Make sure you read part 3 of ours bitcoin Basics series, what is it? bitcoin Mining.

If you’ve ever considered investing in Bitcoin, you’ve probably heard mixed sentiment – with critics claiming that Bitcoin is a “scam”, a “scam” or maybe even a “bubble”. A likely question on the minds of anyone interested in Bitcoin, or cryptocurrency in general, is ‘will Bitcoin fail?’

Basically, Bitcoin is a new paradigm underpinned by a new technology – blockchain – that we have never interacted with before. Like all new technologies that emerge over time, both Bitcoin and the blockchain have tremendous potential – but that doesn’t mean they are both risk-free. Neither are perfect nor without room for improvement in the distant future.

Bitcoin itself promises to be the next step in the evolution of money that will solve some of the fundamental problems of our current monetary system. It lends itself to being a global peer-to-peer exchange and store of value mechanism that works without interference from governments, central banks or other regulators.

As new investors jumped on the scene, the price per coin rose from a little over a 1c to over $ 20,000. All of these factors have given Bitcoin an enigmatic media appearance that sparked either excitement or fear in the financial markets.

Is Bitcoin a Bubble?

One of the arguments interested parties are likely to hear first is that Bitcoin is just a bubble reminiscent of the “dotcom” bubble and crash that sparked the events of the late 1990s and early 2000s.

The parallels here are not unfounded. The creation of Bitcoin and the blockchain is basically similar to the creation of websites on the World Wide Web; Both saw sharp spikes in asset prices, great public excitement, and stories of investors making huge sums of money found homes in the media.

The interesting thing about Bitcoin is that it offers a new store of value that is independent of central banks, fiat currencies like the dollar or even gold or silver. Bitcoin is free from interference from centralized entities like Bitcoin, and there will only be 21 million Bitcoins in circulation at any given time.

In addition, Bitcoin’s foundation is based on mathematical evidence – and although storage mechanisms (like Bitcoin wallets) can be hacked – in principle it is not hackable. The fact that the cryptocurrency is based on a decentralized ledger ensures that fraud is almost impossible; However; It is important to note that fraud with Bitcoin is still possible, as is the case with the dollar.

In these key principles, Bitcoin can represent an amazing alternative to our current monetary systems based on absolute reliance on mathematical evidence through cryptography.

However, there is no way of knowing whether Bitcoin is an “investment bubble”. Bitcoin has continued to gain traction despite predictions from respected market analysts, and there is simply no way of predicting whether the cryptocurrency will continue to appreciate or decline in favor of something else at any given time.

The price of Bitcoin (and other cryptocurrencies) is inherently volatile. With the recent emergence of Bitcoin and blockchain, the international stance on both technologies remains undecided.

The opinion of international entities (central banks or governments) that they either accept, regulate, or prohibit cryptocurrencies can have an immense impact on the price of Bitcoin on a daily (or even hourly) basis.

Regardless of Bitcoin’s financial future, the technology and concept that underpins Bitcoin as a digital currency cannot be destroyed. There are currently thousands of other cryptocurrencies – all using the concept of blockchain in new and interesting ways. We can probably count on other such digital currencies (or other ideas using the same platform) in the near future.

For Bitcoin to fail completely, every computer or network node running Bitcoin software around the world would have to be disabled. Since all of these nodes are independently controlled and distributed around the world, there is no easy way to do this.

Investing in Bitcoin is an incredible opportunity, but it also involves immense risk. By investing in Bitcoin, you not only potentially make money, but you also become part of what may be the next evolution of the global monetary system.

Conversely, investors run the risk of losing all of their money or clashing with newly enacted regulations or tax laws as nations and central banks struggle to keep up with Bitcoin’s popularity.

A wise policy for those looking to invest in Bitcoin (or other cryptocurrencies) would be to only invest money that you are willing to take a loss on.

Is Bitcoin a Scam?

While one should be careful when investing in Bitcoin – since cryptocurrency markets are inherently volatile – neither Bitcoin nor the underlying technology, blockchain, is a scam.

Bitcoin has unfortunately developed a reputation that precedes it in certain circles thanks to some of its earliest adopters.

In its infancy, due to the fact that the cryptocurrency is decentralized and does not go through a central regulator, Bitcoin found an early home in illegal circles operating on the internet. Since the digital currency is also relatively anonymous, Bitcoin did some of its transactions on a huge online black market called “The Silk Road” before it was shut down by the US Federal Bureau of Investigation.

Software hackers also request that ransom be paid in Bitcoin or other cryptocurrencies from time to time, as transactions can remain anonymous.

For these reasons – and the fact that no group can claim “ownership” of Bitcoin – the cryptocurrency has drawn a lot of negative publicity that can sometimes overshadow the potential of its underlying technology.

Many well-known investors have also referred to Bitcoin as a “fraud” or pyramid scheme, as Bitcoin is often referred to as an “unfounded fad” that has “little or no value” beyond what people are willing to pay for it. Some investors have even gone so far as to say that the millions of people who have invested in Bitcoin can be ready to kiss their money goodbye at anytime.

While Bitcoin has certainly caught the attention of many people on the street, there is no compelling argument to suggest that Bitcoin as a whole is not unfounded.

Bitcoin’s premise relies on technology and mathematical evidence to ensure its authenticity – and while it may not be associated with a rare commodity like gold or silver, fiat currencies like the US dollar or the British pound themselves are no longer on Precious metals bound.

An important thought experiment is to ponder what gives value to a fiat currency like the US dollar. The most abstract and basic answer is that fiat currencies have value because they are believed to have value. For example, if you thought a US dollar was worthless, you would not accept it as an offer to exchange goods – and the same example can be applied to Bitcoin.

This concept is difficult to understand for people living in well-functioning societies where the government can be relied on to act sensibly and responsibly. One only has to look at countries like Zimbabwe and Venezuela to understand how quickly a currency can depreciate in value when people lose confidence in the government that supports it.

The future of Bitcoin and its future value will be determined by how people around the world accept and use it. Currently, Bitcoin has arguably become a form of “digital gold” in which investors have stored their money. Should merchants around the world accept Bitcoin as payment for goods or services in the near future, we may be able to see cryptocurrency become a more active medium of exchange, much like fiat currency.

But as I said, the future will keep moving.

In part five of our Bitcoin basics series, we unpack the legality of Bitcoin and the attitude of international communities to cryptocurrencies.

The contribution will Bitcoin fail? first appeared on Coin Insider.

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