For those unfamiliar with Bitcoin, it is a digital asset that made a statement in markets by catapulting high past the value of gold. It emerged in 2009 as a cryptocurrency and a digital payment system (based on coding) that has dominated the market in recent years – and was up 300% in 2016.
Despite the attractive gains Bitcoin has generated, investors still remain wary of the said asset ¬– mostly because they do not understand the technology behind it. The technology is a mere drawback because Bitcoin behaves like a store of wealth that is popular among most – gold.
The traits that allowed Bitcoin to surge as stock markets crash are ones that match our modern global economy. Firstly, there is only so much Bitcoin in circulation, making it finite. Secondly, Bitcoin is secured by the coding that envelopes it. Thirdly, Bitcoin is independent and can in no way be influenced by governments or other currencies.
The problem that Bitcoin has is that it cannot keep up with the demand; the network holding up Bitcoin has to be able to keep up with the increasing transaction volumes. In the end, two solutions were put forward – one that could lower the value of Bitcoin to pennies.
The Bitcoin Core team suggested that the first option was SegWit which basically is a software update in Bitcoin’s code to resolve the present issues – high transaction costs, low throughput and slow transactions. The second option was to drastically change Bitcoin immediately which was clearly not desired.
The potential of the second option occurring alarmed many investors and in fact, Bitcoin’s price fell as many investors sold off their positions, albeit taking profits in the wake of speculation of the proposed changes to the framework. However, the Bitcoin community reached a compromise of incorporating both options – first introducing option one with option two to follow. Since the news of a compromise being reached was announced on July 20, the cryptocurrency went up by 28%.
Finding this solution sounds dandy, especially given that investors were more confident when a compromise was reached. However, the above-mentioned approach received a build-up of criticism due to its discussions being non-transparent to outsiders. In addition to the criticism, another group of miners (Bitcoin Unlimited) stated that they intend to unleash a separate currency known as Bitcoin cash should SegWit be activated. The result would split the Bitcoin chain in two, creating serious problems for Bitcoin users.
The outcome will only be known once until SegWit is released on August 1: Bitcoin’s future is hinged on this single decision.
Disclaimer:
This article was issued by Maria Fenech, an intern at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.