The secret behind bitcoin’s meteoric rise
Bitcoin (BTC) is the most popular cryptocurrency and continues to hold the highest value in the digital currency market. Bitcoin is having a moment and has been experiencing a steady rise since the cryptocurrency’s inception over a decade ago.
The coin broke its record in March 2021 when its value rose to over $60,000, which was more than double the value of bitcoin at the beginning of the year.
This means that those holding bitcoin have become fabulously wealthy at a faster pace. But it could just be a spontaneous reaction, given the volatility of the market.
The rise of bitcoin
One might recall that bitcoin was only valued at nearly $10,000 in early 2017. But by the end of December that year, the currency reached almost $20,000. This is an increase in value of over a thousand percent.
Such value ensured that the provocative new form of currency was surrounded by mainstream fervor and legitimate interest from businesses and investors.
The story continued when it was worth over $150 billion in March 2018. Before that point, bitcoin was once worth over $325 billion.
With this meteoric rise, many are convinced that the cryptocurrency industry could be the answer to some of the problems that have plagued financial institutions for decades.
But this optimism could be clouded by one crucial aspect of bitcoin: the volatility that comes with being in experimental new territory.
What triggered the rise of bitcoin, which is neither backed by real assets like gold nor protected by a central authority or regulations? The answer is not far-fetched; bitcoin’s rising value was largely based on hype, word of mouth, and speculation.
Despite being the first and most popular cryptocurrency, few people understand how bitcoin works.
How it all began
Before we get into how it works, let’s go back in history. Bitcoin came to the market in the year 2009. Bitcoin and other forms of cryptocurrencies did not begin to enter the mainstream until around 2013.
Some unknown individuals debuted bitcoin in 2009 a few years earlier simply as Satoshi Nakamoto. The digital currency began to gain popularity among technology-oriented hobbyists and groups. This is a group of people who distrusted centralized governments and banks.
In this way, they were able to discover the future and bitcoin began to gain traction and slowly increased in value to take off in 2017.
After such a rise, bitcoin also experienced immense fluctuations towards the end of the year. This is partly due to the fact that bitcoin and other cryptocurrencies have no centralized authority. Instead they rely on blockchain technology.
Blockchain technology essentially uses online ledgers obtained from multiple parties (called “miners”) to record every transaction ever created. This is used to track the who, when, and how of every cryptocurrency transaction.
I’m sure you should know the rest by now, as bitcoin’s journey has become lucrative so far.
Despite its success, there are still some concerns about its effectiveness and whether bitcoin and other cryptocurrencies can be considered legitimate forms of currency.
Some downfalls of bitcoin
Since it is a new industry, the digital currency industry has to deal with issues of efficiency.
Currently, bitcoin transaction fees cost $19 to process in 10 minutes, or $3 if a trader is willing to wait 24 hours. This is a major problem that could be a setback to the industry’s progress so far.
In addition, the computing capacity of bitcoin’s peer-to-peer network is limited. This is another problem that needs to be addressed. Despite an immense increase in the hardware used to record bitcoin transactions on the blockchain, the bitcoin network can still only process 3.3 transactions per second. That’s slow, and it doesn’t look like it’s going to speed up anytime soon.
Compared to mega-currency organizations like Visa, which can process 3,674 transactions per second, the peer-to-peer nature on which bitcoin was founded is starting to create barriers to scaling the currency.
There are also other issues, such as gender representation and anonymity, that have encouraged crime. Although other issues need to be addressed, the effectiveness of the blockchain network is paramount if bitcoin is to meet the current needs and demands in the financial industry. As it stands, bitcoin will face a major challenge when it goes global.
Bitcoin can take comfort in the bubble-like nature of blockchain technology. But it is a major concern for governments that want control over such investments. It is expected that all parties will soon sit down at the round table to find a way forward.
The fact remains that bitcoin has seen such a huge rise in the last three years, all thanks to hype, word of mouth and speculation.
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