Bitcoin projections look rosy long-term. Bitcoin was designed to appreciate in value by the way it is created. It is a hot commodity among speculators and one venture capitalist (Chris Dixon of Silicon Valley venture capital firm Andreessen Horowitz) had predicted that a single Bitcoin could be worth $100,000.
WHAT IS BITCOIN
Bitcoin is a digital currency (also known as crypto-currency) in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
HOW BITCOIN WORKS
Bitcoins are created by computers solving a set of complex math problems called algorithms, and people who use their computers to make coins and record transactions are called miners. The Bitcoin system is capped as there can never be more than 21 million registered numbers. Miners are awarded Bitcoins each time they find the solution to a certain mathematical problem with the reward being automatically adjusted so that the number of Bitcoins created decreases as time goes on. Thereafter you can buy the Bitcoins on a Bitcoin exchange using regular currency.
BITCOIN FUTURE PROJECTIONS
Initially, Bitcoin had its share of skeptics as the crypto-currency was an unknown. Some viewed it as a Ponzi scheme while to others it was a bubble about to burst.
As the currency has stabilized, it has experienced growth in terms of volumes of transactions and, more importantly, it has seen wider acceptance by mainstream lenders and financial institutions.
Bitcoin’s stabilization, legitimization by mainstream financial institutions, as well as the cap on its supply, will play an important role in its future growth.
The following are the factors in Bitcoin’s favor;
a. Supply and Demand
Roughly every 10 minutes a reward known as a block reward is given to a miner that solves an algorithm. This reward is halved every 4 years until the cap of 21 million is created. It started as a reward of 50 Bitcoin per block up until November 2012 when it was halved to 25 Bitcoin per block. The next reward halving occurs mid-2016 . Despite this, the demand for Bitcoin has been steadily rising with buyers snapping up Bitcoins offered for sale, notably in China where demand for Bitcoin has been steadily rising driven by the weakening yuan.
The supply of Bitcoins entering the market is also slowing down as mining becomes more difficult due to more challenging algorithms to solve as well as more expensive mining software required. This is the reverse of hard currencies where the central government can easily mint more money thus diluting the currency’s value.
b. Bitcoin as a Safety Net
In recent years, there has been a series of bank blockades, most recently in Greece where savers had limited access to their funds. This led many to consider Bitcoin as a viable alternative. Also, when organizations like Wiki leaks face international sanctions, the only way they can continue receiving donations is through Bitcoin.
The recent stock market collapse has also seen investors look for a safe haven. During economic crises, governments tend to employ stimulus policies that devalue their national currencies. In 2008 the price of gold spiked as investors dumped stocks and hard currencies and invested in gold.
Currently, Bitcoin is viewed as the next best thing and will probably the safe haven of choice during the next financial downturn.
One challenge facing Bitcoin is its ease of use as it is currently accepted by a limited number of establishments.
However, as a growing number of mainstream financial institutions are adopting it, many more establishments are following suit which in turn creates demand and growing acceptance of the crypto-currency.
d. Minimal Transaction Costs
Transfer of money through banks is not instantaneous and involves time and paperwork and transaction fees.
The appeal of Bitcoin lies in the speed of transaction and relatively lower fees.
Similarly, as Bitcoin transactions are mostly peer-to-peer the cost of doing business is minimized as the middle-man is phased out.
Despite Bitcoin’s shaky start in 2008 with wary public and governments, it has stabilized in value as it has matured and gained growing mainstream acceptance. These factors together with its controlled supply, barring the emergence of a credible competitor, place Bitcoin projections on an upward trajectory.