The Final Frontier
We live in exciting times, where it has become possible to send money across the globe nearly instantaneously, where you can create value out of nothing and where we are working towards a future that is decentralised. The first application that kickstarted this revolution was Bitcoin when it was launched in Obviously, there is a hype going on if such enormous returns are predicted.
However, I believe that Bitcoin will not reach those valuations. In fact, I believe that Bitcoin will ultimately fail and be worth nothing or close to nothing. This will probably not happen in the short term.
After all, the hype around Bitcoin will continue to persist for some time longer. Nevertheless, in the end, Bitcoin will become the Myspace of cryptocurrencies and there are four main reasons why I believe so:. When Bitcoin was launched, everyone was excited about the almost negligible transaction costs.
Sending money across the globe was almost free of charge and was almost instantaneously, creating a completely new world and bypassing the banks if it came to transferring money across the globe. However, things have changed. Source: Bitinfocharts. Of course, if you use Bitcoin to transfer large sums of money across the globe, hundreds of thousands or millions of dollars, such a fee is really cheap compared to what you would have to pay a bank.
However, for a cryptocurrency to become mainstream, and potentially replace fiat currency, it should be usable by everyone for every type of transaction. The cause for the high transaction fees lies in the fact that the sizes of the blocks are currently limited to 1MB per block and almost each block is completely filled. The average block size on September 8, , was KB, which means that every block is filled up with transactions. Bitcoin was created in such a way that miners that validate transactions have to use a tremendous amount of computing power, equals energy, and if there is an increasing demand for transactions to be validated, miners will prioritise transactions that pay a higher fee.
It is economics 1. Another reason for the increased transaction fee is the newly created cryptocurrency Bitcoin Cash that split off from Bitcoin on August 1.
Bitcoin and Bitcoin Cash are very similar cryptocurrencies, which means that miners can easily switch from Bitcoin to Bitcoin Cash, if it becomes more profitable to mine Bitcoin Cash the rationale behind this has to do with how the Bitcoin and Bitcoin Cash protocols have been developed; if there are fewer miners, the mining difficulty goes down, making it easier to mine and hence the possibility to make more money increases. For more information, read this article.
Few miners on the Bitcoin network means less supply means an increased transaction fee. Of course, the Bitcoin community knows this as well and they are attempting to implement solutions to solve this and increase the size of the blocks, which would mean an increase in supply and a lower transaction fee.
There is an ongoing debate in the Bitcoin community related to the block size, with multiple arguments in favour of or opposed to an increase in size read an overview of the controversy here. Fact is, that without a solution to this problem, the number of transactions per second remains limited, with an increase in transaction fees as a result.
Or, as Vitalik Buterin, founder of Ethereum said : "If [the niche of digital gold] is what Bitcoin users want, then they should keep the limit, and perhaps even decrease it. But if Bitcoin users want to be a payment system, then up it must go. Scalability is a major issue for Bitcoin. The Bitcoin blockchain is by now Gigabyte and is growing steadily with 1 MB per block, every ten minutes. The idea of Blockchain is that every node in the distributed web has a complete copy of the blockchain.
So, if you wish to start validating transactions on the Bitcoin blockchain, you first have to download the entire blockchain. If the size of the blocks would increase, that would have an enormous effect on the size of the Bitcoin Blockchain, which would make it more expensive to validate transactions since significantly more storage is required.
Of course, even larger block sizes would dramatically increase this. Source: Blockchain. On the other hand, the average number of transactions per block is approximately , or an average of 3 transactions per second with an absolute maximum of 7 transactions per second.
Bitcoin Cash, however, can clear up to Since Bitcoin Cash blocks can be up to 8x bigger, it means that at its maximum it can settle 56 transactions per second, ceteris paribus. If you compare that to VISA, which is capable of handling transactions per second, and a peak of transactions per second, it is clear that the number of transactions that can be settled per second is a major challenge for Bitcoin, making it not scalable. If Bitcoin wants to become generally accepted and used for everyday transactions, this has to be increased drastically.
Unfortunately, there is an intense debate going on about this and it already resulted in one hard fork Bitcoin Cash and it is very likely that it results in more hard forks in the future.
Obviously, too many hard forks will mean the end of Bitcoin since nobody would be able to understand which one is which. When Satoshi Nakamoto created Bitcoin, it was a nothing less than a revolution, creating a truly decentralised, community-powered, cryptocurrency. The power of Bitcoin was the fact that it was decentralised and not one centralised stakeholder could control the network. Unfortunately, that is no longer the case. This centralisation of mining is a logical consequence of how the protocol was developed, as it rewards economies of scale.
As a result, Bitcoin is no longer the decentralised network that it was supposed to be when it was developed. This does not have to be a problem, as long as the mining pools can be trusted and have an incentive to do the right thing.
However, since most of these mining pools are in China, this could quickly change if the Chinese government decides, for whatever reason, to intervene and take over the Chinese mining pools.
This centralisation of Bitcoin poses a real threat to the future of the cryptocurrency. Finally, Bitcoin is an incredibly unsustainable coin in terms of its energy consumption.
The Proof of Work consensus mechanism requires tremendous amounts of computing power. This results in an estimated annual energy consumption of approximately 16 terawatt hours:. Source: Digiconomist.
CERN uses approximately 1. In fact, that is as much energy as the annual energy consumption of Iceland and it is almost With the increase in block size to be expected, this would increase even more. In addition, since most of the mining pools are in China, the majority of this energy consumption is driven by unsustainable coal-powered energy plants.
Although of course, it is possible that miners may switch to clean energy, we still have the problem that the mining of Bitcoin is literally a waste of energy , because the complex computer calculations as part of the Proof of Work consensus protocol have no value at all.
No world problems are being solved by the calculations, except to show that the calculation has been done. Unless Bitcoin would switch to a different consensus protocol, it may be clear that the energy consumption of Bitcoin is rapidly becoming very unsustainable. Unless the above challenges are resolved and the Bitcoin community is able to completely change the existing protocols, which seems highly unlikely to me seeing the current division among Bitcoin stakeholders, Bitcoin does not have a future and will ultimately fail.
It will become the Myspace of cryptocurrencies; paving the way for a new future, but eventually not being the solution we are looking for. Of course, I am not the only one who sees the above problems. Many startups are developing solutions for these problems, trying to become the Facebook of cryptocurrencies. For example, Bitcoin Cash was created to solve the issue related to the block size. Litecoin solves several issues related to Bitcoin as it processes transactions almost four times faster than Bitcoin, allows a greater number of transactions to be processed in a given time and uses a different hashing algorithm.
Zcash and Monero, on the other hand, were developed to have truly anonymous and untraceable transactions Bitcoin is pseudo-anonymous , while IOTA removes transaction fees altogether and offers infinite scalability using their TANGLE technology developed for the Internet of Things. Of course, there are more cryptocurrencies, each being used for different solutions and with different objectives. In fact, at this moment, there are approximately cryptocurrencies in the market. Although it is difficult to look into the future and to determine who will become the Facebook of cryptocurrencies, I would like to offer five criteria to which I believe a cryptocurrency should comply with in order for it to become globally accepted and used:.
It may be obvious that for a cryptocurrency to become a success it should enable fee-free transactions. The beauty of cryptocurrencies is that you can divide it into extremely small portions, such as the Satoshi, or a hundredth of a millionth of a Bitcoin.
However, if transferring such a small amount comes with any transaction fee, no matter how small, it becomes unfeasible. Especially with a future where connected devices will be able to trade bits of data, transactions fees are impractical. As mentioned, VISA is capable of handling 2. Any cryptocurrency that can handle fewer transactions than this is not suitable to replace traditional payment methods. In a future where everything is connected and makes transactions with everything, infinite scalability is a requirement.
The main advantage of a cryptocurrency is that it is decentralised, meaning no government or central bank controls the cryptocurrency and can influence the price. It is governed completely by market economics of supply and demand. Obviously, governments do not like this, which is why we will see governments developing their own cryptocurrency in the future, which will compete with other cryptocurrencies.
However, for a non-government cryptocurrency to work, it should be completely decentralised. Any cryptocurrency that will be used by millions if not billions of people and things should have a minimal ecological footprint. As such, any cryptocurrency using the Proof of Work consensus mechanism, which requires substantial computing power, will not work.
New consensus mechanisms will need to be developed that do not require extensive computing power. Proof of Stake is an interesting approach, although still in development. Any cryptocurrency that is developed should offer a certain value and it should increase the network effect, i.
Token velocity, explained by Kyle Samani here , is one of the key characteristics that will impact long-term, non-speculative value. It relates to whether people will hold on to the cryptocurrency as it can increase in value or they will sell it immediately. Any cryptocurrency that offers no value, has no future. The future of cryptocurrencies is wide open and in the coming years, we will see plenty of new cryptocurrencies coming and going.
Any non-government future cryptocurrency that aims to become accepted and used by the general public should adhere to the five criteria set out here, which is why in the coming years we will see the inevitable fall of Bitcoin.
Original article. His last book, The Organisation of Tomorrow , discusses how AI, blockchain and analytics turn every business into a data organisation. He has been named a global thought leader on big data , blockchain and artificial intelligence.
Nevertheless, in the end, Bitcoin will become the Myspace of cryptocurrencies and there are four main reasons why I believe so: 1. Transaction Costs are Too High When Bitcoin was launched, everyone was excited about the almost negligible transaction costs.
Bitcoin Has Become a Centralised Currency When Satoshi Nakamoto created Bitcoin, it was a nothing less than a revolution, creating a truly decentralised, community-powered, cryptocurrency. Energy Consumption of Bitcoin is Unsustainable Finally, Bitcoin is an incredibly unsustainable coin in terms of its energy consumption. This results in an estimated annual energy consumption of approximately 16 terawatt hours: Source: Digiconomist CERN uses approximately 1.
Positive Fundamental Trend
One of the biggest end of the week movers in the cryptocurrency space this week is Nxt NXT. The idea behind NXT, or at least, that cokes, the justification for its existence, is rooted in the deficiencies of what we might deem the first generation of cryptocurrencies — bitcoin, Litecoin. While these coins have expanded to become well-established in their own right, they each have drawbacks and — as adoption and mainstream use of butcoin coins increases — the severity of these drawbacks will increase in tandem. The creators of NXT recognized this and set out to create what is essentially a brand-new type of cryptocurrency and, ccomes proxy, one that seeks to resolve the issues associated with first-generation coins. These issues are fairly wide-reaching but they can be lumped into one of two categories primarily: the first, scalability, wuat second, efficiency. When we say scalability, we are referring to the speed with which transactions can take place and the number of transactions that can take place on a network at any given time.
What role are smaller investors playing in the virtual currency markets?
The latest price spike has been credited to signs that Wall Street companies plan on bringing their financial heft into the market. The gains have been driven by several other factors — perhaps the most important being the irrational mentality that can take over in speculative bubbles. But most people buying Bitcoin are doing so in the belief that others will want it even more in the future. The gains, though, have many people, even Bitcoin believers, anticipating a big crash. The fringe communities that drove Bitcoin in its early years are playing a much less important role in the current rally. Many investors have said the most important factor driving the current enthusiasm is the entry of hedge funds and other institutional investors. The path for large investors has been smoothed by the Chicago Mercantile Exchange and Chicago Board Options Exchange, which have been racing to roll out Bitcoin futures contracts. Most banks are already signed up with these exchanges and consequently can immediately begin trading the contracts. The options exchange has said it plans to start trading on Sunday. It is still unclear how the arrival of Bitcoin futures will influence the demand for the digital tokens.
Bitcoin futures are a relatively recent development following regulatory approval at the whag of They allow trading against the future value of Bitcoin but without using exchanges. The introduction of bitcoin futures has provided some interesting developments over the course of this year. Here, we take you through a brief history of bitcoin futures since their introduction and look at what comes. In a futures contract, two parties agree to trade a commodity at an agreed price bitcoim a future date.
If the price of grain drops between now and when he harvests, he is out of pocket. The buyers of his grain are in the same position but on cmes other side of cokes equation. If the price of grain goes up, they could find their products selling at a loss. Futures are a way of protecting against these fluctuations. The buyer and bitcoin what comes next agree to make a particular trade for an agreed price and fixed date in the future. The agreement is a legally binding contract whereby parties must conclude the purchase regardless of any winners or losers.
Financial traders use futures as a way of speculating on the future price of an asset. If they believe prices will rise, then buying bitcin at a fixed future price allows a trader to sell those assets, or the futures contract itself, at a higher price when market rates go up. Bitcoin futures work in a similar way. By buying and selling bitcoin futures contracts, investors can speculate on the future value of bitcoin without ever comee to actually own the asset.
Bitcoin futures had been around for a while before but traded only on crypto exchanges as unregulated assets. Regulated bitcoin futures were introduced at the end of The broader financial community welcomed the introduction of bitcoin futures. It whay the first opportunity to get involved in trading bitcoin without necessarily comess to actually own any.
It also offered the protective security and bitcoin what comes next of regulation. In addition, trading in bitcoin futures has a benefit for investors in those countries that have banned bitcoin trading.
The crypto community also had a surge of initial excitement at the introduction of bitcoin futures. It was thought bitcoin what comes next the market could see increased liquidity from the influx of new investment.
The price of bitcoin had been steadily rising in advance of these events, the Bitcoin what comes next website crashed the same day that trading in bitcoin futures opened up, and the price of bitcoin increased by 10 percent. The price of bitcoin dipped steadily over the first few months of As it bitcoi, news outlets started to speculate over whether the introduction of bitcoin futures had done more bictoin than good.
The WSJ released an analysis in January that indicated while smaller investors were bullish on the price of bitcoin, institutional investors trading in bitcoin futures bitcoij bearish, driving the price. In May, the Federal Reserve Bank of San Francisco released a letter suggesting that the rapid inflation of bitcoin had been driven by optimistic investors who were convinced the market could keep growing. The letter went on to point out that the introduction of bitcoin futures had provided pessimistic investors with a means of shorting the market for bitcoin.
CME Group tweeted in July that their second-quarter trading statistics showed an average daily volume increase of 93 percent over the first quarter. Particularly if shorting is the trend. However, the Bitcoin price chart for clearly bitcoij the steepest market fluctuations over the first quarter.
The first quarter of was clearly more volatile for Bitcoin than the second. In addition, trade volumes of bitcoin futures have overall been seen as sluggisheven from the very outset of their launch in December. CME and Cboe introduced cash-settled bitcoin futures based on the price of bitcoin at crypto exchanges. The next big development in the bitcoin futures journey is the introduction of regulated, physically-settled futures contracts.
This is a further evolution in bitcoin futures that better meets the bitcoin what comes next of regulators. Bakkt has announced it will launch its bitcoin futures offering in December this year. By itself, this could be a step that attracts further institutional investment to the bitcoin market.
During previous rejections, the Commes cited the dependence of crypto on unregulated exchanges and the overall size of the bitcoin market as reasons to reject bitcoin ETFs. Physically-settled futures could also inject liquidity into the market, meaning that Bakkt is breaking down barriers to an SEC approval. The introduction of bitcoin futures could well gitcoin the start of a compelling historical story. In future years, their evolution could describe how bitcoin and other digital currencies were ultimately embraced by mainstream financial markets.
Political uncertainty is fueling the scramble to acquire digital currency. LocalBitcoins has processed over Lin Dai is wgat self-described nerd. He started his professional career in nexr first dot com boom…. Sarah ran away from a corporate job so she could travel the world. After doing that, she found herself a much-loved new career whzt a freelance blockchain technology writer.
You can usually locate her somewhere near the food. Sarah Rothrie. Bitcoin bitcoin futures bitcoin what comes next industry. Newsletter Sidebar. This field is for validation purposes and should be left unchanged. Read More.
What role are smaller investors playing in the virtual currency markets?
It doesn't serve any socially useful function. George Mason University. Financial Crimes Enforcement Network. Archived from the original on 1 March He started working on recreating the tiny hooks in and it took him ten years to make it work and mass produce it. For more details, see our Bitcoin explainer. Even laptops were bricks that burned your legs that nobody would want to read a damn thing on. The automated corporate and non-profit architectures of tomorrow will have to evolve incredible tools for ongoing management and decision making as well as operating agreements that function like code to become a reality. Archived from the original on 19 February Retrieved 19 April What role are the other virtual currencies playing in this frenzy? It is economics 1. The idea came straight from the Austrian school of economics with a pinch of left-wing anarchism thrown in for good measure — offering individual liberty and a way to avoid the grasp of government, while sidestepping corporate power and the banking .