Bitcoin Revisited

The Current State of Bitcoin

January 25, 2018

Bitcoin is at the forefront of investment talks in both financial and technological industries worldwide. A recent large investment by Tyler and Cameron Winklevoss, the brothers involved in the infamous Facebook lawsuit, has added fuel to the fire- when a recent surge in the price of bitcoin afforded each the title of Bitcoin billionaires. So what is it about Bitcoin that has captured the attention of wealthy investors and novice investors alike? To understand that we need to revisit the topic and look at the current state of Bitcoin and what is believed to be its future potential as the leading cryptocurrency.

Accessibility

In the world of Bitcoin everything is virtual. The days of paying for your Starbucks with a handful of change would be over. Still, for this to be realized it would need to be widely accepted by vendors as a legitimate form of payment. This is challenging when you consider the largely anonymous nature of Bitcoin and the potential for fraud. Bitcoin is not regulated by any central authority or government agency, making it a popular choice for illicit businesses. However, as with the advent of any new technology, law enforcement is catching wind of the operations and adapting to combat it. The positive of a deregulated system from a Bitcoin user perspective is a reduction in transfer or card fees for the buyer and a reduction in credit card surcharges or POS systems for the vendor. As we will see the in the next section, these savings do come at a cost.

Vulnerability

As with anything digital, Bitcoin is vulnerable to cyber-attacks. The only difference between a Bitcoin hack and say, a bank data breach, is accountability. If a major bank, financial firm or retail chain has a breach of privacy or a loss of funds, it is news. There are executives, public relations representatives and usually a statement or a public apology issued. When Bitcoin is breached there is no one to turn to. There is no depositor insurance like CDIC for holders. The anonymity and faceless nature of the cryptocurrency leads to theft with little to no consequence. Furthermore, the lack of regulation in digital exchanges and the inability to be offered financial planning based on individual need makes both investing and dealing in Bitcoin inherently risky.

Volatility

The price of Bitcoin is incredibly volatile. The volatility is due in part to demand. In 2009 and 2010 Bitcoin had very little value, whereas today it has reached incredible highs. With the changing markets, a correction will likely drop the value once again as increased pressure from the governments of major Bitcoin havens such as South Korea are exploring the regulation of the digital currency. In response to these predictions, Bitcoin has already realized a loss.

As Bitcoin develops and the technology evolves, interest continues to build. With a concept that is still very much in its infancy- that of digital currency- Bitcoin will continue to undergo frequent, unpredictable changes. Its survival as a viable investment option is not guaranteed and that, for many investors, is not a risk worth taking.