5 Reasons Why Bitcoin Could ThriveReliability
Much of what has allowed Bitcoin to grow at such a rapid rate is that it is independent of banking institutions. Bitcoin transactions are made through a user network based on cryptographic proof. The advantage here is that there is no need to trust a third-party middleman. Without the need to go through a bank or other financial institution, users can make effortless transactions that are quite secure. This gives Bitcoin a flexibility that users don’t get with banks or even institutions such as Paypal, which may charge a fee for each transaction. Bitcoin transactions carry no service fee. This fact alone has made the currency particularly attractive internationally and lowered the barrier to entry for new users.
One of the strongest factors that Bitcoin has in its favor is its ease of use. There is no need to go to an ATM or to walk into a bank and visit the teller to access it. Even compared to online transactions, the currency is quite easy to use. There is no need to enter lengthy debit or credit card numbers along with security codes; all users have to do is sign into their accounts. They can also make purchases without the added worry of placing sensitive financial information on the Internet that could be susceptible to compromise. This ease of use is part of what's allowed Bitcoin to extend its user base. (Learn more about how personal data is compromised online in How Hackers Get Your Data.)
The Bitcoin’s recent meteoric surge has occurred partly as a result of the financial crisis in Cyprus, in the which the country threatened to tax individuals' bank accounts. It seems that a growing number of banking customers, disillusioned with the financial sector status quo, are seeking new ways to store money. Bitcoin provides a storage of value that isn’t controlled by banking institutions, which, let's face it, haven't exactly been model corporate citizens over the past few years. In short, users want to place their money into something that they can trust, and are increasingly willing to place that confidence in a virtual currency over a bank.
One criticism about Bitcoin has been its anonymity and so far it is anonymous, for the most part. But the system is also very transparent. Every transaction is recorded on the network so that there is an up-to-date record as to what each user’s balance is as well as the amount and location of each transaction. By keeping a detailed and current record of every exchange, Bitcoin provides a transparency that liquid assets do not have. It is for this reason that Bitcoin has seemed all the more attractive to those trying to store assets. (You can read a great article that explains Bitcoin's anonymity/transparency at How Anonymous Is Bitcoin?, from Coindesk.com.)
Bitcoin's decentralization is one of the most important reasons why it - or something like it - has a chance to thrive in the future. Internationally, millions of people are searching for a currency that is immune to the constantly changing movements of national currencies and the roles that governing bodies play in manipulating them. By adopting a virtual currency, Bitcoin allows users a level playing field that's much less easily influenced by the actions of sovereign nations. It also provides a platform whereby users from around the world can easily connect without having to worry about exchange rates and all of the costs associated with changing currencies. (Learn more in Will Bitcoin Win the Race to Become an International Currency?)
5 Reasons Why Bitcoin Could FailVolatility
One of the main factors that skeptics point to about Bitcoin’s long-term viability is its extreme volatility. For example, the value of Bitcoin hovered around $15 from September of 2012 to February of 2013; in May, it had climbed beyond $150. While that may sound like a dream for investors, it highlights the instability of the currency’s value. Because of a lack of market value and liquidity, the long term value - and therefore reliability - of the currency is difficult to predict. While increased demand as a result of the financial crises in Europe has driven prices up, who is to say where the currency’s value will be in, say, six months, or even a year? This unpredictability will continue to be an obstacle for those who wish to embrace the currency long term.
Future Government Regulation
It remains unclear how advanced nations, especially the United States, Canada, the United Kingdom and Russia, will treat the new virtual phenomenon. So far, leaders in these nations have been mum on details, although the U.S recently acknowledged the currency and stated that it will be subject to the current rule of law regarding currency manipulation and transmission. Many skeptics believe that as the currency continues to surge in popularity, governments will be compelled to levy regulations on Bitcoin that will make it much less attractive to users internationally.
In its current state, Bitcoin has limits in terms of scalability. In order for it to expand in the way that many have predicted, both the software and servers backing the currency will have to improve tremendously. There is currently no indication as to how the Bitcoin creators will go about solving this issue. While many Bitcoin insiders do not view this as a huge obstacle, skeptics point to this limitation as one of the reasons why buyers should be cautious.
Although Bitcoin is predicated on some form of identity-based ownership, many security concerns remain regarding its future. Because Bitcoin is a relatively new technology, it is still susceptible to gamesmanship by hackers. Recently, it was revealed that hackers have found a way to manipulate Bitcoin currency to their advantage. First, they pick a target that exchanges Bitcoin for cash and shut it down. This sudden shock to the system drives the value of Bitcoins down. Then, opportunistically, these hackers swoop in and purchase Bitcoin currency at a discounted rate and just wait for the value to increase to collect a profit. This sort of cheating is clearly unfair and there's no system in place to stop it, but what's most trouble is that there isn't even a governing body to report it to.
Bitcoins speedy rise in popularity makes it easy to forget that the currency is a little over four years old. For this reason, it is seen by many as more of an experiment than a long-term financial option. Users should be careful about placing too much trust in a currency that has yet to withstand the test of time. For all of the gripes that have been made about the dollar, it has been around for more than two centuries. There is at least empirical data that experts can point to in trying to assess its behavior. The same can’t be said about Bitcoin, which is something to consider before throwing your life savings into the currency.
It's hard to say for sure whether Bitcoin will survive, but one thing is certain: It represents the future of payment either way.