For people with little knowledge about the complex and sometimes, rewarding world of cryptocurrencies, speculating about bitcoin or any other digital currency can be difficult. Some people regard it as a bubble bound to burst, while others think it is a fad. To crypto enthusiasts, bitcoin is the future of online payments.
Basics of Bitcoin
Bitcoin is divided into two components. On one hand, bitcoin is a decentralized digital payment method with an online ledger referred to as the blockchain. On the other end, it is a sort of invisible token that represents ownership.
Bitcoin was launched in 2009 by Satoshi Nakamoto who remains anonymous. Satoshi published a white paper with a road map of what bitcoin was supposed to become. But since then, bitcoin has been a manager-less money payment network. This has created disputes every time discussions about bitcoin’s future are put across.
10 Reasons why bitcoin could Crash
#1: The Blockchain’s Weakness
The blockchain is a digital, decentralized ledger that records all transactions that have happened on the bitcoin protocol. The blockchain is arguably the biggest invention in the cryptocurrency network. Through this technology:
- Bitcoins can be sent from one person to another without going through a middleman.
- The users’ identities are encrypted on long strings of characters called addresses.
- Bitcoin miners, volunteer users who solve complicated algorithms to validate a bitcoin transaction, are able to do their job.
- Double spending is prevented.
However, as much as the blockchain seems revolutionary, there are other technologies that offer better services than bitcoin. Some of bitcoin’s competitors don’t even rely on the bitcoin network. Ripple, for example, offers faster payments with much lower transaction fees. If developers continue to produce superior technologies, bitcoin’s value could plummet, causing a major crash.
#2: Government Regulations
Every time a major government promises to enact regulations against bitcoin, its value goes down. In January 2018, the U.S. government, the Chinese government and the South Korean government all put measures or promised to tighten regulations against the cryptocurrency network. The result was that bitcoin’ value went down to $5000, several weeks after recording its highest ever value at $17,000.
#3: Leadership Issues
One of the major problems that plague bitcoin is the lack of leadership. Although its founder probably believed the industry would do better without leadership, it’s proving chaotic. Since its launch in 2009:
- Coders and miners assume leadership of the network when need arises.
- Disagreements are more prominent than agreement every time an issue concerning bitcoin is raised.
- There has not been a clear roadmap about bitcoin’s future.
Due to a lack of proper leadership, it will prove difficult to solve some of the major challenges bitcoin currently faces.
#4: Real Life Applications
While most bitcoin enthusiasts try to push the payment system mainstream, there are always sources that try to undermine these efforts. In the state of New York, for example, any business that wants to accept bitcoin as a payment method has to apply for a BitLicense. The license costs $5000. Besides the expensive licensing:
- Bitcoin payments are slow sometimes- the fact that it takes ten minutes or more to confirm a payment undermines its scalability.
- Bitcoin’s immutability, the fact that payments can’t be reversed makes it a less ideal option for many buyers.
- Bitcoin’s expensive fees draw away most traders.
#5: The Hard Fork Problem
Every time a disagreement about bitcoin occurs, some coders decide to “fork” a new version of the bitcoin network. Forking is simply rewriting bitcoin’s code to form a new cryptocurrency network with almost similar functionalities as bitcoin. Through forking:
- Bitcoin Cash and Bitcoin Gold were developed.
- The new forked networks introduced services that drew a big chunk of bitcoin users to them.
- More coders have plans to fork other networks.
In the end, excessive forking will hurt bitcoin. Its value will continue to lower as alternative networks that offer superior services are developed.
#6: Security Flaws
During several hacking incidents in the cryptocurrency industry, the value of bitcoin crashed rapidly. During the infamous Mt. Gox hacking incident, bitcoin’s value dipped by 23%. In other cases when bitcoin has been attacked by the media or any other influential source, bitcoin’s value has always suffered. This makes it well possible to crash the network should the blockchain suffer from a major security flaw.
- The blockchain’s security is enabled by its decentralized nature.
- However, if any bitcoin mining company gains more than 51% of the network’s computational power, it could influence bitcoin payments.
- If this happens, it could mean an end to bitcoin.
#7: The Mystery behind its True Value
For many people, bitcoin has been a puzzle. Those who attempt to solve the puzzle rarely ever convince everyone that bitcoin will have reasonable value a decade to come. The practicality of the payment network is hampered by too many factors:
- The high payment fees.
- Lack of a clear intrinsic value.
- Leadership issues.
#8: Speculative bubble Burst
Due to the high growth rate in the past 5 years, investors tend to overstate bitcoin’s future prices. People are always exaggerating the value of bitcoin in the coming years. This speculative growth could like be the cause of bitcoin’s crash.
- Exaggerated speculations increase trading volumes unnecessarily.
- Bitcoin holders will outstretch sellers
- Eventually, the prices will become too expensive and the bubble will burst.
#9: Pump and Dump
Pumping money into the network and then dumping the coins after they gain value is one of the major challenges facing small cryptocurrencies. However, the problem could soon affect bitcoin if governments and large corporations get involved.
#10: Mining Problems
Satoshi intended the bitcoin network to have 81 million coins in supply eventually. To make sure coins are introduced periodically, the algorithms used to mine bitcoins are toughened as more people become miners. While the intentions are good, there are problems tied within:
- As mining becomes difficult, mining machines become expensive.
- Soon few people will be interested in mining. If there will be fewer miners, it will take longer to validate transactions.
- Time-consuming payments coupled with high transactions fees will undermine bitcoin’s use case.
- The long periods to solve the required math problem increase payment processing times.
Eventually, when all coins are supplied and mining is no longer profitable, there is a possibility that the bitcoin network will be less lucrative to use.
There are over 30 reasons for a crash on the bitcoin network. While some of the reasons may never cause a complete crash, experts believe the bitcoin bubble will eventually burst. Stay updated with intriguing news and articles by visiting our website often.