The Viability of Bitcoin - Research Paper

Introduction

Cryptocurrencies remain popular among customers seeking anonymity and decentralization when executing their transactions. Such reveals in the high usage of Bitcoin for allowing the users to complete secure payments without revealing their names or associating their identity in the transactions. The rapid usage of Bitcoins reflects a desire by investors seeking diversified portfolios. Bitcoin usages vie for legitimacy with a majority population reluctant to embrace it with citing volatility in its value (Kherchi, 2016). Research shows though Bitcoin and other crypotcurrencies are potentially useful by creating a mechanism that addresses weaknesses arising from its problematic implementation that makes current user experiences challenging and unstable.

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The anonymity and decentralization provided under Bitcoin erode viability to replace the conventional currencies. Its form allows its users to remain anonymous when completing transactions. Firstly, Andrianto and Diputra (2017) found decentralization leaves no entity tracking the transactions hence leaving the parties without control over the Bitcoin as a medium of exchange. Secondly, the anonymous trait makes it a safe haven for fraud and illegal activities. The superiority of cybercrime and undetectable malware exposes the Bitcoin users to likely theft online (Kherchi, 2016). The occurrence of such events makes it difficult to avoid given its decentralized nature. Although fraud still occurs within the conventional banking system, the centralized control allows aggrieved parties to seek remedy against the stolen banking credentials and money (Andrianto & Diputra, 2017). The anonymity blend with decentralization leaves the parties without such remedy, particularly in countries yet to recognize and embrace cryptocurrencies.

The decentralization makes it problematic to control the volatility experienced in the Bitcoin value. Foremost, the high volatility in Bitcoin value misses out on its use as an alternative medium of exchange. According to Elizabeth (2017), rapid volatility witnessed in 2017 yields uncertainty on the population that can withstand individuals to place their life savings in platforms and currencies whose value plummets by half within one fiscal year. Additionally, it is irrational for individuals to embrace a currency supposedly as a medium of exchange changing the value from the time of earning and expenditure. Additionally, the viability of Bitcoin as an alternative to national currencies such as the United States lacks from its decentralism (Kherchi, 2016). Ordinarily, central banks such as Fed have control capabilities to check currency volatility through devaluation and appreciation. Decentralism leaves such mechanism difficult to deploy, with buying and selling parties as sole market makers in Bitcoin. Consequently, buyers and sellers lack the capability to peg Bitcoin with other currencies. The absence of controls above makes it possible for a single panic to stimulate the rapid movement that could revise the Bitcoin value to zero as witnessed in 2017 performance (Roth, 2017). From the aforementioned eventualities, decentralization makes Bitcoin as the typical security rather than medium of exchange and storage of value.

The future of Bitcoins competitive advantage being decentralization likens to unstable mirage likely to end with increased regulation. Primarily, the volatility and increased utilization in illegal activities make Bitcoin a candidate of control by central banks. Adopting regulations will reverse the decentralization foundation, thereby equating it to conventional money (Coram, 2017). The nature of Bitcoins manifests characteristics of fiat currencies. Such arises where the government through the central bank declares money the legal tender though not backed by physical commodities. Secondly, Bitcoins lack no wealth value to the coin beside the wealth assigned to them. The existence of this characteristics poses a high risk to investors compared to conventional currencies such as the United States dollar or the sterling pound. Their use as legal tenders has governmental assurances backing their value and use as a medium of exchange (Wadhwa, 2018). Contrarily, Bitcoins lack official backing and only attain value when assigned by users through demand and supply forces operating in a competitive market.

Bitcoins usage relies upon the development and understanding of cryptocurrency concept in the population. Notably, its current use appears restricted to a fraction of the population being a relatively young concept to dislodge the centralized banking system. It leaves many investors wondering its future value and price. The volume appears low compared to increased demand explaining the skyrocketing prices realized in 2017 (Wadhwa, 2017). Furthermore, the development of more coins could ultimately change their valuation and usefulness. The trend reflects in increased speculation led by leading investors, casting more doubt to the public. The presence of quarters declaring Bitcoin as mirage and fraud stimulates rejection by a majority of the population. Leaving the attacks unaddressed may stimulate panic movement whose contagious effects would easily spread leaving the holders with zero value. Continued speculation by investors could spark panic selling leaving the Bitcoin bubble to burst (Kherchi, 2016). The presence of skeptical conclusion casting Bitcoin as a speculative bubble casts more doubt to persuade investment. It explains the rapid loss of Bitcoins value from increased commentaries from respected economists within the financial sector.

The mass adoption of Bitcoins by a partially informed population is catastrophic for its future growth. Principally, the ugly scenes of a stock market crash may prompt such investors to sell rapidly on seeing the decline in the Bitcoins value. The likelihood of hasty responses yields a skeptical response over the stability of the Bitcoins prices from the sudden rise in value (Torpey, 2017). However, like other cycles in commodity prices, the market may correct the Bitcoins value as more opportunities to spend emerge. Still, the viability of Bitcoins remains tied to more people embracing it as alternative money to the centralized banking system. While the security of the blockchain appears a rock solid, its implementation and recent shaping by the market introduces volatility that casts doubts into its viability (Brandvold, Molnar, Vagstad, Christian, & Valstad, 2015). This events limits its adoption and acceptance by the majority population.

A recent slump in Bitcoins value locks its viability in its future usage coinciding with mounting concerns over looming regulation under the centralized banking system. For instance, the cryptocurrency value lost its value by half weighed down by the expected introduction of governmental oversight globally (Brandvold, Molnar, Vagstad, Christian, & Valstad, 2015). Leaving the value determinable by demand and supply forces initiates price manipulation fears. As earlier stated, its susceptibility to hacking during exchanges convinces a majority population to consider it as a speculative asset bubble. The regulatory backlash announced by multiple governments blend with bans issued by Facebook on all forms of cryptocurrency advertisement places investors on more uncertainty edge. The continued tumbling of Bitcoin value by half from $19,511 witnessed in December 2017, invalidates its use as the alternative to conventional currency (Kherchi, 2016). The increased spate of negative headlines delays Bitcoins ability to become a viable medium of exchange.

The implementation of potential crackdown promised by India adds to an already worsening reception that delays the bitcoin adoption. The presence of countries such as India promising to illegitimate crypto-assets while exploring blockchain technology in other aspects invalidates the viability of Bitcoins uses in the global payment system. The inability to penetrate high growth economies such as India amidst $500 million heists witnessed in Japan pushes back its adoption on the global scale (Meyer, 2018). Similar responses in developed markets may restrict Bitcoins usage regionally. That reverses the gains made in the United States exchanges by making Bitcoin future contracts while bans imposed by South Korean pushes it backward. Prohibiting anonymous in South Korea ignites a bank started by China (Wadhwa, 2017). Unless proven that regulatory framework will overcome the uncertainty in its valuation, bans by a section of developed countries push back the adoption Bitcoins.

The attachment of Bitcoin mining to blockchain technology weakens its economic viability in future. Besides analysts casting the cryptocurrency as a speculative asset bubble, mining cryptocurrencies feature heavy-duty crunching of numbers. Primarily, tt involves huge acquisition cost of computers and heaving electricity consumption. The circumstance makes mining expensive. The cost exposure in mining hardly was an issue when Bitcoin value priced above $10,000. However, its crash towards the conclusion of 20017 shows little recovery. Analysts place break-even point in mining activities at $8,600 (Meyer, 2018). Estimating an average electricity costs unit at six cents or a low of three cents would still be expensive for Bitcoins mining to remain economically viable. The trend with TSMC to lower its projection in mining-rig processors. With such an entity generating ten percent of its revenue from mining, it shows more power intensive and expensive acquisitions makes Bitcoin mining unviable (Elizabeth, 2017). According to Morgan Stanley's analysts, the mathematical problems miners solve in the assembly of Bitcoin blockchain leaving the cryptocurrency ability to earn reward difficult. Even where Bitcoin would retain its current value, the above scenario shows it would lose economic viability in the rapid decline of mining profits.

Bitcoin performance resembles the Tulip investors by Dutch in the seventeenth century and dot-com boom in the late'90s. Dutch speculators drove the tulip bulbs prices to unimaginable levels prompting ordinary population to rush into purchases. With a majority of them using their homes as collateral hoping to accumulate wealth, they lost their investment as prices crashed (Wadhwa, 2018). A similar trend appeared when low-level investors lost their life saving following the dot-com bubble burst. Investment in the dot-com companies saw many venture capitalist regard it as the foundation of newer economy aligned to long-term investment outlook. However, the rush only benefitted the already rich who cashed on huge bonuses along the way. Bitcoin pattern shows a similar bubble building that may take longer to burst. The ability to rise to astronomical proportions indicates Bitcoin use as a digital currency (Wadhwa, 2018). A viable currency should show stability to protect the users from suffering remorse when holding or spending Bitcoin. Today, users are prone to fear of losing value.

Like tulip and dot-com investment, Bitcoin valuation rose rapidly affirming satisfaction of greed and speculation. The Bitcoin valuation gained by five million factors from $25 in 2010 to $19,000 by 2017 (Russo & Lam, 2018). Positive prediction in the price to rise in the long-term draws unsuspecting investors similar to the tulip bubble and dot-com boom burst. Individuals hyping the Bitcoins would likely cash...