Crypto Crash and Blockchain Burst

It's May 22nd, 2010 and a developer named Laszlo Hanyecz makes what is likely to be one of the biggest purchases ever processed using bitcoin. A rumbling stomach offers large incentive to trade his bitcoin stash (10,000 coins) for two large pizzas, and he eagerly awaits the delivery. Eight years on, a stash of 10,000 bitcoins is worth over $100 million, and I think Laszlo would agree that even his speedy-delivery wasn't worth the extra cash!

Despite being 9 years into Bitcoin, yesterday market shares crashed by a sudden deficit of over £120billion. As CoinMarketCap removed Korean exchange data from their online records, prices were seen to plummet from $17,000 to a mere $14,000 per coin. With no conduct authority and little legislation to protect buyers/sellers, trading in crypto-currency challenges modern governments and grows increasingly risky. What does the future hold for bitcoin, and could its massive volatility and inflation see a sudden downfall in what many people claim is simply a digital trend?

Sketchy Stocks

Bitcoin to BPS (£) - Google Trends

So firstly, whats with these semi-stable stocks and shares? A quick glance at this Bitcoin to Pounds Sterling conversion makes its immense inflation easy to see. When its release promised pennies to each coin, the steep upward climb shows that investors have reaped the rewards of this new currency, now offering around £10,000 per coin.

Yet, it must be noted that if prices can inflate so massively, what is to stop sudden deflation in the event that a new and better crypto-currency emerges? While Bitcoin dominated over 80% of the crypto-currency market in 2017, it now holds a share of less than 50% (having made way to the value of Litecoin, Ripple and many others). As mentioned, CoinMarketCap's decision to remove some exchange data had tremendous knock-on effects, meaning the rest of 2018 will be spent recovering value 'bit-by-bit'.

Show Me the Money!
Another, arguably more pressing issue, is that bitcoins exist only in a world of their own. They are not tangible and can never be held or shown in a physical form. Unlike a debit card where that lovely number in your account can be withdrawn to physical cash, bitcoins cannot be withdrawn. The entire value of each coin is based on mathematical algorithms and exchange rates, and if people grow increasingly unwilling to trust these statistics, the value of coins will (you guessed it) drop!

Because of this issue, online fraud is at times more successful, as when bitcoins are taken from your virtual wallet there is literally nothing to hold on to. The anonymity of bitcoin also adds to this problem, as buyers and sellers can choose to trade completely anonymously due to the IP address bouncing of browser 'TOR'. This can be evidenced by a hack on the 'Sheep Marketplace', whereby over 5,000 bitcoins were stolen and unrecovered; over £50million with today's conversion rates.

Dark and Deep Secrets 
A lot of Bitcoins initial success can be closely related to its huge use on the dark web, offering anonymity to drug and arms dealers on a site known as Silk Road. This is the reason many call the trading of coins a fraud that will ultimately blow up, being only used by dealers and murderers. It is also argued by many sceptics that you can't invent a currency out of thin air, it simply isn't going to work. Indeed, bitcoins were used to process around $650,000 of illegal trade per day through parts of 2014, and Silk Road had over 13,000 drug listings on its pages in the same year. With these scales of illegal activity already known, it is worrying to predict how much illegal trade goes on undetected in the deepest corners of the web.

You Can Bank on That
Despite all of the negativity and uncertainty surrounding Bitcoin, there is some potential. Billionaire investor Peter Thiel says that people are constantly 'underestimating' the future of bitcoins, as they are 'mineable like gold' and offer a financial incentive to anyone willing to collect them. Another interesting thing to note is that all trade is controlled by the online community of bitcoin users, and requires no bank or secondary authority to oversee the transaction. This allows a faster pace of trade and could be a potential solution for businesses of the future who seek instant payment for their transactions.

Mining My Own Business
While nothing is certain for the future of bitcoin, its current value and massive inflation will continue to attract individuals seeking to make a pretty (virtual) penny. Investing in any stock is risky and the gamble won't always pay off, making it clear to see why high profile companies are currently choosing to avoid crypto-currencies as much as possible. Anyway, I'm off to order a pizza...



Christian Hughes.