Bitcoin about to fail

Every Reason Bitcoin Will Not Fail. 19 minute read. failure. Over the years we've heard many reasons why Bitcoin will fail. Bitcoin has been.
Table of contents

• Evolution of crypto
• Is Bitcoin Here to Stay?
• Bitcoin is ‘too big to fail’ now, says official of major U.K. crypto exchange
• 4 Reasons Bitcoin Could Fail
• Every Reason Bitcoin Will Not Fail

Over the last 10 years, the U. Bitcoin is no nearer universal acceptance than it was when it started. Frances Coppola, a CoinDesk columnist, is a freelance writer and speaker on banking, finance and economics. But bitcoin has survived two major crashes and numerous smaller ones, and is now on the way up again. Unlike many smaller cryptocurrencies, its value has never fallen to zero — indeed, over the 12 years of its existence, its value has risen considerably. Volatile though it is, it has demonstrated that it can hold value over the longer term.

It has achieved a degree of maturity as a store of value, though not as a medium of exchange. Speculative high-yield asset, yes.

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Long-term store of value, maybe. Medium of exchange, not so much. But as any investor knows, past performance is not a guide to future returns. What gives fiat currencies value — and how do they lose it?

Of course, neither applies to bitcoin: it has never been pegged to gold, and no government accepts taxes in it. So are there other ways in which a currency can acquire and hold value over the long term? Underpinning both the metallist and the chartalist view of fiat currency value is a deeper fundamental: the belief that what backs the currency is itself trustworthy.

Evolution of crypto

In the case of metallists, it is the belief that gold will always be valuable. This belief has been tested over millennia and never failed, so it is probably reasonable. Less reasonable is the notion that a currency currently not pegged to gold is valuable because it used to be pegged. However, many metallists believe fiat currencies will eventually be re-pegged to gold more on this shortly.

For chartalists, the underlying belief is the government is capable both of imposing tax liabilities and collecting them. What gives currency value, therefore, is trust in whatever is backing it.

Is Bitcoin Here to Stay?

So what is backing bitcoin? The sort of social and political collapse that would destroy the dollar would surely also destroy global civilization. This is a statement of faith. If it were, it would never have been hard forked. But Fidelity Digital Assets has an answer to that one too. Network effects are particularly strong in cults, and the incentives of cult members are not necessarily financial. True believers remain invested in bitcoin and actively trading even when the price is falling catastrophically, because of their faith bitcoin will eventually become the heart of a new world order.

While they exist, there will always be an incentive to mine bitcoin — and while that remains the case, the price cannot fall to zero. So the faith of bitcoiners is what gives bitcoin its value. But is their faith alone enough for bitcoin eventually to replace the U. There are at present no indications whatsoever that the world is likely to ditch the dollar anytime soon. If anything, the present pandemic has increased reliance on the dollar , forcing the Federal Reserve to provide more liquidity to financial markets.

Even in crypto markets, there is a growing need for greenbacks — after all, what are stablecoins but a means of tying cryptocurrencies ever more tightly to the dollar? So it was a bit surprising that India tolerated the Bohemian idea of cryptocurrencies for so long. But now the government plans to introduce a new piece of legislation that will outlaw Bitcoin and other cryptocurrencies.

India also plans to introduce its own digital currency, thus making crypto uncool.

In fact, it would not be a cryptocurrency if a government issues it. It is not only India, governments across the world have started banning them.

The cryptoprophets expected this, but they underestimated the power of the state. That the state is an actualization of an ethical idea might be a lie, but a successful myth. And old successful lies are hard to dislodge. Since , when Bitcoin was created, some of the brightest tech Bohemians have sold the world a lemon. That a new kind of global currency will end the monopoly of governments and central banks over money.

This new currency will not exist in physical form, it will be created from nothing by a vast network of computers as they perform a vast number of computations to randomly create it.

The currency will have no intrinsic value beyond the perception that it has value, and its own predetermined scarcity. The lure of a cryptocurrency is that it can make transactions between two individuals secure and possible without inefficient intermediaries like banks and rule-makers like governments. It offers complete anonymity and freedom—two things that governments, including democratic ones, dislike. In fact, governments dislike even their own currency notes, as it provides anonymity and too much freedom.

So, why did some people think governments would allow cryptocurrencies to thrive, or even survive? Why would governments permit a system that could end its own relevance? But then, who would have thought in the golden days of monarchy that all of the affluent world and most of the poor world, too, will come under the spell of a laughable idea called democracy where ordinary people elect who wields power over them? Cryptocurrency is only a type of extreme financial and emotional democracy.

Even so, it is doomed in its present form. Its technology platforms, like blockchain, will become standard as governments themselves adopt them, but the cryptocurrency as we know it today will stand no chance against fiat. Fiat currency is based on trust in the authority that issues it. Bitcoin, on the other hand, is built on a fascinating misanthropic question: Given that two humans cannot and should not be trusted, how can a network of computers confirm that a transaction is fair? The way people are drawn to anonymity, you would think they do something very interesting and naughty every day, and the way they react to security, you would think some transaction vanishes from their digital ledgers every day.

In reality, most people are mostly dull. Yet, there is no doubt the world is in the grip of a Bitcoin mania. And it is entirely a creation of extraordinary storytelling. It has a hero who is mysterious, brilliant, moral, austere and philosophical.

His name is certainly not Satoshi Nakamoto. In the aftermath of the financial crisis of , a person who went by that name created, completed or revealed an elaborate computer programme that cryptographers say is an exquisite piece of work, and he also wrote a series of essays laying out the moral reason for a new kind of money—governments and central banks were corrupt and unfit to regulate money. And he raised a philosophical question: Do we need the inconvenience of trust to transact? What if computers make a dishonest transaction so mathematically improbable that it is impossible, and also grants anonymity?

Nakamoto showed that absolute anonymity was possible and not always shady. He even made it look sacrificial in a world desperate for fame. Some people believe he is too good to be a single person; that he is probably a group of people.