Earlier this year, bitcoin backers were celebrating because the crypto currency burst through the psychologically important $1,000 dollar mark. What must they be thinking now?
Bitcoin stormed past the $2,000 mark this week on news that the Japanese and Chinese governments are making plans for the long-term integration of digital currencies into their banking systems, and because of the significantly enhanced reputation of digital currencies as a whole.
According to Tech Crunch, bitcoin today accounts for just 47% of the market cap of all digital currencies. The price of Ripple, another digital currency regarded as a settlement protocol for major banks, has increased ten-fold in the past month alone, becoming the second most valuable cyptocurrency after bitcoin in the process.
Ethereum which Tech Crunch labels a “cryptocurrency designed to function as a blockchain-based computing platform for developers”, has seen its market cap increase to nearly $2bn, a 2x increase in a little under one month, which has, in turn, reduced bitcoin’s market cap to 47%, from almost 80% at the turn of the year.
It is this kind of volatility that means that bitcoin, and digital currencies as a whole, are still not entirely trusted. Back in 2013, bitcoin was riding above the thousand dollar mark, only to be brought back down to earth by the Mt. Gox scandal.
The volatility is hardly surprising given that digital currencies have ultimately been designed to disrupt and then replace the existing financial system, which will be challenging, to say the least! In the short term, digital currencies become victims of their own success.
It also means that bitcoin, ethereum, Ripple etc. will be subject to considerable scrutiny. An issue with bitcoin, for example, is the finite nature of the currency.
Because of the way bitcoin is designed, there can only be 26 million bitcoins in existence at any one time, although there is nothing stopping each of those 26million bitcoins being split into 26 million pieces, in theory.
But even so, questions remain around how bitcoin can scale, which could see the cryptocurrency supplanted by rival services.
Underlying all of the currencies is distributed ledger technology (DLT), or the blockchain, which provides a globalised ledger of trades and payments that cannot be erased or manipulated in fraudulent ways, it is claimed.
Again, the blockchain represents such a transformative change to the systems in place at the world’s financial centres, it is not surprising that major financial institutions are proceeding with caution; not least to protect their existing assets.
Long term, however, some analysts have predicted that the piece of bitcoin could reach $10,000.
7 years ago this week, a bitcoin owner used an online forum to ask someone to deliver him 2 pizzas, saying he would provide 10,000 bitcoins to them in exchange for this service.
Another forum user duly obliged. At today’s prices, 10,000 bicoins are worth $21.7 million. We hope they got a stuffed crust, at least, for that price!