Bitcoin: The War for the Future

The war is in full swing. Warriors dressed in suits and hoodies are lining up on both sides. This is probably the first clash in history where every person on the planet has an equal say in the outcome and in the future. I’m talking of course about Bitcoin.

Bitcoin vs. the World

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Cryptocurrencies can fluctuate widely in prices and are therefore not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Your capital is at risk.
The arguments are certainly compelling and everybody seems to have a unique and equally valid opinion.  Many people have a vested interest to see the crypto-currency succeed or fail. Some are simply advocates of change, others are just trying to uphold the status quo. Nobody can tell the future.

Famous investor Warren Buffet opposes Bitcoin, very likely because he owns a large stake in credit card companies and other payment processors that Bitcoin is competing with.Our own CEO, Yoni Assia is a firm believer in the magic of Bitcoin. Not only does he hold them in his personal portfolio, but he also actively promotes and hosts Bitcoin hackathons meetups and other development projects.

There is even a very interesting bet going on right now between a very famous economist and a world renowned venture capitalist. Click here for all the details.

Famous investment firm Goldman Sachs has recently published a 25 page report interviewing some of the leaders in the Bitcoin war. They’re asking some tough questions and here are some of the answers.

What is Bitcoin?

Goldman Sachs defines Bitcoin as a decentralized network that allows for the transfer of ownership directly from one person to another, just like using cash. However, unlike cash exchanges, every Bitcoin transaction that’s made is recorded in a large shared file known as the “block chain”.

Chain of Bitcoins

The idea behind the block chain is that it basically puts the general public in charge of policing the system. Anybody can download the block chain and instantly see all the transactions that have ever occurred. So if you want to make sure that your transaction went through, all you have to do is look at the block chain file. In the minds of many analysts, this type of public record keeping system is the main and most important innovation of the entire Bitcoin network.

Due to the growing popularity of the crypto-currency, the block chain is growing at an increasingly fast rate, going from 10GB to 15GB in the past 6 months. Though some analysts are expressing concern, the Bitcoin community on Reddit are not phased. There are many possible solutions that can be implemented when the time comes. Open Source technology has a tendency to grow stronger and more robust as it gains in popularity, not the other way around.

What happens when bitcoins get lost?

It’s not like losing your wallet, in which case the money goes back into circulation. If someone loses their password, like in this famous example, the coins in their digital wallet are gone forever and removed from circulation. The concern is that in the future, when many coins will have been lost forever, it will decrease the liquidity of the remaining coins. Of course, bitcoins are divisible to the 8th decimal place, so they can retain liquidity even while rising in value. So even if one bitcoin is worth $1000, I can make a purchase with 0.00001 bitcoins, worth 1 US cent, presuming that I ever find such a bargain!

Furthermore, despite the fact the number of Bitcoins is currently capped at 21 million coins, the Bitcoin network is in fact setup to allow for the issuing of more coins. If there is an agreement among the network. more coins can be issued. This would require 51% of the computing power in the network.

Rows of computer servers

Now, I know what you’re thinking, what would it take to get this kind of computing and control the network. Apparently, there is a Bitcoin mining group in Eastern Europe with enough power to do this. However, they have decided for the time being not to because it doesn’t fit their interest. Creating more bitcoins would only devalue the ones that are already in circulation and could have a destabilizing effect on the entire network. As time goes on and the network grows, gathering the necessary computing power becomes less and less realistic.

Is it safe?

There have been many many issues of hacking and theft of bitcoins as well as websites that have gone offline or disappeared leaving many of their clients high and dry. There’s no insurance or reparations in Bitcoin. All transactions are final. So if a hacker does manage to get a hold of your personal password, he can easily empty the contents of your digital wallet. However, this is seen as more of a feature than a setback. Merchants no longer have to worry about their customers canceling purchases. Just like cash, the responsibility is on the buyer to verify that he’s getting what he wants before making the payment.

Bitcoin padlock

Bitcoin also virtually eliminates the mess that arises from credit card theft. Let’s say for example you use your credit card to order a pizza. You call up the shop and give your credit card details to the cashier, including the 16 digit number on the front, the expiry date, and the last 3 digits (cvv code) on the back. In short, you’ve just giving your complete card details to a total stranger who could then use them to make a transaction of his own. With Bitcoin however, all you’re sharing is your public wallet ID, while the password is never revealed.

If you’re looking for additional safety in storing your bitcoins, you may also consider cold storage. Meaning that you can save your wallet and password on a device or disk on key that is not connected to the internet. This would make it almost impossible for hackers to find. Since you only need the password for making payments, you can still receive bitcoins while you’re details are stored safely offline.

Is it Money?

According to Goldman Sachs, the short answer is no. At this time Bitcoin does not have the necessary liquidity or stability to be considered money. Meaning, it is not at a point that most people can easily make a payment using bitcoins and the price is far too volatile for people to use it as a way to store wealth.

Daniel Masters of Global Advisors says he sees Bitcoin mainly as a commodity like Gold or Silver. It is influenced by news events and  paradigm shifts that create short term trading opportunities. In addition, it presents an excellent opportunity for long term investing.

What about the future?

People like Fred Ehrsam from Coinbase have a different view to Goldman. Fred shows how at the moment, while the majority of people are still buying bitcoins for investments, there is a growing percentage of bitcoin owners who use it to make online payments. The amount of investors in Bitcoin has gone from 95% down to 80% in just a year’s time.

Also, many Coinbase clients choose to automatically convert their payments into local currency. They don’t really care what the price of a bitcoin is because they aren’t taking any exposure. They are simply taking advantage of a cheaper and more efficient payment system. Processing a transaction by Credit Card these days costs about 2% – 3% and offline methods like Western Union charge up to 10%. With Bitcoin, all transactions of any size can be sent for as little as 1%.

Fred, also sees much more potential in the future technology of Bitcoin and envisions a world where “you should be able to walk through a door because you send a small fraction of a bitcoin.” This is a very similar vision to eToro’s, who is currently sponsoring colored coins project. This is a unique way to tag bitcoins for specific use and it enables an entire new world for business, pleasure, and cyber security.

We’ve also recently added bitcoin CFDs to our platform, So now our clients can invest in Bitcoin without the risk of theft by hackers. If you are among those who feel that bitcoin will rise in use and value over the next few years, feel free to add them to your portfolio through the link below. However, Bitcoin is considered one of the most high risk investments, even by its biggest advocates. So please exercise caution by only adding a small percentage of your total investment portfolio.

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Cryptocurrencies can fluctuate widely in prices and are therefore not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Your capital is at risk.