Will Bitcoin Fail?

If you’ve ever considered investing in Bitcoin, you’ve likely heard a range of opinions, with critics labelling it a ‘fraud,’ a ‘scam,’ or even a ‘bubble.’ The question on everyone’s mind, particularly those interested in Bitcoin or cryptocurrencies in general, is whether it will succeed.

Bitcoin, in essence, represents a revolutionary shift, backed by a novel technology – the Blockchain – a concept that humanity has never previously encountered. Before diving into this topic, we recommend reading our detailed explanation on what Bitcoin mining is in part 3 of our Bitcoin basics series.

Bitcoin and Blockchain: The Dawn of a New Era

Like any groundbreaking technology that emerges over time, Bitcoin and Blockchain hold immense potential. However, this doesn’t mean they are without risks or room for future enhancement. Neither is flawless, nor is it devoid of areas for potential improvement.

Bitcoin proposes to be an innovative step in the evolution of money, addressing some of the most significant issues with our existing financial system. It aims to provide a global, peer-to-peer trade and value storage system that operates without the interference of governments, central banks, or other authorities.

The growing number of investors in the market has seen the value of a single Bitcoin rise from less than a cent to over $20,000 USD. This meteoric rise has cast Bitcoin in a mysterious light in the media, causing a ripple of excitement and apprehension in the financial markets.

Is Bitcoin a Speculative Bubble?

One of the first arguments that potential investors will undoubtedly encounter is that Bitcoin is merely a bubble, akin to the ‘dot com’ boom and bust that occurred in the late 1990s and early 2000s. The similarities are not coincidental; the advent of Bitcoin and the Blockchain is conceptually similar to the creation of websites on the World Wide Web. Both have seen a dramatic surge in the price of resources, widespread public interest, and media stories of investors making substantial profits.

Bitcoin’s allure lies in its ability to offer a new store of value independent of central banks, paper currency like the US dollar, or even tangible assets like gold or silver. Bitcoin is immune to centralized institutions, and there will never be more than 21 million Bitcoins in existence.

Moreover, Bitcoin is based on mathematical proof, and while storage mechanisms (such as Bitcoin wallets) can be hacked, the cryptocurrency itself is theoretically un-hackable. The decentralized nature of the cryptocurrency makes fraud exceedingly difficult, although it’s important to note that fraud with Bitcoin, like with traditional currency, is still possible.

In essence, Bitcoin could be a fantastic alternative to our current financial systems, grounded in mathematical proof via Blockchain technology.

However, predicting whether Bitcoin is an “investment bubble” is not straightforward. Despite the forecasts of renowned market analysts, Bitcoin has continued to gain popularity. There is no definitive way to predict whether the price of the cryptocurrency will continue to rise or fall in favor of something else in the future.

Bitcoin (and other cryptocurrencies) prices are inherently volatile. The global stance on Bitcoin and Blockchain remains uncertain due to their recent emergence. Decisions made by foreign institutions (central banks or governments) to accept, regulate, or restrict cryptocurrencies can significantly influence Bitcoin’s daily (or even hourly) price.

Regardless of Bitcoin’s financial future, the technology and philosophy that underpin it as digital money will never be eliminated. Thousands of additional cryptocurrencies now exist, all employing the Blockchain principle in unique and innovative ways. Other digital currencies (or other ideas based on the same technology) are likely to emerge in the future.

To completely destabilize Bitcoin, every computer or network component running Bitcoin software globally would have to be shut down. This is an impossible task because these networks are independently operated and distributed worldwide.

Investing in Bitcoin presents an exciting opportunity, but it also comes with significant risks. By investing in Bitcoin, you are not only potentially earning money, but you are also potentially becoming a part of the next evolution of the global financial system.

However, as countries and central banks struggle to keep up with Bitcoin’s popularity, investors risk losing all of their money or contravening newly enacted regulations or tax laws.

If you decide to invest in Bitcoin (or other cryptocurrencies), only invest funds that you are fully prepared to lose.

Is Bitcoin a Fake Trade?

While investing in Bitcoin should be approached with caution due to the inherently unpredictable nature of cryptocurrency markets, neither Bitcoin nor its underlying technology, the Blockchain, is a fraud.

Unfortunately, Bitcoin has garnered a reputation that overshadows it in some quarters due to some of its early adopters. Because Bitcoin is decentralized and does not pass through a central regulator, it found an early home among illicit online circles. Furthermore, because Bitcoin is somewhat anonymous, it was used to facilitate some of the transactions on the notorious online black market known as “The Silk Road” until the US Federal Bureau of Investigation shut it down.

Software attackers have occasionally demanded that ransoms be paid in Bitcoin or other cryptocurrencies, citing the confidentiality of transactions as a reason.

Because of these factors – and the fact that no one can claim ‘ownership’ of Bitcoin – the cryptocurrency has received a lot of negative attention, which can sometimes overshadow the potential of its underlying technology.

Because Bitcoin is often characterized as an “unjustified trend” with “little or no value” beyond what individuals are willing to pay for it, many high-profile investors have labelled it a “scam” or “pyramid scheme.”

Some investors have warned that the millions of people who are pouring money into Bitcoin should be prepared to “kiss their money goodbye” at any moment.

While Bitcoin has certainly piqued the interest of many on Wall Street, there is no strong argument to suggest that Bitcoin as a whole is without merit.

Bitcoin’s foundation is built on technology and mathematical proof. While it is not linked to a tangible commodity like gold or silver, paper currencies like the US Dollar and the British Pound are no longer tied to precious metals.

Consider what gives a paper currency like the US Dollar its value as a thought experiment. The most basic and abstract answer is that fiat currencies have value because people believe in them. If you believed a US Dollar was worthless, you wouldn’t accept it as payment for goods – and the same can be said for Bitcoin.

This concept is difficult to grasp for people living in well-functioning societies where the government is expected to behave responsibly or adequately. However, looking at countries like Zimbabwe and Venezuela, it becomes clear how quickly a currency’s value can collapse when people lose faith in the government that backs it.

Bitcoin’s future and value will be determined by how people around the world accept and use it. Bitcoin has arguably evolved into a form of “digital gold” in which investors have stored their funds. If retailers worldwide accept Bitcoin as payment for goods or services, the cryptocurrency could become a more active trading method in the future, similar to how paper money operates.

As they say, the future is still unwritten.

In part five of our Bitcoin Basics series, we will explore the legality of Bitcoin and the positions foreign communities have taken on cryptocurrencies.

  • Luke Handt

    Luke Handt is a seasoned cryptocurrency investor and advisor with over 7 years of experience in the blockchain and digital asset space. His passion for crypto began while studying computer science and economics at Stanford University in the early 2010s.

    Since 2016, Luke has been an active cryptocurrency trader, strategically investing in major coins as well as up-and-coming altcoins. He is knowledgeable about advanced crypto trading strategies, market analysis, and the nuances of blockchain protocols.

    In addition to managing his own crypto portfolio, Luke shares his expertise with others as a crypto writer and analyst for leading finance publications. He enjoys educating retail traders about digital assets and is a sought-after voice at fintech conferences worldwide.

    When he's not glued to price charts or researching promising new projects, Luke enjoys surfing, travel, and fine wine. He currently resides in Newport Beach, California where he continues to follow crypto markets closely and connect with other industry leaders.