Bitcoin: On the “Chopping Block?”


The motto for Fintech is improve — always innovate — or die.

Think, Steve Jobs.

But is Bitcoin innovating? Can it survive?

Bitcoin is not managed by Satoshi Nakamoto, who may or may not be Craig Wright. The mysterious inventor of Bitcoin is uncertain.

What is more and more certain is that Bitcoin is edging closer and closer to an apparent disaster and many are holding their ears — and virtual bags of coins.

Ignore for a moment, that Bitcoin is nothing but cryptography. That it has no backing in gold or official sanction by major governments. Assume that it’s just trust that makes it work. Assume that it will not crash in value overnight.

Let us suspend belief still further. Ignore our instinct to put a physical face to Bitcoin. Allow the argument from the intrinsic to sort of drift into a nearby room — and wait there whilst we examine a more glaring problem.

Here it is…

The viability of Bitcoin — the software. The system. The fees. These issues are glaring at us.  There is sign post ahead, just like Rod Serling told us…but this one is flashing madly and the sirens are wailing.

Bitcoin developers have warned us — are warning us. There are serious problems with Bitcoin. Be prepared.

According to Kyle Torpey at Coin Gecko, Bitcoin must improve soon or it could be surpassed by Ethereum.


Gavin Andresen believes potential Bitcoin users may look at alternatives, such as Ethereum, if the block size limit is not raised soon.  — Kyle Torpey (May 31, 2016)

Source: Gavin Andresen: Ethereum Rise a Warning to Bitcoin


Torpey advised that Gavin Andresen, who remains the Bitcoin Foundations’s Chief Scientist, but no longer one of its Core Developers, supports Bitcoin Classic.

It’s a better Bitcoin, Andresen advises.

Who supports Bitcoin Classic? Maybe 5% of the users. That’s it. So it’s not popular. It may even be less popular now that Andresen supports the ‘Craig Wright is Satoshi Nakamoto Theory.’

Bitcoin Classic, if implemented, would increase what is known as the blocksize. In fact, if Bitcoin does not innovate soon, it is probable that investors will begin to diversify their crypto-portfolios voluntarily.

Why diversify? The simple answer is to protect one’s investment. The real answer is probably even more basic: Fear.

Fear that Bitcoin will crash — permanently — or fear that some wanton hacker will abscond with their Bitcoins.

There is even a deeper dread. One I have discussed in my recent blogs — privacy.

Bitcoin was not built for complete privacy, but they are working on it. Maybe, if the current developers fix the block-size issue, before it’s too late, they can fix the privacy problem.

Don’t hold your breath.

Perhaps privacy won’t matter anyway. Bitcoin is slowing. It’s running out of fuel.

Mike Hearn has stated that Bitcoin is a failed experiment. Hearn has since moved on.


I’ve spent more than 5 years being a Bitcoin developer. The software I’ve written has been used by millions of users, hundreds of… has failed…  — Mike Hearn (January 14, 2016)

Source: The resolution of the Bitcoin experiment — Medium


Hearn cited many reasons for Bitcoin’s failure. From the concentration of mining power in China to the fact that 10 people actually control it. Fees are unpredictable, Hearn said — and on the rise.

But these are just a few of the problems plaguing Bitcoin.

So what happens next — given the circumstances?

Which crypto’s are likely to see surges in volume, if Bitcoin slows to a crawl? That is the million dollar question.

The answer, according to some, is to look at the popular crypto’s waiting in Bitcoin’s wings?

Two come to mind. Litecoin, a staunch ally in this Fintech war of money — often touted as the silver to Bitcoin’s gold — may morph into the new Digital Gold. It could, potentially, unseat Bitcoin.

But this is not what Gavin Andresen warns, according to Torpey. Andresen thinks that Ethereum, which has a higher trading volume than Litecoin and is now favored by several major exchanges, is the ‘up and coming’ crypto.

Okay, that is a taste from the developer side. What about the business side?

Many banks and investment houses, ignore Bitcoin entirely. They don’t pay homage to Bitcoin, but are, without a doubt, experimenting with the technology.

These “blockchain” enthusiasts, to include the government of Russia,  want to create their own ‘official’ versions of crypto.

But some investment gurus still see promise in Bitcoin, presently. They seemingly ignore the warnings, set aside the intrinsic value question and watch the flow of funds.

Technical analysis of the U.S.Stock Market leads many to believe that it is currently overvalued. That investors should move into cash holdings.

Chris DeMuth Jr., says as much in Seeking Alpha.


Stock market prices are high. One should have plenty of cash. Bitcoin is one way to diversify cash. — Chris DeMuth Jr. (May 31, 2016)

Source: S&P 500 Top? An Idea For Pricey Markets – SPDR S&P 500 Trust ETF (NYSEARCA:SPY) | Seeking Alpha


A debate comes then. Is Bitcoin a good form of cash? Well, there are U.S. Dollars, which seem to hold a bit of value, at least over the last few years; but that Bitcoin thing — it looks so shiny from the outside.

According to DeMuth, at least 10% of your cash holdings should be in Bitcoin.

Is there a disconnect here?

On one side — the Gavin Andresen side –there is a warning. Mike Hearn seconds that warning. He also advised that Bitcoin has failed. Both of these developers are in-the-know.

The determinations made by Andresen and Hearn could even be termed the fundamentals of Bitcoin. Meaning, a report of its inner workings, it users, miners and overall functionality. The bedrock of the system, so to speak.

On the opposite side, perhaps basing their advice to invest, solely upon the technicals –the numbers — are the DeMuths of the world. But technical investigators don’t necessarily look at managerial aspects or what’s happening at the human level, within a company.

Technical guys look at the product, the profits and the numbers. These ‘indicators’ provide a reasonable picture of potential profits and how best to leverage one’s investment therein.

If we simply look at technicals, Bitcoin is a ‘buy,’ they advise. The analysis indicates it will soon surge or at least maintain its value. And yet Bitcoin has often defied technical analysis. Gained when technical market indicators said otherwise.

Perhaps Bitcoin defies technical analysis because it is a new type of company. The idea of course, was to have Bitcoin be “decentralized.”

Yet Bitcoin has become more rigid with time. It gives outward appearances of being centralized. It has a large a mining base in China — a place not known for government non-intervention.

The future of crypto, in this writer’s view, is not Ethereum, unless it adopts privacy features. We may see, in the near term, surges in the price of Ethereum and Litecoin, if Bitcoin stumbles or loses the trust of the masses. But these surges may be temporary.

It is hoped, by many, that Bitcoin will find its way. If Ethereum or Litecoin fills the void, so be it.

In the mean time, many of us are looking in a more secure direction — available now. Where block-sizes and security are not an issue.

Monero is one such crypto and it is essentially, still on the ground floor.

 

 


Featured Image: Photo by: By Chmee2 (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html), CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/) or CC BY-SA 2.5-2.0-1.0 (http://creativecommons.org/licenses/by-sa/2.5-2.0-1.0)%5D, via Wikimedia Commons

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s