that plague Bitcoin, both internal and external, could spell its decline.