Future of Bitcoin
By: Jackson Mackeral
As I see it, the future price of Bitcoin has two possible futures. Pennies, or a stable, high price. Many factors play into which distinct future will take precedence in reality. I will discuss what I believe to be the key components in deciding this.
First, I must clarify something. The Bitcoin community is overreactive to relatively small changes in price. These kinds of changes are not the kinds I am speaking of; those are near impossible to predict. I’m talking about big changes, over the course of a longer period of time.
Consideration #1: Acceptance by media.
Bitcoin has been in the news a fair amount recently. Often it is portrayed in a skewed, negative light. Just this month, the Consumer Financial Protection Bureau released a six page walkthrough warning against the inherent risks of virtual currencies. Much of what they said was technically right, but they still told a very one-sided story. There are exceptions, of course, but in general, Bitcoin is shown as a scary, insecure, sketchy, online currency often used to buy illicit drugs. The media has a large influence on the public opinion. Which leads me to my next point.
Consideration #2: Acceptance by the public.
Bitcoin isn’t used for as much as it could. For example, Bitcoin has a daily transaction volume hovering around the $40 million range. For comparison, Visa’s estimated daily transaction volume hovers around $16 billion. Many who have heard of Bitcoin have shed away from it simply because of misunderstandings. These misunderstandings come in all shapes and sizes. If the public begins to accept Bitcoin, interest will grow rapidly, as well as willingness of businesses to use and accept Bitcoin. Which, again, leads me to my next point.
Consideration #3: Acceptance by Businesses.
A quick look around SpendBitcoins.com (A website to help Bitcoiners find businesses that accept Bitcoin) reveals a painful truth for the Bitcoin economy. Businesses often dismiss Bitcoin as internet funny money. Although there is little reason in the terms of convenience and fees for them to deny Bitcoin as a form of payment, few businesses accept Bitcoin. This lack of acceptance by businesses could be a severe downfall of Bitcoin. After all, why use Bitcoin if you can’t spend it?
Consideration #4: Acceptance by Law.
This consideration has often been ignored. But recently Bitcoiners have been forced to think about it with the proposed BitLicense in New York. A system like BitLicense has the very real potential to cripple the Bitcoin economy, perhaps irrevocably.
Consideration #5: Quantum computers.
Quantum computers are a theoretical type of device that calculates a fundamentally different way than traditional computers, using states of sub-atomic particles. What does this entail for Bitcoin, you might ask? A private key linked to an address which has been spent from can be recovered by a quantum computer. This means that funds will be stolen left and right, if a quantum computer is ever developed.
Consideration #6: Security and ease of use.
Currently any solution to storing and spending Bitcoin will either sacrifice security for ease of use, or vise versa.
Consideration #7: Obtaining Bitcoin.
Currently, obtaining Bitcoin can be difficult, confusing, and sometimes insecure. Primarily, this is because the most common forms of payment (PayPal, credit card, etc) that would be used to pay for Bitcoin, are reversible by scammers. Scammers could send money, get Bitcoin, then reverse their payment. Since Bitcoin transactions are fundamentally irreversible, the original vendor ends up scammed.
Consideration #8: Understanding Bitcoin.
There are many resources available for those who want a better understanding of how Bitcoin works. But they are scattered, and become needlessly confusing at some points. This has the possibility to keep many from using Bitcoin.
Consideration #9: The final block reward.
Every block mined currently awards who mined it with 25 Bitcoin. This is called a block reward. A block is mined about every 10 minutes, regardless of the combined processing power of all the miners. Because of this, the difficulty in mining a block is variable, and re-targets to make sure each block mined takes about 10 minutes. The reward will eventually be halved, then later halved, so on and so forth. Eventually, when 21 million Bitcoin have been mined, there will be no more block rewards. That means there will never be more than 21 million Bitcoin. Some argue that this is far too few. But the bigger concern lies in the fact that miners will no longer have any motivation to confirm transactions, besides miner’s fees.
Consideration #10: Scalability.
Bitcoin uses an ever growing “blockchain”, which contains every transaction that has ever taken place, to confirm transactions. This blockchain is already large, and has to potential to become a nightmare in memory. There is also the elephant in the room of the tps (transactions per second) limit. Currently, Bitcoin is limited to 7 tps. This is thousands of times less than Visa, for perspective. There are a few other scalability concerns, but these are the most prevalent, and realistic.
“This lack of acceptance by businesses could be a severe downfall of Bitcoin. After all, why use Bitcoin if you can’t spend it?”
Addressing consideration #1: Acceptance by media.
I believe this issue will be self-solving. Allow me to explain. There is a phrase that states “There is no such thing as bad publicity.” I believe that this holds a fair amount of truth when discussing Bitcoin. I believe that since Bitcoin has had increased publicity recently, more interest has been generated. As more and more people become educated and interested, media will begin to tell a more precise story about Bitcoin.
Addressing consideration #2: Acceptance by the public.
A part of the solution to this consideration will happen through the solving of the first consideration. The media has a great influence on public opinion. Another solution to flawed public opinions on Bitcoin is to make Bitcoin easier to understand. This is elaborated upon in #8. The solving of the problem of public opinion is one that results in a positive feedback system. To explain this, a positive feedback system must be explained. A causes B, which in turn causes B. In this case, more people using Bitcoin cause more people to become intrigued and research Bitcoin, which in turn causes more people to use Bitcoin.
Addressing consideration #3: Acceptance by businesses.
A part of the solution to consideration #3 is similar to that of consideration #2 in that it entails a positive feedback system. This one, however, deals with businesses. As more businesses begin to accept Bitcoin as a viable means of payment, more businesses will be prompted to do the same. Currently it is unrealistic to expect some businesses to use Bitcoin, as they would only convert it to their local fiat currency. But this will change as more and more businesses, from large corporations, to minuscule vendors, begin to accept Bitcoin.
Addressing consideration #4: Acceptance by Law.
This consideration had the very real ability to irrevocably cripple the Bitcoin economy. Some would argue that the difficulty in regulating Bitcoin renders the BitLicense useless, even harmless. But that is not the point. Bitcoin is used by many law abiding citizens, who wouldn’t think getting a license would be worth it to continue in Bitcoin. Bitcoin is also used by many organizations who wouldn’t be able to continue in Bitcoin, legally, or illegally. This consideration has no simple answer, no snap solution. I’ve read the majority of the BitLicense, and skimmed the rest (I recommend you do the same, you can read the full proposed regulation here. The email to send comments regarding the regulation is firstname.lastname@example.org . I personally challenge all of you to email your concerns of the regulation. That’s what this comment period is for. The deadline for comments is October 11th, 2014. I’ve sent my concerns. It doesn’t have to be anything fancy. If you prefer hand written, the address is: DFS Office of General Counsel – Dana V. Syracuse, New York State Department of Financial Services, One State Street, New York, NY 10004.
“As more and more people become educated and interested, media will begin to tell a more precise story about Bitcoin”
Addressing consideration #5: Quantum computers.
The reality is that quantum computers will not likely be created for some time. Nonetheless, there is a simple solution. Quantum computers are only able to steal private keys from public keys. Public keys are only revealed when an address is spent from. Therefore, if quantum hacking unsettles you, only spend from addresses once. For example, you should pay from an address that you have slowly accumulated funds into, and send the rest into a fresh change address.
Addressing consideration #6: Security and ease of use.
There is not yet a perfectly secure and simple solution to spending Bitcoin. Using Bitcoin more helps with both of these concerns, but currently there is no beginner’s solution to this trade off dilemma. But things have began to move in the right direction. For example TREZOR , is fairly simple and very secure for creating, and storing private keys, addresses, and signing transactions. The Piper Wallet, is a great way to create secure private key and address pairs offline. Still, these solutions are far from perfect. As more interest is cultivated in Bitcoin, more innovations such as these will arise from the masses.
Addressing consideration #7: Obtaining Bitcoin.
Currently, obtaining Bitcoin can be a bit of a…tedious process. I would argue that the best way to buy Bitcoin is through Local Bitcoins cash deposit system. Using this system entails that a Buyer would schedule a deposit, and the Seller’s Bitcoin would be locked in Local Bitcoins’ escrow system. Next, the Buyer would deposit cash into the Seller’s bank account at a local branch. Later, the Bitcoin are released from escrow to the Buyer’s address. As you may see, this is still a fairly convoluted process. But at this moment, it’s the best we have. There is a strong possibility that any way of buy Bitcoin developed will resemble this due to the often reversible nature of fiat currency transactions. But perhaps as the uses for Bitcoin grow, buying Bitcoin with fiat will no longer be a significant need; perhaps one could be paid in Bitcoin.
Addressing consideration #8: Understanding Bitcoin.
There are a number of great resources for learning about Bitcoin. But there aren’t many resources to facilitate learning for every point between complete beginner and expert, in my opinion. I’ve found many times when I’ve wanted to learn more that all I could find were over simplified explanations, and explanations over my head. But I have also found that the Bitcoin community is very willing to help others understand whatever may confuse them. At the moment, I would argue that asking this community specific questions is the best way to advance one’s knowledge of Bitcoin. Reddit.com/r/bitcoinbeginners is a great place to start.
Addressing consideration #9: The final block reward.
The first part of this concern, that 21 million is far too few “parts” of a currency, can be easily resolved by realizing one Bitcoin can be divided to 8 decimal places. The second part of this concern is a bit more complicated. If the combined transaction fees are substantial enough to sustain the network, things will continue without conflict. Otherwise, the system will no longer function. Bitcoin will fail. But this is not likely, as everyone’s transaction fees are fairly substantial when combined.
Addressing consideration #10: Scalability.
There are many ways of reducing the unwieldiness of the blockchain. Many theories of have been proposed. One of which is “compressing” the blockchain at certain points in history. Another theory involves having another “mini” blockchain, which only holds transactions for unspent Bitcoin. Satoshi Nakamoto, the author of the original proposal of Bitcoin, addressed this problem in the original white paper, and proposed possible solutions. The problem of tps is also an important one to think about. The first thing to realize is that it is not a concern at the moment. Bitcoin’s average transaction rate hovers around the 0.8 tps range. This is about a tenth of the imposed limit. The limit is artificially imposed, and can be removed. It was placed there to keep the blockchain from becoming too large before all were ready to handle it. Although lifting this limit has been compared to changing the engine of a plane while in the air, it is quite possible, even with some hiccups.
Thanks for reading! I hope you have a better understanding of the factors I believe to be integral to Bitcoin’s future.”