The Rise and Fall of Bitcoin has started. The world’s biggest Bitcoin exchange stopped trading on Tuesday sparking concerns about the future of the unregulated digital currency. Is it time to run to the hills and cash in your Bitcoin while you can?
Bitcoin is a peer to peer payment system and digital currency introduced as an open source software in 2009. You can collect Bitcoins through a process called ‘mining’ (the process of adding transaction records to Bitcoin’s public ledger) where new bitcoins are introduced (just like the Central Bank printing more currency), or they can be obtained in exchange for products, services or other currencies (that is for those limited businesses that will accept the digital currency).
As our society becomes more reliant on the internet and online transactions, the push for a centralized digital currency is becoming more predominant. When the Internet was first introduced, it was only accessible by the Military, Universities and Institutions. But it has now become a predominant aspect of modern society.
So it is a prediction that the use of digital currency will become more predominant, potentially taking over the various currencies that are used for different countries around the world. Or will it?
Headlining the news over the last 48 hours is a number of key negative fundamentals with regards to Bitcoin. Firstly there have been cyber-attacks on Bitcoin exchanges, causing panic and fear that the currency could be unknowingly syphoned. And the world’s largest bitcoin exchange, Mt Gox, has gone offline as it has appeared to have lost around 745,000 bitcoin worth $375million.
While there are numerous bitcoin exchanges, if the largest has been hacked, then what has happened to the rest?
The price of bitcoin has plummeted in recent months, losing more than 50% of its value since early December 2013. This activity reflects the collapse of Tulipmania in the 1600’s, which brought on the collapse of the Dutch economy.
In 2011, Bitcoin suffered a massive cyber-attack which it didn’t recover from for 2 years. Just ahead of the current bubble. So how long will it take to recover this time?
Just think, if you had purchased some Bitcoin you would most likely have placed it with the largest Exchange (as a measure of security), and now would not be able to access it. In my view, bitcoin is not going to replace hard currency anytime soon. And if you held any of this digital currency, it might be worthwhile selling while you can before your tulip bulb is worthless.