Bitcoin: Wonder or Scam?
By: Petros Leandros
Tags: Bitcoin, Ethereum, Cryptocurrency, Blockchain, Technology

Will Bitcoin survive or is it just a passing trend?

Bitcoin is surrounded by controversy. There are a lot of individuals supporting it as the future of money, and other people claiming it is a big scam and a Ponzi scheme that will just come crashing down. What is the truth? In fact, as in most things, the truth lies somewhere in between.

Note: This article does not offer investment advice in neither Bitcoin or other Cryptocurrencies, I am just stating my views around the currency. If you want investment advice, leave a comment in the section below and just keep reading :)

What is Bitcoin?

Bitcoin is the first decentralized digital currency that was created, and the most well-known of all the Cryptocurrencies in existence. The identity of its founder is not known, as he uses the pseudonym “Satoshi Nakamoto”. Its purpose is to be used as a fiat currency, i.e. for the exchange of Bitcoins for goods and services. However, due to the extreme price fluctuations and high costs of exchange, it is used more as a long-term store of value.

Bitcoin Characteristics

Apart from the characteristics that most Cryptocurrency categories share (if you want a list of all Cryptocurrency categories, I suggest you read this) and the generic characteristics that Blockchain technology offers (If you want more details over what is Blockchain technology, I suggest you read this), Bitcoin has a few characteristics that make it unique to other coins.

First of all, it has a limited supply of 21 million Bitcoins. That means, that the maximum amount of Bitcoins that will ever be in circulation will never surpass this number. This is one of the main reasons that individuals claim that it will appreciate to $100.000 or even $1 million dollars in value. However, I do not necessarily agree with this opinion, as in order for that to occur, Bitcoin must be accepted as the default store of value (and even to replace gold), which I do not see happening anytime soon.

Furthermore, Bitcoin uses a proof of work protocol in order for Bitcoin to be mined (i.e. for more Bitcoins to be created). This means, that miners have to compete over solving problems in order for the next block to be unlocked and that it is a random process where miners solve the next block, and thus are awarded with Bitcoin. Due to this method, it becomes more and more expensive to mine Bitcoin as more miners join the network and as the amount of Bitcoin in existence reaches further and further towards the 21 million level.

On a positive note, Bitcoin has the “first mover advantage” in the Cryptosphere and it enjoys 33% of the Cryptocurrency market cap. The price fluctuation of Bitcoin is the best predictor of the bull/bear trend in the Cryptocurrency market, as the rest of the coins tend to move to the same direction as Bitcoin. Furthermore, most exchanges do not allow the purchasing of alternative Cryptocurrencies with fiat currency, forcing an investor to hold Bitcoin in order to allow him to purchase other altcoins.

Is Bitcoin here to stay?

Based on the analysis above, I am of the opinion that Bitcoin is here to stay, at least for the medium term, due to its dominance in the immature Cryptocurrency market. Due to its brand, Bitcoin is the default option for the majority of investors that decide to enter the market and is also the default coin that investors hold despite sharp drops in the market.

However, I believe that there are better options to buy, if somebody wants to invest in Cryptocurrencies for the long term. The high transaction costs of Bitcoin, have already pushed people towards other coins. As the market becomes more mature and more information is available, investors will understand the potential of other technologies which will be preferred in the place of Bitcoin.

Do you agree with the views expressed in the article above? Let me know in the comments section, and don’t forget to share the article with friends and family.

Petros Leandros, MSc