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Reliability of the Bitcoin economy

Bitcoin economy is still very young despite its relative strength. It is interesting to question the reliability of Bitcoin.

A strong protocol

The protocol that fuel Bitcoin is apparently infallible. Even if we can never exclude the idea that a flaw may one day be found, this scenario is unlikely. Cryptography that protects Bitcoin also protects banks since many years and Bitcoin has already withstood many forms of attack. If Bitcoin should encounter difficulties, they are much more likely to be caused by the way it is perceived and used than because of a programming fault.

Confidence in Bitcoin

Thus, the biggest risk in Bitcoin is based on people confidence. In the same way as any other currency, the value of Bitcoin depends on supply and demand. Which implies that bad news can affect market confidence and lead many investors to sell their Bitcoin, causing it to lose value. Just as this same confidence can bring other investors to take advantage of these falls in value to buy cheap Bitcoin, making it increase in value again.

This is why Bitcoin should be considred for what it is, a currency experiment. Bitcoin has already suffered from tragedies and drastic falls in its value. Especially when main bank exchange Mt.Gox has been attacked. However the fact that Bitcoin has survived these severe blows are a good indicator of its resilience potential.

Bitcoin volatility

Unlike conventional currency, no central bank, nor any other organization has the power to create or destroy Bitcoins to manipulate its value. The value of Bitcoin is always an accurate reflection of supply and demand. And it is more volatile than other currencies, which means its value can vary significantly over short periods.

In theory, the value of Bitcoin is expected to stabilize with time following its adoption. Because every sale and purchase within a large and diversified economy has little impact on the rest of the entire economy. However, the question is precisely to know whether the volatility of Bitcoin will prevent it from developing until it achives this status. Or event if this status is only theoretical. Only the future will show the answer since this type of economics has no historical precedent.

Nonetheless, Bitcoin has several unique qualities that may allow it to penetrate several markets. Including its interoperability, its network being free of chage, its security and its global availability.

Legality of Bitcoin

Legality of Bitcoin is a concern that is hard to dispel. Bitcoin always acquire more credibility and legitimacy over time. There are even services such as Paymium that works under the same jurisdiction as banks. However, there is no doubt that governments may be sharply divided on the complex issue of Bitcoin. Especially where Bitcoin is a loss of power and structural change existing monetary.

Nonetheless, Bitcoin has also many advantages to be considered a legitimate currency. Not to mention that some of its properties make Bitcoin a good testing ground to develop potential solutions around financial crises looming over the economy. Also, Bitcoin is not expected to be the perfect currency to perform criminal activities because the anonymity of Bitcoin is partial. The transaction log on the same network Bitcoin is instead a wonderful tool for conducting criminal investigations.

The feasibility of banning Bitcoin is also difficult to consider. Firstly, since various currencies online are already authorized which would complicate the creation of a legal boundaries. But mainly because the Bitcoin is a decentralized global network, which means that on the supposition that the Bitcoin would become illegal in one country, it would still continue to function. At most, a ban may reduce the confidence of users but there is in fact no way to close the Bitcoin network.

Nevertheless, it is impossible to predict the future of Bitcoin and it is prudent to monitor the situation.

Profitability of Bitcoin mining

The Bitcoin mining system is at the heart of what makes the system works. With this system, anyone who decides to invest in hardware for the Bitcoin network can be rewarded by receiving a portion of the new BTC (bitcoins) created. However, given that the creation of money will gradually decrease until it stops when 21 million BTC are outstanding, there is a risk that the system will become less profitable.

To overcome this problem, it will be required that a sufficient amount of transaction fees are offered to Bitcoin miners, so that many honest investors don't leave the network, making it weaker to attacks. Everything seems to indicate, however, that the network has a potential development well enough to make this transition over the years.


More Bitcoin statistics

Blockchain shows a wide range of statistics about Bitcoin.
BitcoinCharts shows specific charts about the value of Bitcoin.