SINCE its inception, the market bitcoin price falling 2014 bitcoin has experienced one of the most remarkable roller coaster rides of all time. To answer this question, we need to look at the fundamentals.
A glaring problem then becomes apparent. The problem is that these economies of scale are inconsistent with long-run competition. This implies that the bitcoin system is not sustainable and must therefore collapse. Indeed, these centralising tendencies are already playing out in the bitcoin mining industry. Mining pools are now so big that the original atomistic competition has given way to oligopoly, and there is concern that these mining pools are big enough to threaten the system by subverting the transactions validation process for their own ends: for example, by mounting some kind of double-spend attack. However, in recent months, one big pool, GHash.
IO, has openly rejected that idealism and now poses a major threat to the system. The bitcoin system is thus already reduced to the point where it is relying on trust in the dominant mining pools not to abuse their power. However, distributed trust is the core of bitcoin’s value proposition. In the meantime, there is nothing within the bitcoin system to credibly shore up confidence. The sticking plaster solutions that have worked up to now cannot work indefinitely. At the same time, unlike gold or tulips, bitcoins have no alternative use. There is no reason why bitcoin should be exempt from the same fate.
For any investor, the rational decision is to sell before the roof falls in. Kevin Dowd is professor of finance and economics at Durham University and a partner in Cobden Partners. 32nd Cato Annual Monetary Conference, Alternatives to Government Fiat Money, at the Cato Institute in Washington, DC today. To bring you the best content on our sites and applications, Meredith partners with third party advertisers to serve digital ads, including personalized digital ads. Those advertisers use tracking technologies to collect information about your activity on our sites and applications and across the Internet and your other apps and devices.
Many thousands of articles have been written purporting to explain Bitcoin, the online, peer-to-peer currency. Most of those articles give a hand-wavy account of the underlying cryptographic protocol, omitting many details. Even those articles which delve deeper often gloss over crucial points. My aim in this post is to explain the major ideas behind the Bitcoin protocol in a clear, easily comprehensible way.