1st August – Rise or Fall for Bitcoin?

(Article written by Maria Fenech, Intern)

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 have allowed Bitcoin to surge as stock markets crash, are ones that meet our modern global economy. Firstly, there is only so much Bitcoin in circulation hence, 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 – this was highly unwanted.

The potential of the second option occurring alarmed many investors and in fact, Bitcoin’s price fell as many investors sold off their positions, or rather, took 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 then later, option two would follow. Since the news of a compromise being reached was announced on 20th July, 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 has 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 is unknown until SegWit is released on 1st August, 2017; Bitcoin’s future is hinged on this single decision.