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Quo vadis Bitcoin?

btc logo At first glance,  it was a fantastic year for Bitcoin, with the price of one Bitcoin increasing more than tenfold to over 16,000 euros in some cases. However, if you take a closer look at the “cryptocurrency”, it quickly becomes clear that not all that glitters is Bitcoin gold. To start trading or investing yourself in BTC you need a good exchange, pick one listed on this website.

Bitcoin has lost out significantly compared to other cryptocurrencies. From the market dominance of 85 percent (Bitcoin’s share of the total crypto market) at the beginning, just about 40 percent remains (current chart on this). The value of the second largest cryptocurrency (Ethereum) has increased a hundredfold in the same period.
The ongoing debate about the urgently needed scaling roadmap has deeply divided the community. To the point that even long-time advocates have turned their backs on Bitcoin. The ‘Bitcoin Cash’ fork was a direct result of this. The sometimes very high transaction fees are on the one hand a sign of success (= many transactions), but on the other hand they make Bitcoin unusable for daily use. That is why, for example, many exchanges also offer ETH trading pairs.

As far as the price is concerned, we don’t want to make a forecast here but there are a lot of opportunities with new services and products on the market. On the one hand, because we believe that this is impossible. On the other hand, we do not see ourselves as investment advisors. This article is only intended to look at the opportunities and risks that we forecast for Bitcoin in the next one to two years. None of the information provided here should be considered investment advice.

Bitcoin still has the network effect on its side. It probably also attracts fresh capital first. But the trend does not look good compared to other cryptocurrencies. Above all, the scaling problem, which has still not been solved, and the associated question of the really real benefit of Bitcoin are depressing the outlook. In addition, there is the difficult community and the perceived sluggishness in terms of innovations in development. Moreover, challengers like to point fingers at Bitcoin’s immense energy footprint.

Big Money and the Network Effect

Bitcoin remains the best-known cryptocurrency and. As the currency of origin, it benefits immensely from the network effect.
While other asset classes (stocks & co.) would hang seasick over the railing in the face of Bitcoin price fluctuations, BTC has almost become something like the “safe haven” compared to other cryptocurrencies. Institutional investors or even Wall Street, who for the most part are still watching this regatta skeptically from a helicopter, will probably get their feet wet with the “big guys” (Bitcoin, Ethereum, Litecoin, etc.) first before venturing into the shallows of the altcoin fairway (so…enough metaphors now…). It will continue to be dominated by the most important question. By the way, it does not only refer to Bitcoin, but would also extend to many other cryptocurrencies if they were so successful: How does Bitcoin manage to process significantly more transactions without losing decentralization and thus protection from regulation and censorship?

Quite possibly, the answer to this question will determine Bitcoin’s long-term future, because: If the scaling problem is not solved, Bitcoin will remain a network on which only larger amounts can be transferred due to transaction fees. Many business models are no longer sustainable. And certainly not the original vision (see Satoshi Nakamoto’s whitepaper) of “peer-to-peer electronic cash.”

It is questionable whether the current price, which reflects the future benefits, is still justified. However, if Bitcoin can be made attractive again for microtransactions through optimization and “layer 2” solutions such as the Lightning network, Bitcoin’s network effect could be enough to turn the tide once again.

The real-world benefits of Bitcoin

As mentioned above, many companies and projects have now turned away from Bitcoin (Microsoft, Stripe, Yours, …) because their business model or intended use is not compatible with high transaction costs and/or long confirmation periods. So the question remains: what is the value of Bitcoin and beyond? because: Something is only valuable if it has limited availability and utility. It is undisputed that BTC is the gateway to the world of cryptocurrencies. All other cryptocurrencies are bought primarily with Bitcoin. Every exchange has trading pairs with BTC, but not necessarily with ETH. But again, the high transaction fees are causing traders to increasingly switch to other trading pairs.

Moreover, the only benefit of Bitcoin (which should not be underestimated) seems to be the “store-of-value” aspect. No other cryptocurrency can boast these characteristics:

  • has been running for over nine years without incident at the protocol level
  • Has the largest miner computational power and thus the highest level of security
  • is apparently immune to any attempt to subvert the system
    has held value very well despite intermittent crashes.

These are characteristics that a digital gold substitute must demonstrate. This plus speaks in favor of Bitcoin.

Bitcoin’s “waste of energy” by the miners

One thing up front: no one calculates how much electricity the Internet “consumes,” or how much is “wasted” on building highways and mining gold. Now, a big part of the blockchain breakthrough is based on the fact that “proof-of-work” has made decentralized consensus on the current state of transaction history in the blockchain possible in the first place.

In other words, in theory, the energy expended by mining is necessary to keep the system robust and secure.

In practice, however, there are now other systems that claim to be sufficiently secure as well and manage without miners. Proof-of-stake (Lisk, NEM, Cardano and soon perhaps Ethereum are among them) is the best known, but DAG-based cryptocurrencies such as IOTA or Nano are also taking other paths. Of course, they need to show a similar “long” history without incidents as Bitcoin has done before they are considered recognized in this respect.

The community and the young talent problem

If I were a developer looking for my future in the blockchain space, would I start in the Bitcoin community? Definitely not. The climate is too toxic for that, and innovations that make it into the protocol are as rare as Satoshi Nakamoto’s television appearances. But a healthy community that attracts bright minds is one of the most important factors in the success of open-source projects… Unless Bitcoin’s sluggishness evolves into the feature of the system whose rules are the only ones among cryptocurrencies that can’t even be changed by the core developers.

A fork is the splitting of the blockchain into two versions that are no longer compatible. It has emerged as the only way to update the protocol when part of the community has different ideas than the core developers. However, new coins are created as a result.

Bitoin will certainly not be knocked off its throne overnight. But the trend is clear in our view. We join the recommendation to stop using Bitcoin on crypto exchanges. As a substitute, we advise buying the other cryptocurrencies best via ETH. As the trading volume (and liquidity) on exchanges increases, the number of trading pairs without BTC participation will also increase. If this trend continues, this use of Bitcoin would also disappear, leaving only the digital equivalent of “storing gold in the basement” as a use of Bitcoin. Is that enough?

Conclusion

Even if the above arguments suggest a rather pessimistic outlook on Bitcoin’s future, one should not underestimate Bitcoin’s resilience. After all, Bitcoin has already died circa 250 times. Nonetheless, we predict “The Flippening”, which is when Bitcoin will no longer be the top cryptocurrency. However, we do not dare to predict what this will mean for the price.