Email of the day on Bitcoin
Comment of the Day

December 29 2015

Commentary by Eoin Treacy

Email of the day on Bitcoin

The Reuters' report is encouraging but you say "Bitcoin may succeed or fail". I have heard that it is just another Ponzi scheme that will leave investors holding an empty bag. How likely is a failure? Does anybody know?

Eoin Treacy's view

Thank you for this question as it helps to separate the ideas of how closely Bitcoin resembles a currency from the technology that underlies it, which is called the blockchain. This is important from the perspective of an investor because while the value of bitcoin varies with supply and demand, the blockchain can be developed independently of the value of bitcoins. This is what major financial institutions are now doing and Nasdaq is already testing how to record ownership of some shares via blockchain protocols. . 

There is a finite number of potential bitcoins and creating new ones is a mining process that requires progressively more computing power. Whether Bitcoin or one of the alternatives, such as Litecoin or PPCoin, eventually dominates the market is a separate argument from whether the blockchain technology, they all depend on, will be used by financial institutions to record transactions. This article from the MIT review (dated 2013) spells out these differences. 

There is a lot of emotional commentary when a medium of exchange such as bitcoin can be compared to gold. Both benefit from limited government interference and restricted supply. However, it is their security characteristics which are perhaps most interesting. Gold has long been held as a store of value. Rather than focus on the value part of that sentence think about the storage element. Gold has to be stored somewhere for it to represent an important anchor for personal wealth. For the digital economy we have seen time and again where criminals have been able to reach at will into the databases of corporations and steal our most valuable information. Using blockchain architecture would make that a lot more difficult if not impossible and that is where the investment argument lies. Cybersecurity is a major issue and regardless of whether government likes it or not encryption is necessary. 

While the value of bitcoin will be revised in July and may well rally into that event, this is occurring independently of the research currently ongoing into how to monetise the blockchain. This article from Coindesk may be of interest.


Back to top

You need to be logged in to comment.

New members registration