- Published: Monday, 03 March 2014 07:54
- Written by Editor
While Bitcoin has proved to be extremely resilient in the face of the Mt. Gox crash, there are still many hurdles to overcome if Bitcoin is to become a global force as an alternative to the current broken and corrupt global financial system. The largest hurdle overall is general mainstream acceptance of Bitcoin as a store of value, for commerce and for investment and speculation, perhaps against altcoins, as with the existing forex markets.
Here are six of the most crucial hurdles to be cleared.
Regulation is another name for control, where the governments would take control of Bitcoin and dictate how it would be used, thereby totally destroying the freedoms, liberties and choices associated with it. This is particularly dangerous because totally corrupt governments and politicians who serve themselves and not those who elected them are in turn bought and paid for by corrupt corporations including banks which see Bitcoin as a threat to their own fortunes and ability to control the population by controlling fiat currency. A very recent example of this was an attempt by Senator Manchin, who is funded by J. P.Morgan, to ban Bitcoin - this is the tip of the iceberg.
Bitcoin itself of course can never be regulated, it is impossible being a protocol and distributed peer to peer network. What can be regulated are centralised weak links in the Bitcoin chain, especially exchanges. It is clear therefore that centralised exchanges have no future while subject to regulation, and must either move offshore to jurisdictions beyond the reach of regulators, or must evolve to become like Bitcoin itself - peer to peer.
This is a really major issue and one that is not as yet being taken seriously. There are countless hackers in the world who operate almost every type of scam and fraud imaginable, sometimes just for the challenge or revenge but often for financial motives to steal money as we see in the "phishing" scams. Hackers will be very highly motivated to go after Bitcoin because it is an easy target, new users are not very sophisticated in its use, and of course can be disposed of for cash very easily and anonymously.
While Bitcoin sites such as exchanges and wallets will always be a major online hacking target, by far the biggest threat are computer trojans that can steal private keys, log passwords and much more. Computer users are extremely oblivious to trojans generally, almost every computer having at least some. There will be millions of users losing all their Bitcoin through trojans, thus eroding confidence and eliciting a major mainstream media backlash and propaganda campaign to discredit Bitcoin, as they are now over Mt. Gox.
We have addressed the regulatory risks associated with exchanges above, but in addition exchanges represent other major risks. As witnessed in the Mt. Gox debacle, exchanges are a major central point of failure that can result considerable losses of Bitcoin and damage to in the mainstream as we have witnessed by the recent extreme mainstream media disinformation campaign which seeks to link Bitcoin with Mt. Gox which could easily happen again to with another exchange. While losses by by users incurred by using an exchange as a bank are entirely the responsibility of the user, there will always be a constant stream of newcomers to Bitcoin making the same mistakes.
There is always a catch 22 with any new technology between availability and mainstream acceptance. With the first CD players for example consumers would not buy until their favourite music titles became available and the music publishers would not publish music on CD until the CD player market was big enough. Same with DVD later. People would not buy early fax machines because those they communicate with did not have one - and so on.
So a major factor in mainstream Bitcoin adoption depends on the shops and services that people use accepting it. One company that could take a lead here and provide Bitcoin with a massive boost is Amazon.
While most of us using Bitcoin find it trivially easy to use and manage, it has to be kept in mind that the vast majority of computer users are not technical at best, and often technophobic. For many the maximum that can be achieved is pushing the on button of the computer, logging in to Windows and loading a browser to surf the net.
Before Bitcoin can become mainstream it needs to be as easy and convenient to use as a credit card or at least a smart phone, as well as secure from easily losing Bitcoin due to theft, loss of private keys or deletion, so even an 80 year old granny can use it. While PC based systems may be beyond most users for technical reasons, the future is probably smart phone based Bitcoin and custom Bitcoin devices that can be placed on a keyring or worn around the neck on a chain for example.
This is another major factor that can greatly suppress Bitcoin. If users and merchants are to exchange fiat currency for Bitcoin to purchase goods and services, then the relative value must remain fairly constant as with existing currency pairs. One of the major factors affecting Bitcoin is a lack of liquidity due to the relatively small amount in general circulation and the lack of active trading with derivatives etc which provide stability and an active two way market. Other factors are situations such as with Mt. Gox which causes extreme sensitivity to news and situations and thus panic buying and selling.
One of the major reasons behind this is that although there are 12 million Bitcoins or so that have been mined, the vast majority of these are being hoarded in the hope of reaping large profits in the future - which is a reasonable expectation. So the amount of Bitcoin actively circulating and being traded and spent is maybe a couple of million - no one knows - which is an illiquid market relative to fiat currencies and commodities.
Over the years the price will become more stable as Bitcoins are transacted and traded instead of hoarded, and more are mined, but in the meantime other mechanisms are required. Conventional commodity and other markets use futures to provide liquidity and smooth volatility as well as other financial instruments such as options. This would be extremely dangerous for Bitcoin due to the fact it offers governments and banks the ability to control the price of Bitcoin as they do with Gold for example which is grossly manipulated by the government to suppress the price against the US Dollar, to give the illusion that the US Dollar is stronger than it really is. Each available ounce of Gold ever mined has been sold 120 times over - 120 claims to each ounce of Gold due to manipulation, whereas the true Gold price based on supply and demand should be orders of magnitude higher.
There is a possibility of a blockchain based, distributed peer to peer futures market parallel to Bitcoin, configured so that abuse by governments and banks cannot happen in the same way as with Gold and Silver.
Bitcoin clearly has many hurdles to leap on its way to becoming the de-facto global monetary system, but with the extremely bright and enthusiastic people behind Bitcoin, the investment in its future and outstanding global support, none of these hurdles are insurmountable and will be surmounted sooner or later.
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