Bitcoin might achieve new heights soon

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17:55, 4 September 2017
Bitcoin might achieve new heights soon

Author :

Experts believe that bitcoin's price could hit $100,000 per coin if it continues to follow one of tech's "golden rules" — Moore's law

17:55, 4 September 2017

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On the night of September 2, the Bitcoin exchange rate for the first time exceeded the $5,000 mark for the unit (according to CoinDesk).

Bitcoin investor and Harvard academic Dennis Porto notes that bitcoin's price could hit $100,000 per coin if it continues to follow one of tech's "golden rules" — Moore's law.

"Moore's law specifically applied to the number of transistors on a circuit but can be applied to any digital technology," Porto wrote in an email to Business Insider. "Any technology that is growing exponentially (i.e., 'following Moore's law') has a doubling time." Since bitcoin's inception, according to Porto, its price has doubled every eight months. Accoring to him, by February 2021, it could be worth over $100,000.

During its existence, the price of Bitcoin has been changing. The first purchase for the Bitcoin was made in May 2010, then two pizzas costed 10 thousand coins, but a month later, this amount of Bitcoins was equivalent to 600. There was a market on which Bitcoin exchange rate has grown rapidly - 6 cents per unit in July, up 50 cents in November, while the total market size was estimated at US $ 1 million. In February 2011, the rate of one coin was equated to the dollar. In April of that year, the aggregate amount of Bitcoin market exceeded $ 10 million. During 2016, Bitcoin price has increased by 123%, easily surpassing all assets, including shares (Standard & Poor`s 500 index rose by 9.5%), crude oil (up to 45%), and natural gas (59%). For the second consecutive year, digital currency is ahead of all other assets in terms of profitability. In 2015, Bitcoin price has risen by 35%.

In 2011, Bitcoin has experienced a series of hacker attacks, a serious blow to the rate of the virtual currency. First, one of the users claimed that he stole 25 thousand of coins, which was $ 375 thousand. In a few days, open data exchange framework was broken, and 60 thousands usernames and passwords became public. The same day, hackers took over the account of one of the administrators of the site, reduced the rate of Bitcoin from $ 17 to 1 cent per unit and tried to buy a few thousand coins. Exchange was closed for a week, and as a result all prices have been restored. After that Bitcoin was considered an alternative to traditional currencies.

The process of issuing any crypto currency is strictly fixed in an open electronic account book, which is called a blockage, or a digital database for storing data. All transactions are recorded in chronological order and are available to anyone.

All the data about the number of bitcoins of the user are stored in a binary file, which is called a purse. The wallet shows the current balance, the transaction history and the addresses for sending funds. Since all transactions are stored in a distributed database, the user's computer does not need to have a permanent network connection to receive bitcoins.

Bitcoin payments are usually shown to the recipient almost instantly, but first as "unconfirmed" because the system cannot yet guarantee the persistence of such a transaction. Transaction might be invalid due to transaction conflict (for example, when two recipients have the same bitcoins). This can happen when there is an error in the sender's software or when he intentionally attempts to fraud.

The process of confirming a transaction is achieved by solving a computationally complex challenge-confirmation. It is based on transaction data, as well as the entire previous transaction history. This process makes it impossible to rewrite the transaction history without having more processing power than the other Bitcoin networks. Nodes that process transaction units are rewarded with a fixed number of bitcoins that "arise from the air," as well as any commission payments associated with the transaction process. This compensates operators for the processing power they have spent, and also distributes the wealth in the Bitcoin system as a whole. The complexity of the confirmation task is automatically adjusted by the system so that the average time between processing two blocks is 10 minutes. All participants in the system check the strength of each transaction and each block, and ignore those that violate the rules. These are, for example, blocks that create an incorrect number of bitocons, or transactions with a double expenditure of funds.

Related: Cost of Bitcoin reaches historical maximum

Mining of Bitcoin is reduced to solving a certain complex crypto problem by computers - creating a block of data in a chain. The bitcoin system is designed so that it is possible to "get" a new block once every 10 minutes. To comply with this rule, the complexity of the computation increases all the time. Therefore, no matter how many computers in the world are working on the task, they cannot create a block faster.

The prime cost of mining (the cost of equipment, electricity) is constantly growing. At present, large computing power is needed for bitcoin mining, and it is useless to do mining on an ordinary personal computer. This fact creates the internal cost of bitcoin. It consists of the cost of equipment that is amortized during the time of mining, the electricity that is spent for these operations, the physical and intellectual costs carried by the programmers.

The main advantage of Bitcoin is decentralization. The central control body of the network does not exist, the network is distributed to all participants, each computer that produces bitcoins is a participant in this system. This means that no central body has the ability to dictate rules to the owners of bitcoins. And even if some part of the network goes offline, the payment system will continue to work stably.

Related: Legal status of Bitcoin in Ukraine to be considered in August

In addition, the system is easy to use. Creating a bitcoin-purse and getting ability to immediately use it will take no more than 5 minutes. Without any questions or commissions. It does not disclose personal data and it is completely transparent (Bitcoin stores the entire history of transactions that have ever occurred and anyone can see the bitcoin accounts of other people).

Criticism of bitcoins appeared just after the system was launched.

A number of experts declare about dishonest initial distribution. It is claimed that bitcoins are distributed as a reward for solving a complex task of supporting the protocol. Now 500,000 times more operations are needed for creating one coin than it used to be in the very beginning. The more people join the community - the harder it becomes to generate coins.

Some risks also bear the decentralization of the currency. Experts argue that the anonymity of the Bitcoin payment system prevents the state from controlling financial flows.

In addition, the use of Bitcoin in the shadow economy makes it possible to ensure that national authorities do not control the trade in such goods as weapons or drugs.

There is also the opinion that Bitcoin might be another financial pyramid. In particular, these pluses and minuses are a consequence of the fact that the legal status of Bitcoin differs in different countries, although no country has officially recognized it yet, having fixed it in the legislation.

Related: Alternative Money: Why more and more countries recognize cryptocurrency?

In some countries bitcoin is officially permitted; it is treated as a commodity or an investment asset for appropriate taxation. For example, in Japan, bitcoin is a legal kind of payment, in Germany it is called a monetary unit.

In China and Russia, bitcoin is banned, which does not prevent Chinese users from being world leaders in the field of mining due to the availability of the largest production capacity. In Switzerland, legislation treats bitcoin as an ordinary foreign currency.

Ukrainian government also tried to relate to deal with the crypto currency: in November 2016, National Bank banned the circulation of Bitcoin in the country, citing the possibility of its use by terrorists and the threat of using it to launder money. However, perhaps soon everything will change. A few days earlier, the National Bank was informed that they had considered the legal status of Bitcoin at the next meeting of the Financial Stability Board, which was to be held at the end of August.

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