Disclaimer: The following content is for educational purposes only and is not financial advice. I am not a financial advisor.
In this article, I will not be diving into the intricacies of how Bitcoin works, so for more on that, please check out How and Why Does Bitcoin Work. However, it is still important to understand the following four elements of Bitcoin:
- Virtual currency
- Distributed ledger technology
- Secured by cryptography
Widespread Adoption Is a Must For Bitcoin
The U.S. dollar is one of the most trusted, if not the most trusted currency out there. James Jani, a YouTuber and fellow content creator mentions in The Insane World of Bitcoin., that “The government decrees that it[U.S. dollar] has value and we agree that it does.” This relationship of trust is part of the reason why the U.S. dollar and other currencies are successful.
In Bitcoin’s case, its value is gained through widespread adoption. For example, when various companies started making pledges to allow Bitcoin to be used as a payment method, Bitcoin’s legitimacy increased. This fits in with what Barry Ritholtz, a Bloomberg Opinion columnist mentions in Market Narratives Have Pushed Aside Fundamentals:
“Bitcoin becoming a trillion-dollar asset not only due to the strength of the story behind it — the genesis myth of Satoshi, technology applications of blockchain, the inherent scarcity of mined coins, and the post-financial crisis interventions by governments worldwide — but how that narrative resonates with so many differing factions of investors.”
Elon Musk and others on Twitter have openly talked about their opinions on Bitcoin. Most of their concerns revolve around how Bitcoin needs to be more eco-friendly:
An article published on TRG Datacenters mentions in Popular cryptocurrencies: Which is the most environmentally friendly? that:
“Digital assets such as Bitcoin have a considerable environmental footprint, due to the amount of energy required to power the algorithms behind them. While this could theoretically be done using renewable energy, in reality it usually isn’t. China is a leading player in mining for Bitcoin, and 60% of the energy it uses to do so is powered by coal.”
This is why, moving forward, Bitcoin will have a positive future if its developers focus on more eco-friendly goals.
But, why does Bitcoin require so much energy?
The proof-of-work system was created to allow people to verify Bitcoin transactions through a process called “mining”. In this process, miners utilize their computing power to solve mathematical puzzles. Each puzzle takes 10 minutes to solve—no matter the difficulty.
With this, when more people join the network and use their computing power to verify Bitcoin transactions, the difficulty of each puzzle will increase, thus requiring more power and energy.
This cycle explains the brutal truth of why Bitcoin is so harmful to the environment.
On February 9th, 2011, Bitcoin hit a price of $1. At the time of writing this article, Bitcoin is worth around $31,700.
In the status quo, Bitcoin has had tremendous price fluctuations and high volatility. In order for Bitcoin to be the future currency of the world, its price needs to stabilize.
Neil Haran, an angel investor and cryptocurrency proponent, writes in What’s keeping cryptocurrencies from mass adoption? that:
“The need for stability is not unique to cryptocurrency. Any currency needs to be stable in order to be used as a trusted medium of exchange. The more that prices rise and fall, the more ordinary people will shy away from using the coins for everyday transactions.”
Bitcoin has come a long way, but there is still room for improvement:
- Widespread adoption
- Environmental issues
- High volatility
In the near future, we might see the Bitcoin developers improve upon the existing technology, but for now, all we can do is wait for what’s to come in 2021 and beyond.
Thanks for reading! For more on Bitcoin, check out How and Why Does Bitcoin Work. Say “hello” on Twitter.
Bitcoin’s Future Depends on These Three Things… was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.