What Makes Bitcoin So Popular?
What Is a Decentralized System?
Decentralization eliminates the third-party intermediaries and connects two users directly. That is why a decentralized system is also known as user-to-user or peer-to-peer system. Currently, Internet is centralized. The two terms centralization and decentralization are antonyms of each other in terms of a controlling authority. In a decentralized system, no single authority exists to control, and there are multiple points to perform the work as per the prescribed protocol regarding verification, solving of the computation problems, and consensus method.
Facebook and Google are examples of centralized platforms, whereas BitTorrent and Napster offer peer-to-peer file sharing on decentralized platforms. This way, the data is not in the hands of a single party and makes it much more secure comparatively. Synereo has emerged as a new platform for decentralized social networking in comparison to Facebook. The users in this platform can interact with each other directly, without going through a central server. In addition, the data gets encrypted, increasing the security of the transferred data. Even the creators of the platform cannot access this data. Users performing the verification of data get incentive for performing their tasks for the applications in the decentralized platform.
BitTorrent is a good example to understand a decentralized platform. The data does not pass through a single point and passes through multiple points those are part of the peer-to-peer (P2P) network. In BitTorrent, when a user downloads a torrent file, two numbers get listed for the best file download, that is, seeder and leecher. The number of people uploading the file are referred to as seeders, and the leechers stand for the number of people downloading the file. The download process speeds up when the ratio of seeders and leechers is higher. Some websites restrict downloading of contents to the users who do not upload anything.
Any central authority, including governments, interested to control data have more interest in a centralized environment even if it means to have expensive methods in place to do so. On the other hand, a decentralized environment offers much more privacy and security. Facebook and Google are the giants of a centralized environment where any information goes through their servers, and the administrators there have the ability to go through everything going through those. With a decentralized platform, this does not happen, and the end user has the control of their own data eventually.
How Is It a Borderless Currency?
Border in the borderless refers to the geographical borders of countries. Both borderless and borderfree are used interchangeably. Not only a bitcoin can be used as a media of exchange between two users, it is acceptable by many e-commerce-based websites as well. This means that the digital currency can be used for monetary transactions anywhere in the world, not just in the local geographical area. With more and more people getting in the digital currency wagon, more businesses are accepting bitcoin for payment.
Currently, there are hundreds on online businesses accepting digital currencies. Major retailers such as CheapAir, Expedia, Microsoft, Shopify are some of the names in the big list of businesses that accept bitcoin as a payment method for goods purchase. This gives a pleasant feeling that bitcoin is not necessarily for criminal activities. It has already made its way into acceptance by major retailers, hence adding to its legitimacy. The list of such businesses is growing rapidly.
Bitcoin and other altcoins are not only borderless, these are bankless as well. There is no need of a third-party bank to perform the transaction. This significantly reduces the transaction fees due to elimination of overhead costs by the banks. Another major benefit is the reduced transaction time. With bitcoin blockchain updates at an interval of approximately 10 minutes, the transaction time gets reduced from days to minutes. Therefore, a borderless currency like bitcoin can be used to transfer funds around the world without a bank. Certain digital currencies require users to reveal their identification via digital identification, making the users not anonymous anymore. Another interesting development is the debit cards those are able to transact on bitcoin accounts.
Why Is the Bitcoin Price Rising So High?
Bitcoin price leaping to approximately 17,000 U.S. dollars in 2017 has made many early investors millionaires. There are some important factors contributing to the soaring price of bitcoin. The first and foremost factor can be related to the intended legitimacy of the bitcoin by the Wall Street. Social media updates regarding huge injections by big financial institutions result into an expectation that the bitcoin price will continue to rise more. The launching of futures products by CBOE Global Markets and CME Group lets the users to treat bitcoins trade similar to stocks. As per their publication, the Cboe Bitcoin Futures Contract will use the ticker XBT and will equal one bitcoin. The CME Bitcoin Futures Contract will use the ticker BTC and will equal five bitcoins. Such developments indicating acceptance create more confidence in the legitimacy of bitcoin.
Media hype, political uncertainty, and risk are other factors contributing to the rise in the price of bitcoin. Media hype is helpful when people do not use their own brain toward analysis and depend on other users. The thought that, if other person is doing it, and that person is very intelligent, then I also should do it leads to more investment. Media continues to publish about bitcoin, making people feel they should not miss the bitcoin wagon.
Political risks with uncertainty and risk also contribute to the increasing price of bitcoin. In those situations, people tend to transfer money out of their country to safeguard it, before it becomes of no or lesser value. The economic crisis of Greece and Brexit (Britain to leave the European Union) are fine examples of such uncertainties. People became uncertain of their deposits in the local banks there and started transferring it around to save its value. This also impacted positively on the bitcoin price.
Taxation in many countries is still undecided about how to handle bitcoin trading or profits gained from the transactions. One thing is clear that most countries have started realizing that the profits must be treated as done for other currencies, but lack of clear regulations on its use impacts the bitcoin price. The acceptance or rejection of bitcoin by various countries adds or reduces its legitimacy, respectively, hence the rise and fall in the price as well.
Why Is Bitcoin So Volatile?
Volatility is expected to decline as the cryptocurrency grows. The past growth chart of bitcoin has shown sudden surges and dips in its price. As of today, it is a highly unpredictable growth chart. No one can say with confidence where the price will go in the coming future. Where one lobby calls this a bubble, there is totally opposite lobby those who do not hesitate to predict value of one bitcoin to reach 1 million U.S. dollars!
Regarding volatility of the bitcoin price, the cryptocurrency enthusiast terms this part of the process of bitcoin evolution. Compared with global stock markets, global currency, and global gold market, the bitcoin has captured only a fraction of those. These global players have been in market for quite a long time and are stable enough. Whereas the bitcoin is relatively a new entrant, though still with an impressive and unprecedented growth with a huge following already. In short, bitcoin is a junior compared with these (global mature) seniors.
Introduction of new cryptocurrencies that aim at getting rich quickly and flee overnight decrease faith in them for a newcomer. Since the time of government-issued currency during last thousands of years, there is no single global currency. Every country or government has its own variant. Similarly, expecting bitcoin to become a global digital currency is more of an imagination. Altcoins are bound to come up in such a decentralized environment, where monopoly has to go away, and control of own information must come back in the hands of a common man.
Again, media plays a great role in the value perception by the users or would-be users. Bad press induce fears among users. In particular, when Mt. Gox (then a popular bitcoin exchange) declared bankruptcy in early 2014, it created public panic. Also, when FBI investigations revealed bitcoin transactions toward drug dealing, this caused reduced rate of adoption by the users. Further news of security breaches dilute the interest of users. Bitcoin has its own share of security risks; those may appear due to ripples by the security fixes. Such negative press news is bound to create fluctuations, hence the volatility in the bitcoin prices.
The supply and demand theory in economics states that the rarer something is and the more in demand it is, the higher the price will be. Considering there are 21 million bitcoins, there are about 20 percent of the bitcoins yet to be mined as of mid-2018. The mining of 80 percent bitcoins have made the bitcoins scarce. This scarcity has contributed to the rise in the bitcoin price.
One wonders whether bitcoin will ever become stable enough. This is possible with the wider acceptance and confidence in it by the users. More user involvement, decreased transaction time and fees add to the value. Also, taxation and regulation by various governments pave a way toward legitimacy of digital currencies.
Am I Too Late to Invest in It?
“HODL!”
Hodl is an Internet slang term used in the bitcoin community when referring to holding the cryptocurrency, rather than selling it. In a bitcoin forum message, a user incorrectly typed hodling in the place of holding. Since then, hodling got popular and synonym with staying invested in bitcoin.
Early investors in bitcoin became instant millionaires due to their early adoption. The question about being late in investing in bitcoin got asked at many stages of the bitcoin price say at 1, 10, 1,000, 10,000, or even at the peak of 17,000 U.S. dollars. The bitcoin price growth is very unpredictable. Still, there seem to be investors reaping profits, though those may not be comparable with what is already done during 2017. In short, no one knows if it is too late or not.
As the user confidence continues to increase, government regulations come into place, more retailers continue to accept bitcoin as a media of exchange, market capitalization grows, and then bitcoin is bound to have even more growth than today. At the same time, the absence of these factors can cause adverse effect as well.
Bitcoin may be considered for long-term investment, where one should only put that one can afford to lose, with a hope that the bitcoin price will eventually increase more one day.