For a long time, Bitcoin has been a buzzword in popular culture that nobody seems to understand. But it just keeps getting bigger! Widespread adoption still seems to be a distant pipe dream, so anyone looking to invest in it wants to know if there is a long-term future for this new form of currency.
Will Bitcoin ever die?
Bitcoin has penetrated global markets and led the way for blockchain-based cryptocurrencies since 2009. It’s market cap is too large for it to die in the near future. However, the supply of Bitcoin will be capped, which means new coins will not be mined once there are 21 million in circulation.
Five years ago, Bitcoin was typically something reserved for a long, painful conversation with your cousin, but it turns out he was right, and now everyone seems to be talking about it!
And when it comes to what the future holds for this exciting new form of currency, it’s impossible to tell.
But there’s no doubt over its enormous potential. But to understand why Bitcoin could be the best investment you’ve ever made, or a complete waste, understanding the mechanisms behind it helps to make the right decision.
Will Bitcoin Ever Run Out?
One of the confusing things about Bitcoin, but ultimately the primary reason that the anonymous individual or collective, Satoshi Nakamoto, created Bitcoin in the 2008 whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System, is that its supply will be capped at 21 million coins.
Bitcoin miners earn Bitcoins for solving complex algorithmic problems that process peer-to-peer transactions on a distributed ledger (also known as the blockchain), but as more Bitcoins are mined, the reward for mining is halved and, eventually, no more Bitcoins will be left to mine.
Miners would then rely on transaction fees alone to oversee transactions on the blockchain.
The purpose behind this is to mitigate inflation. If no more Bitcoins are being added to the system, its peer transactions value will not depreciate like it does when reserve banks such as the Federal Reserve increase the money supply.
So, Bitcoin can solve many issues in the fiat currency system, and Nakamoto wrote the whitepaper in response to the 2008 financial crisis.
At present, there have been more than 18 million Bitcoins mined, but with the way the halving system is set up (diminishing rewards for solving algorithms (processing transactions), we are only due to reach the 21 million cap by the year 2140, so it’s a long term problem that you’re unlikely to see the consequences of in your lifetime.
However, the truth is that nobody knows what will happen when the supply runs out because there are just too many factors involved.
The Bitcoin Bubble
One of the biggest problems with Bitcoin, which you’re undoubtedly aware of, is that it’s incredibly volatile.
It has a long track record of boom-bust cycles, with its price hitting $20,000 by the end of 2020 for the first time and rising by as high as $63,375 by April 2021 and dropping back below $30,000 by June 2021 and soaring back beyond the $50,000 mark just two months later.
And this is not the first time it has experienced a radical upturn in value, met by a sharp decline. But what’s important to note is that the Bitcoin price is still significantly higher than it was before the initial boom.
It may have dropped below $30,000 but still was above the then-record high of $20,000 in December 2020.
So, there has certainly been sustainable growth, and, if you look at the value before the initial Bitcoin boom way back in 2013, where it was valued at just $13.40, you can understand why holding onto your Bitcoin as a long-term investment may seem like a bad investment when the market goes bust.
However, you’ll still be smiling when all is said and done.
However, the problem is that Bitcoin is still in its infancy, coins are still being mined, and it has acquired an unshakeable reputation as a speculative asset that can’t be relied upon.
This is also due to many misconceptions that arise because of how complicated it is.
A New Global Currency?
When it was first conceptualized, the primary idea behind Bitcoin was to completely reform an unstable financial system that led to the 2008 Financial Crisis and various market crashes that have occurred throughout history.
The idea is to decentralize currency with a distributed ledger that is not run by a single entity. With a limited supply of Bitcoins available, inflation will become a thing of the past.
Transactions will be seamless, and the entire banking system will become democratized. That is… if you believe Bitcoin will be adopted as legal tender around the world.
Fiat currencies have inherent flaws that Bitcoin appears to have the silver bullet for. It harnesses the power of the Internet to make payments in the 21st century far simpler, faster, and cheaper to conduct.
Bitcoin Might Die, Blockchain Won’t
While there is a lot of disagreement over how far Bitcoin can go as the world’s leading cryptocurrency, there seems to be little dispute over the fact that blockchain technology (distributed ledger technology, or DLT) is here to stay.
Bitcoin wouldn’t be possible without the blockchain, and the flaws in Bitcoin are being tackled by a new cryptocurrency every other day. Ethereum, Bitcoin’s closest competitor, for example, uses different consensus protocols to make transactions faster and more energy efficient.
And blockchain technology can be applied to digital frameworks that exist beyond financial systems as well! Blockchain technology provides solutions for everything from digital identities to internet services to real estate and legal mechanisms.
It makes transactions, or more broadly, digital actions, trustworthy, transparent, and efficient. It puts the power into the hands of the people using the technology rather than a giant monolith.
So, while you may not be sold on Bitcoin and don’t want to invest in what may never lose its reputation as a volatile asset that’s remarkably susceptible to speculation, you should recognize the potential of the technology that underpins it.
And with such an enormous market cap and the biggest player in the cryptocurrency market, it is unlikely that any of the competing crypto tokens will be able to achieve such widespread global market penetration in the foreseeable future.
And, even if it does, any other crypto token that takes its place will surely become the new globally accepted tender, if the mass market understands exactly what it has to offer.
Conclusion
So, when you think about Bitcoin as an investment, you’re going to face all kinds of doubts and fears, especially when you hear naysayers discuss some of the flaws in this very new, hard-to-understand technology.
But as time goes on, many of the issues are slowly being ironed out.
But if you look at the bigger picture, investing today will probably yield huge returns – even after the market crashes for the umpteenth time. And markets that crash with regularity are nothing new.
Bitcoin is just garnering popularity at such speed that we see things play out in a shorter time frame.
